Substantive analytical test of depreciation expense

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Auditing (ACG 4651)

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University of West Florida

Academic year: 2023/2024

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Substantive analytical test of depreciation expense

1999 depreciation expense (per prior year’s working papers) $17, Current year additions: 2, Average useful life of vehicles (based on prior years’ audits ÷ 5 On average, the vehicles were added mid-way into the year ÷ 2

Estimated increase in depreciation expense 250 Expected balance in depreciation expense for this asset category $17,

After developing this expectation, we should compare with the trial balance. If, for example, the trial balance for the depreciation account is $17,272, and account-level materiality is $4,000, then this analytic would provide meaningful evidence regarding the account balance.

Substantive detail test:

Select all acquisitions greater than ISI and a sample of other acquisition. Have client pull the supporting purchase documentation, titles, and other support. Examine the physical asset if RMM is high. This is a transaction test approach.

Contrast this with the account balance approach we used in A/R:

directly from client’s customer.

Substantive analytical test of depreciation expense

1999 depreciation expense (per prior year’s working papers)

$17,000

Current year additions: 2,500

Average useful life of vehicles (based on prior years’ audits ÷ 5

On average, the vehicles were added mid-way into the year ÷ 2

Estimated increase in depreciation expense

250

Expected balance in depreciation expense for this asset category

$17,250

After developing this expectation, we should compare with the trial balance.

If, for example, the trial balance for the depreciation account is $17,272,

and account-level materiality is $4,000, then this analytic would provide

meaningful evidence regarding the account balance.

Substantive analytical test of depreciation expense

Auditing (ACG 4651)

University of West Florida

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