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In audit risk, number of assets which aren’t fully depreciated are identified as obsolete..
Can you please explain how this is an audit risk.
When they say not fully depreciated so they mean the company doesn’t charge depreciation at all ?Say an asset costs $100,000 is expected to last for 10 years and is depreciated on a straight-line basis. It would be “fully depreciated” – i.e. have a carrying amount of $nil after 10 years.
Suppose after 8 years – when it will have a carrying amount of $20,000 (i.e. it is NOT fully depreciated) – it is identified as obsolete. The carrying amount is overstated by $20,000 – this is the audit risk.
Suppose, in another scenario, the same asset is actually still in use in the business after 10 years – there would be a different audit risk if it was still being depreciated (because it cannot be depreciated further).
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