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Dear Kim,
The answer to the undermentioned question is “C” (extracted from the StudyHub Quiz section), but I am not convinced it should be “C”, because ‘occurrence’ is not an assertion for PPE (an account balance).
My suggested answer is “B”, existence.
The basis for my opinion is:
There is a similar procedure in the Kaplan text in which the testing goes in the same direction – from the sample of additions to the invoices.
Also, when I used the cancellation method to choose the most appropriate answer, rights and completeness are totally wrong, which brings the options down to only occurrence and existence, of which occurrence cannot be the answer, as we are testing an account balance.Please explain why the StudyHub says it’s occurrence.
The QUESTION EXTRACT:
An audit program for plant and equipment includes the following procedure
“For a sample of additions recorded in the non-current asset register agree the details (e.g. description, amount and date) to the purchase invoice.”
Which of the following assertions is tested by this procedure?
A.Completeness
B.Existence
C.Occurrence
D.RightsIt is a common query – the thing to remember is that ADDITIONS are purchases – which are transactions (see Ch12 in the Study Hub s.9.2 starts “Internal controls and tests of controls include those for the purchase cycle …”)
It cannot be existence because that is an assertion for balances “at the reporting date”. (Or “period end” if looking at our summary in Chapter 16 of our notes https://opentuition.com/acca/aa
Thanks for the response, Kim;
Q1:
But if the trick was around the word “additions”, why does the sample come from the “NCA register” (as stated in the question)?
Are we not testing for the purchases that relates to the PPE?Q2:
Also, Kim, how would this be different if we’re selecting a sample from the detailed purchase listing and agree the details (e.g. description, amount and date) to the purchase invoice?Q3:
And please, please, explain the procedure so I can understand it better, because there is a procedure under NCA-PPE in the Kaplan text which also has the word “additions” but the assertion is “existence”—which means eventhough the word “additions” is present doesn’t necessarily mean the procedure relates to transactions and events.This is the procedure from the Kaplan text (Page 381; Chpt 10; 2025-26) which also starts with sampling additions but tests the existence assertion:
“Select a sample from the list of additions and review the description on the invoice to confirm that they relate to asset expenditure items rather than repairs and maintenance: existence”
P.S.: sorry I don’t get it yet
Q1:
“Are we not testing for the purchases that relates to the PPE?” Short answer – YES!
It’s not a “trick” – additions are transactions. Selecting from the NCA register is also testing the assertion “classification” – i.e. it has been recorded as asset expenditure, so let’s look at the purchase invoice and makes sure it isn’t expense – like a repair.Q2:”How would this be different if we’re selecting a sample from the detailed purchase listing and agree the details (e.g. description, amount and date) to the purchase invoice? ”
It wouldn’t be any different in the sense that what you are testing is the occurrence of the transaction – only because a sample from the detailed listing would include all credit purchases – so for goods and services as well as asset expenditure.
Q3: And please, please, ….
What can I say? asset v expense is classification – it has nothing to do with existence. Just because you bought it during the year doesn’t mean it exists at the reporting date, because you could have sold it – or destroyed it (!)
I don’t have Kaplan books – but here is a point from an AA answer – my comment in [ … ]:
“For a sample of additions recorded in P&E [i.e. asset register] physically verify [i.e. inspect] them on the factory floor to confirm existence.”
It is physical inspection that is conclusive evidence for existence of any asset.
I do understand it now. 🙂
Thanks so much for taking your time to respond.That procedure which Kaplan says tests existence kind of confused me; but thanks for the clarification.
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