Question

PPE is usually low risk because of the number of transactions involved. Do you (dis)agree with the statement and why?

Answer 1

Statement: PPE is usually low risk because of the number of transactions involved.

As per my understanding, above statement is incorrect as we cannot decide whether PPE has low risk or high risk depending upon the number of transactions involved.

While doing audit of PPE, the auditor needs to obtain understanding of client business, its environment to determine how Good are controls that the client has in place and to consider inherent risks that include fraud risk related to PPE.

As an auditor, I would take some steps to determine the risks related to PPE:

Understanding the Internal controls over PPE and assessing the risk of material misstatements
Designing the test of controls that covers following assertions:

• Existence
• Completeness
• Cut-off procedures
• Rights and obligations of Client towards PPE
• Valuation
• Accuracy and correctness, appropriateness of classification of PPE

3. Performing risk assessment procedures which would include:

• Inquiries of management and other employees of the client
• Analytical procedures such as calculating ratios.
• Inspection of plant facilities

After obtaining understanding of above steps, We would be able to determine whether the PPE of client has low risk or high risk. It doesn't matter how many transactions are involved.

Usually revenue is considered as a high risk component as everybody try to maximize their revenue in the balance sheet.