Why Is the Audit of PPE Important?

PPE transactions may not occur frequently, but each transaction can involve a large amount of money. For example, a company may purchase only one new machine during the year, but the machine could cost RM500,000.

Auditors must pay close attention to PPE because:

• PPE often represents a significant portion of a company's total assets.
• The purchase or disposal of PPE may materially affect profit.
• Depreciation must be calculated correctly.
• Assets may be recorded even though they do not physically exist.
• Old or damaged assets may remain in the accounting records.
• Repair expenses may be incorrectly capitalised as assets.
• Assets may be sold but not removed from the PPE register.

A key concern is that PPE is more likely to be overstated than understated.