Audit and Assurance · The audit of specific items
Audit of Non-current Assets: Procedures for ACCA AA
Updated 11 October 2026 · Fact-checked
Auditing non-current assets means gathering evidence that assets exist, are owned, are correctly valued and depreciated, and are properly presented. For tangible assets, you test additions, disposals, depreciation, ownership and impairment. For intangibles, you focus on whether recognition criteria are met. Always link each procedure to an assertion.
Understand Audit of Non-current Assets
Non-current assets are resources the entity uses for more than one year. They include property, plant and equipment (PPE) under IAS 16 and intangible assets under IAS 38. They are often material, but the number of transactions is usually small. So auditors rely mostly on substantive procedures, not tests of controls.
The key assertions differ from those for current assets. For PPE, the main ones are existence, rights and obligations (ownership), valuation (depreciation, impairment, revaluation) and completeness (for disposals and unrecorded assets). For intangibles, the big risk is overstatement: for example, development costs capitalised when the IAS 38 criteria are not met.
The usual audit starting point is the non-current asset register. You agree its opening balance to last year's audited figures, check its arithmetic, and agree its totals to the general ledger and financial statements. Then you test each movement: additions, disposals, depreciation and impairment.
Two directions of testing matter. To test existence, go from the register to the physical asset. To test completeness, go from the physical asset to the register. Misstatement risk is often management bias: capitalising repairs to boost profit, using long useful lives to cut depreciation, or avoiding impairment to protect asset values.
Evidence is mostly external or inspected: invoices, title deeds, registration documents, contracts and valuer reports. Where management uses a valuer or estimates, you must also assess their competence and the reasonableness of assumptions.
Key rules to remember
- Carrying amount
- Carrying amount = Cost (or revalued amount) − Accumulated depreciation − Accumulated impairment
- Use this to recompute balances and check the register agrees to the financial statements.
- Straight-line depreciation
- Annual depreciation = (Cost − Residual value) ÷ Useful life
- Use for analytical recalculation. Check the policy is applied consistently and the useful life is reasonable.
- Profit or loss on disposal
- Profit/(loss) = Disposal proceeds − Carrying amount at date of disposal
- Recalculate and check the entry in the statement of profit or loss.
- Impairment rule (IAS 36)
- Impairment loss = Carrying amount − Recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use
- An impairment loss arises only when carrying amount exceeds recoverable amount.
- Capital vs revenue test
- Capitalise if it is expected to give future economic benefits and cost is reliably measured; otherwise expense
- Use when testing additions for repairs wrongly capitalised.
How to solve Audit of Non-current Assets questions
Use this method for any non-current asset question, whether it asks for procedures, risks or evidence.
- 1Identify the area asked: additions, disposals, depreciation, ownership, impairment, revaluation or intangibles.
- 2Name the assertion at risk, such as existence, completeness, valuation or rights and obligations.
- 3Write procedures that are specific: say what document you inspect, what you agree to what, or what you recalculate.
- 4Cover both directions: register to asset for existence, asset to register for completeness.
- 5Include estimates: assess useful lives, residual values and impairment indicators, and challenge management's assumptions.
- 6Add disclosure and presentation checks, for example IAS 16 note reconciliations and policy disclosures.
- 7If a scenario is given, tie each procedure to the facts, such as a new factory, a revalued asset or capitalised development costs.
Quickest way: Asset-movement checklist
When to use it: Use when a question asks for audit procedures on PPE and you have about a minute per mark.
- Write: Opening, Additions, Disposals, Depreciation, Impairment, Closing.
- Give one or two procedures per line, each starting with an action verb: agree, inspect, recalculate, review.
- Add one line each for ownership documents and the asset register.
- For intangibles, swap in: recognition criteria, amortisation and impairment review.
- Link each line to the scenario facts before writing the next.
Common mistakes in Audit of Non-current Assets
Writing generic procedures such as 'check the assets' with no detail.
Students recall the topic but not what document or action provides evidence.
Fix: State the document and the comparison, for example 'agree the addition to the supplier invoice and board approval'.
Testing only existence and ignoring completeness.
Students instinctively go from the register to the asset.
Fix: Also select assets on the factory floor and trace them to the register to find unrecorded or unrecorded-disposal items.
Assuming depreciation is just recalculation.
It looks mechanical.
Fix: Also review whether useful lives and residual values are reasonable and consistent with prior years and with asset condition and usage.
Confusing capital and revenue expenditure in additions testing.
Students forget that repairs and maintenance should be expensed.
Fix: Review the repairs expense and additions to see if costs were wrongly capitalised or wrongly expensed.
Treating impairment as a year-end calculation only.
Students forget the need to look for indicators.
Fix: Look for indicators such as damage, obsolescence, falling demand, or assets idle or held for sale. Then review management's recoverable amount calculation.
Missing the intangible assets risk of capitalised development costs.
Students treat intangibles like tangible assets.
Fix: Test whether each IAS 38 criterion is evidenced, including technical feasibility, intention and ability to complete, and probable future benefits.
Worked examples
Example 1
Your client, a manufacturer, bought new machinery during the year for ₹80,00,000, including installation. State the audit procedures you would perform on this addition.
Show the solution
- Assertions at risk: existence, rights and obligations, and valuation (correct cost and capitalisation).
- Existence: physically inspect the machine and agree it to the asset register.
- Ownership and cost: agree the cost to the supplier invoice and contract. Check the invoice is in the client's name.
- Authorisation: agree the purchase to board or capital expenditure approval.
- Valuation: check that installation costs are directly attributable and that no repairs or training costs are capitalised. Check the date the asset was brought into use, so depreciation starts at the right time.
- Check any foreign currency or finance arrangements, and that any lease or loan is correctly recorded.
- Presentation: check the addition appears in the PPE note reconciliation.
Answer: Inspect the machine, agree cost to invoice and contract, confirm authorisation and ownership, test that only directly attributable costs are capitalised, check the depreciation start date, and agree the note disclosure.
Example 2
A machine had a cost of ₹10,00,000 and was depreciated at 20% straight line from purchase. It was sold after exactly 3 years for ₹5,00,000. The client recorded a profit on disposal of ₹1,00,000. Test whether this is correct and state follow-up procedures.
Show the solution
- Annual depreciation = ₹10,00,000 × 20% = ₹2,00,000.
- Accumulated depreciation after 3 years = ₹2,00,000 × 3 = ₹6,00,000.
- Carrying amount = ₹10,00,000 − ₹6,00,000 = ₹4,00,000.
- Profit on disposal = ₹5,00,000 − ₹4,00,000 = ₹1,00,000.
- The client's profit of ₹1,00,000 is correct.
- Follow-up: agree proceeds to the sales invoice and bank statement.
- Check authorisation of the sale and that the asset is removed from the register and ledger.
- Check the buyer is not a related party and that the price is reasonable compared with market values.
- Check the profit is shown in the statement of profit or loss and not in revenue.
Answer: The profit on disposal of ₹1,00,000 is correct (proceeds ₹5,00,000 less carrying amount ₹4,00,000). Follow up by agreeing proceeds to bank, checking authorisation, related-party status and removal from the register.
Exam tips
- Always link a procedure to an assertion. Examiners reward procedures that fit the stated risk.
- In Section A and B objective questions, watch the direction of testing: register to asset tests existence, asset to register tests completeness.
- In Section C, set out answers as short bullet points with a verb and a document. Do not write essays.
- Use scenario facts: a recent acquisition, a revaluation, a idle factory or capitalised development costs each point to a specific risk.
- Remember that objective questions are all or nothing, so read every option for the exact assertion before choosing.
Audit of Non-current Assets in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Audit of Non-current Assets: frequently asked questions
What is the main risk when auditing non-current assets?
The main risks are overstatement of assets and profit. This happens through wrongly capitalised costs, inadequate depreciation, or missed impairment. Unrecorded disposals also cause assets to be overstated.
How do you test the existence of PPE?
Select items from the non-current asset register and physically inspect them. Check that serial numbers and locations agree. This tests existence, but it does not test completeness.
How do you audit depreciation?
Review the depreciation policy against IAS 16 and prior years. Assess useful lives and residual values for reasonableness, and recalculate the charge for a sample of assets. Check that the charge starts and stops on the correct dates.
How do you audit internally generated intangible assets?
Test whether the IAS 38 recognition criteria are met for development costs. Agree costs to timesheets and invoices, review project plans and forecasts, and check amortisation and impairment. Research costs must be expensed.