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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

Which internal audit procedure best verifies that the cost of a newly capitalised building at Himalaya Foods Ltd. is properly stated?

The best procedure is vouching capitalised items to contractor invoices, work certificates and approvals while checking that revenue items are excluded. This directly tests the cost and proper capitalisation of the building, unlike depreciation or unrelated balance checks.

  1. AComparing the depreciation rate with the Companies Act schedule only
  2. BVouching capitalised items to contractor invoices, work certificates and board approvals, and checking that no revenue items are includedCorrect
  3. CCounting the closing inventory of cement at year end
  4. DConfirming the bank balance with the lender

Explanation

Cost is verified by vouching to supporting documents such as invoices, certified bills and approvals, and by ensuring only directly attributable costs are included. Depreciation rate checks relate to charge, not cost, and the other options are unrelated.

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