Auditing Property, Plant, and Equipment (PPE) is a critical aspect of the financial auditing process, especially in Malaysia, where companies must comply with the Malaysian Financial Reporting Standards (MFRS) and the Companies Act 2016. The aim of the audit is to ensure that Property, Plant, and Equipment (PPE), which frequently constitutes a large part of a company’s total assets, is accurately recorded, valued, and presented in the financial statements.  Auditors must confirm that all material aspects are presented in accordance with MFRS 116, which governs the recognition, measurement, and disclosure of property, plant, and equipment in Malaysia. Reach out to our audit professionals from audit firm in Kota Kinabalu today for tailored advice on ensuring compliance with Malaysian accounting (Also see 10 Tips for Picking the Ideal Accountant) standards.

One key consideration in the audit of PPE is the verification of ownership. Auditors (Also see What LHDN Audit Procedures a Business May Experience?) must review supporting documents such as title deeds, lease agreements, and purchase contracts to ensure that the entity owns or controls the assets recorded. The existence of the assets must also be verified through physical inspection. This step is essential to prevent the inclusion of fictitious or non-existent assets in the financial statements, which would otherwise mislead stakeholders and contravene the principles of fair presentation under MFRS.

Valuation is another critical area in the audit of PPE. Under MFRS 116, assets must be recorded at cost, including any costs necessary to bring the asset to its intended use, and subsequently measured using either the cost model or the revaluation model. Auditors need to evaluate the appropriateness of management’s chosen model and assess whether impairments have been properly accounted for. In addition, the depreciation of assets must be calculated systematically over their useful lives. Auditors must ensure that the depreciation (Also see Why Do We Calculate Depreciation?) methods and rates applied are reasonable and consistently applied, as any misstatements could significantly impact a company’s reported financial performance and position.

The final step in the audit (Also see Ways to Perform an Effective Human Resource Audit) of PPE involves reviewing disclosures. The Companies Act 2016 and MFRS 116 require specific disclosures regarding the basis of valuation, depreciation methods, useful lives, and the carrying amounts of each class of PPE. Auditors must verify that these disclosures are accurate, complete, and sufficient to provide a clear understanding of the entity’s financial position. Failure to provide adequate disclosures could lead to penalties, and damage the entity’s reputation and trustworthiness among investors and regulators.

Overall, the audit of PPE is a rigorous process that involves a thorough examination of ownership, valuation, impairment, and disclosure practices. Ensuring compliance with Malaysian laws and standards is crucial not only for accurate financial reporting but also for maintaining stakeholder confidence and meeting regulatory requirements.