## Audit of Depreciation and Amortisation (D&A)
### Overview
Depreciation and amortisation are accounting estimates — not exact figures. The auditor focuses on whether the policy is appropriate, consistently applied, and correctly computed.
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### Attributes to Verify (7-point checklist)
| # | Attribute | What to Check |
|---|---|---|
| i | Validity | D&A charges are on real assets that exist and are in use |
| ii | Accuracy | Correctly calculated and properly recorded in books |
| iii | Period | Charged to the correct accounting period (not deferred/accelerated) |
| iv | Policy | Consistent policy for charging D&A across all asset classes |
| v | Residual Value | Depreciation = (Cost − Residual Value) ÷ Useful Life — not on full cost |
| vi | Disclosure | Accounting policy consistently applied; any changes are disclosed in notes |
| vii | Appropriate Method | Most appropriate method used (SLM, WDV, Units of Production, etc.) |
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### Audit Procedures
| Step | Procedure |
|---|---|
| 1 | Obtain understanding of the entity's process for charging depreciation |
| 2 | Obtain the Fixed Asset (FA) Register with list of all additions and deletions during the period |
| 3 | Select a sample on materiality basis → verify rates used and recalculate |
| 4 | For intangible assets — verify amortisation on all items (finite life intangibles must be amortised) |
| 5 | Verify depreciation commences when the asset is 'ready to use' — not from the date of actual usage |
| 6 | Change in useful life → treated as a change in accounting estimate → apply prospectively |
| 7 | When useful life changes, verify the revised depreciation rate/charge matches the new life estimate |
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### Key Concepts
Depreciable Amount:
> Depreciable Amount = Cost − Residual Value
When does depreciation start?
> Depreciation begins when the asset is available for use (ready to use), not when it actually starts being used.
Change in Useful Life — Accounting Treatment:
> This is a change in accounting estimate (not a change in policy).
> Treatment: Prospective — adjust depreciation from the current period onwards.
> Do NOT restate prior periods.