Fabrication Holdings Inc. (FH) has been a client of KFP LLP for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year-end June 30, 2022. During March 2022, you are completing the risk assessment for PPE, which is one of FH’s most material accounts. You are also aware that FH has made a large investment in a new manufacturing process to place itself in a more competitive position. Your analytical procedures indicate an increase in acquisitions of PPE.
a. What is the key assertion at risk for the PPE additions? Why is it at risk? Explain.
b. Identify the relevant substantive tests of details that would be appropriate to address the assertion at risk identified in (a) above.
c. How would your answers to the previous questions change if the PPE additions had been manufactured in-house by FH’s engineers and toolmakers, rather than purchased?
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