One of the responsibilities of the directors of a company is to establish strong internal controls to safeguard the assets of the firm.Required:What procedures would you apply to verify the extension of a building that has been constructed by the client during the year?

Verification of building extension
i. Ensure that proper authorisation was granted to build the extension (evidence by minutes of the board meeting) either by the board or a designated official. (Evidenced by his signature).
ii. Ensure that all the costs of the extension has been properly capitalized. This is of special importance where any of the directors or senior executives are enumerated by commission on profits, as the figure upon which commission is calculated will be inflated if revenue expenditure is incorrectly allocated to capital.
iii. Physically inspect the building to verify the physical existence of the extension.
iv. Examine documents of title to the building, to ensure that the building together with the extension rightfully belongs to the client.
v. Ensure that the cost of the extension has been properly determined (i.e. the extension is properly valued). To do this: –

a. Ensure the Company‘s system for allocating costs to the extension is appropriate. Such costs include cost of labour, construction materials etc.
b. Ensure the costs included relate to the project by taking a sample of costs included and tracing back to costings and source documentation.



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