Reference no: EM131046794
Audit of Assets. Yarilo Company of Vinnista, Ukraine, owns and operates gas wells which are accounted for in three classifications:
1 Producing - for wells currently producing; there are engineers' estimates of the gas reserves. Each well is depleted on the basis of the gas produced as compared to its total reserve.
2 Suspended - although engineers' estimates indicate that these wells have considerable reserves of gas; they will not be operated until such time as additional production is required.
3 Abandoned - these wells either never produced commercially useful quantities of gas or the gas reserves have been used up.
The properties on which the wells are located are leased from the Russian and Ukraine governments at a specified annual rental, and payments are made until the well is abandoned. In addition, royalty payments are made at a specified rate, based on every 1,000 cubic feet of gas extracted from each well. The wells are recorded on the books at cost (including engineers' fees, materials and equipment purchased, labor, etc.), depleted only while producing, and written off when abandoned.
Required:
What procedures should the auditor follow to substantiate that all wells owned by the company are properly recorded, classified, and valued? What supporting evidence would the auditor examine in this connection? [CICA adapted]
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: What procedures should the auditor follow to substantiate that all wells owned by the company are properly recorded, classified, and valued? What supporting evidence would the auditor examine in this connection? [CICA adapted]
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