During audit of PQR Ltd., the auditor observed that the company had incurred several types of expenditure in relation to its new manufacturing…

The auditor should evaluate each expenditure with reference to the recognition and measurement principles for Property, Plant and Equipment (PPE). According to the recognition criteria, the cost of an item of PPE should be recognised as an asset only if: (i) It is probable that future economic benefits will flow to the enterprise; and (ii) The cost of the item can be measured reliably. As per measurement principles, PPE should be measured at cost, which includes: Purchase price,Costs directly attributable to bringing the asset to the location and condition necessary for it to operate as intended by management, andThe initial estimate of dismantling or restoration costs. Therefore, the auditor should ensure that: Costs such as site preparation, installation, testing, and professional fees are capitalised, as they are directly attributable to making the asset ready for use.Costs like staff training and advertising are charged to revenue, since they do not bring the asset to its intended working condition and are not part of the cost of PPE. The auditor's analysis and classification of these expenditures are essential to ensure that the financial statements present a true and fair view of the valuation of Property, Plant and Equipment.