Audit technique in disposal of PPE
There may be the situation the company disposal its PPE to a related company and then onward sell to a third party. The disposal will be at a profit. Then the company purchase similar PPE from that third party.
The outcome of this transaction will be gain on disposal and assets value increased.
If we as auditor do not trace it further, we would not discover this type of transaction.
The audit issue is whether the price of assets represent fair value at initial recognition. We need to measure it. Also, consider disclosure of such kind of transaction in financial statements for understandability of the transaction and related party disposal.