Demarcation of capital expenditure and revenue expenditure is an important function of an accountant because such expenses directly affect the income statement and balance sheet. Thus, an auditor should check whether correct demarcation is made or not.
Following are the duties of an auditor regarding capital and revenue expenditure:
1. An auditor should ask with concerned officer regarding doubtful items.
2. An auditor should understand the nature of work and procedures of an organization. S/he should know the rules and regulations of the business so that s/he can easily identify the expenditure as revenue and capital expenditure.
3. An auditor should check whether demarcation made as per the generally accepted principles of accounting or not. For, painting in existing building is revenue expenditure and new building is capital expenditure.
4. An auditor should consider the situation of making payment because situation also make same expenditure as capital expenditure and sometimes revenue expenditure.