Fixed Assets General audit objectives: Amounts on Balance sheet represent: all and only existing assets intended

d for use on a continuing basis in the companys activities the company has good title fixed assets are valued on appropriate bases consistent with prior years Prov. for depreciation is reasonable having regard to the cost/valuation of asset, its expected useful life and residual value Depreciation charge for the year is reasonable costs and related depreciation for all significant retirements & disposals have been properly valued and recorded contracted & authorised capital expenditure are correctly disclosed in the fixed assets are presented in accordance with accounting standards and the relevant Act, where applicable. Why separate fixed assets from other assets: usually fewer current period acquisitions of fixed assets amount of any given acquisition is often material likely to be kept and maintained in the accounting records for several years Matters to consider with regard to controls over fixed assets: Who authorises capital expenditure and how much authorisation is evidenced? How is authorisation of sale, scrapping or transfer of fixed assets done & how is it evidenced? What arrangements are in place for controlling & dealing with receipts from disposals? How are accounting records for fixed assets maintained? How is the distinction between capital and revenue expenditure ensured & observed? What arrangements are in place for keeping fixed assets registers? How frequently are the registers agreed with the relevant accounts and physically verified? What arrangements are there to ensure fixed assets are properly maintained and applied in the service of the company? When assets are transferred between branches/other members of group, what arrangements are there for - valuation/pricing - depreciation - accounting How are depreciation rates authorised and evidenced? Who is responsible for carrying out and checking the necessary calculations? Examples of inherent risk affecting fixed assets: fixed assets could be obsolete due to technological changes fixed assets over/understated due to difficulties in estimating useful lives for calculating depreciation

fixed assets have been re-valued, with subjectivity in valuation fixed assets are idle with uncertainty of future use fixed assets need to be stated at net realisable value due to closure of part of the business fixed assets are moveable or of high value and have a high risk of loss

Controls over fixed assets aim to ensure: all additions and disposals have been authorised all fixed assets are properly recorded all fixed assets are properly safeguarded a sound depreciation policy is operating Controls are expected in following areas: Acquisition, revaluation & impairment of fixed assets Safeguarding fixed assets owned/held by client Disposals of fixed assets Maintenance & insurance of fixed assets Authorisation of depreciation charges & accumulations Main aspects of internal control in the areas: Acquisitions - authorisation (budget) Disposals authorisation; pre-numbered Maintenance/insurance proper accounting & control system; inspection Depreciation policy Criteria to distinguish expenditure (capital & revenue) policy? Safeguarding fixed assets (register), high value items (physical controls) Controls to safeguard assets: - Title documents secured - Regular review of security arrangements - Documentation & authorising of removal - Sales/scrapping authorised - Review of insurance cover requirements Analytical procedures: Compare with previous years: - depreciation expense divided by cost of asset - accumulated depreciation divided by cost of asset - monthly/annual repairs & maintenance, etc. - manufacturing cost divided by a measure of production - cost of asset divided by a measure of production Verifying fixed asset additions: Compare current year additions with prior years Evaluate reasonableness of each addition Check board minutes to confirm approval by directors Review analyses of variances between budget & actual cost for reasonableness Select major items in budget:

trace to acquisitions schedule - trace through purchases cycle Select sample of additions in schedule, test to budget & supporting documents Foot acquisitions schedule & trace to general ledger Check that capital/revenue decision is properly made (check other invoices) Review lease and rental agreements

Verifying fixed asset disposals: Major objectives in verifying disposals: - Disposals are authorised - Existing disposals are recorded - Recorded disposals are properly valued Select a sample of approvals, check for authorisation signature Review whether new assets replace existing assets Analyse disposal gains/miscellaneous income Review fixed asset modifications, property taxes, insurance Enquire on likelihood of fixed asset disposals Examine other sales invoices for disposals Verifying fixed asset balances: Test for mechanical accuracy Examine actual assets on a sample from records Ponder on the valuation or classification of fixed assets not in use non-operating assets? Review terms of loans for fixed assets. Enquire for legally encumbered assets Check disclosure is per GAAP Verifying depreciation: Evaluate effect on depreciation of change in accounting estimate Multiply un-depreciated fixed assets by depreciation rate to assess overall reasonableness Re-compute depreciation for some fixed assets for proper & consistent adherence to policy Foot depreciation expense in subsidiary records & reconcile with general ledger