Property, Plant, and Equipment: Internal Control

Internal control over property, plant, and equipment is designed to safeguard the assets and provide accurate accounting records for management control, depreciation and salvage value calculations, and to make correct entries for retirements and disposals. The following guidelines will be helpful in establishing this control:

There is an effective system of authorization and approval with respect to capital expenditures.

Capitalization and depreciation policies are defined in writing. There are detailed records of individual asset items which are balanced periodically with general ledger control accounts.

There are effective procedures regarding the authorization and accounting for disposals. Donated property and equipment is reported at its fair market value on the date of donation.

The administrator may wish to attach an identifying tag to each piece of departmental equipment to track the equipment locations.

http://www.oshpd.ca.gov/HID/Products/LTC/Manual/apndxd.pdf

Property, Plant, and Equipment: IC Questionnaire 1. Are administrative authorizations and approvals required to originate an expenditure which will be chargeable to fixed assets and in this respect are policies adequate regarding minimum amounts capitalized, minimum amounts requiring approval at various levels, distinction between repairs, replacements, renewals, betterments, treatment of freight and other collateral costs, etc.? 2. Are work orders established to assist in the proper accounting for items to be capitalized? 3. Are supplemental authorizations required for excess expenditures? 4. Are there detailed plant records showing the asset values for the individual items of plant and equipment and dates placed in service? 5. Are the detailed records integrated with the financial accounting system? 6. Is the accuracy of these records independently checked by periodic, physical inspection? 7. Are records kept of equipment on hand but not carried in the general books, such as fully depreciated equipment still in use, obsolete equipment and idle equipment? 8. Is written authority required for fixed asset dispositions? 9. Does the accounting department receive copies of such authorizations? 10. Is the estimated salvage value shown on all retirement orders and followed up for subsequent cash receipts? 11. Are periodic reports submitted showing obsolete equipment, equipment needing repairs, or equipment not in service for any other reason? 12. Are procedures in effect to prevent depreciation of fully depreciated assets? 13. Is gain or loss computed on all fixed asset dispositions? http://www.oshpd.ca.gov/HID/Products/LTC/Manual/apndxd.pdf

Related standards for PPE PAS 16- Property, Plant and Equipment: Valuation of PPE, depreciation methods PAS 23 Borrowing Costs: Capitalization would increase PPE PAS 36 Impairment of Assets: Can reduce the amount of asset if there is indication of impairment PAS 40- Investment Property: Differentiation of PPE and investment property IFRIC 17 Distribution of Non-cash assets to Owners

Intangible Asset: Inventories The primary purpose of control of inventory is to physically safeguard the assets. This can effectively be done by the following procedures: Centralized, orderly storage with limited and controlled access to supplies. Assignment of responsible persons to receive, store, issue and control inventory. Periodic physical counts of the inventory; at least annually, by persons other than the storekeepers. Use of a planned and orderly system for purchase and issue of supplies designed to control optimum quantities of supplies on hand. Periodic review of inventory records and other data to determine if quantities on hand are excessive or if any supplies are obsolete or slow-moving.

http://www.oshpd.ca.gov/HID/Products/LTC/Manual/apndxd.pdf

Inventories: IC questionnaire 1. Are inventories stored in a systematic manner? 2. Are they under the direct control of persons who are held responsible for quantities on hand? 3. Are there controls over access to storage areas for persons without such responsibility? 4. Is there a planned system for purchase and issue of supplies? 5. Is there a regular review of inventory records and other data to determine quantities on hand which are slow-moving, excessive or obsolete? http://www.oshpd.ca.gov/HID/Products/LTC/Manual/apndxd.pdf a. Is the person responsible for inventory someone other than the bookkeeper? b. Are periodic physical inventories taken? c. Is there physical control over inventory stock? d. Are perpetual inventory records maintained? e. Are reorder points established for key stock items? f. Are inventories maintained at a level as to avoid consistent stock-outs, or spoilage/obsolescence? g. Are stock item activity reports maintained for each stock item? h. Has an acceptable inventory valuation method been adopted? i. Are all inventory transactions evidenced by the proper supporting documentation, i.e., purchase orders, requisitions, adjustment memos, physical counts, etc.? j. Are stock items monitored for obsolete/slow moving items? Are obsolete items removed from inventory and written off and an attempt made to sell for scrap?

http://www.azdhs.gov/bhs/audit_ex1.pdf

Inventories: Related Standards PAS 2 Inventories Inventory valuation PAS10 Events after reporting period In case of receipt of purchases, this might affect inventory value depending on the terms of shipment PAS 36 Impairment of Asset Recognition of Asset impairment in a cash generating unit for inventories PAS41 Agriculture Agricultural produce may form part of the inventory PFRS6 Exploration for and Evaluation of Mineral Resources Minerals may form part of inventory

Intangible Asset: Internal Control Safeguarding of intangible assets Ensure compliance with laws, regulations, contracts, management policies and procedures relating to intangible assets including copyrights, trademarks, patents and designs operating standards have been established by the management for measuring efficiency and effectiveness established operating standards are understood and being met by the concerned employees deviations from operating standards are identified, analyzed and communicated to those responsible for corrective action corrective action is taken on a timely basis

http://220.227.161.86/20917frpubcd_iasb3.pdf

Intangible Asset: IC Questionnaire 1. Are proposals invited from various departments well-in time? 2. Are proposals received in a properly laid down format which provides for complete details about the financial, commercial and technical aspects? 3. Are the proposals scrutinized by a committee consisting of qualified personnel and then a composite budget put up to the top management or governing body for approval? 4. Is the approved budget communicated in writing to various departments including the purchase department and the accounts department? 5. Does the procedure provide for invitation of competitive bids? If not, evaluate the validity of the reasons therefore? 6. Is a list of approved vendors maintained for the purpose of inviting competitive bids? 7. Is the evaluation of bids carried out by a committee which has appropriate representation of user department and finance department apart from the department responsible for making the purchases? 8. Is there sufficient consultation with the user groups before the technical specifications of software proposed to be developed are finalized? 9. Apart from the user groups, are views and suggestions also sought from internal and external auditors as to audit trail and controls needed in the proposed software? 10. Are the programs test-run and the test-run reports reviewed by the systems analyst before the programs are put into actual operation? 11. Is there adequate documentation of new computer programs? 12. Is the expenditure on research phase recognized as expense when it is incurred? 13. Does the cost of internally generated computer software comprise only the expenditure incurred from the time when the asset first meets criteria listed above and that can be directly attributed or allocated on a reasonable and consistent basis, to creating, producing and making the software ready for its intended use? 14. if the entity cannot distinguish the research phase from the development phase, does it treat expenditure on that project as expense in the period of incurrence? 15. Does the amortization period(s) of computer software appear reasonable on a consideration of various factors affecting its useful life? 16. Is a computer software derecognized (eliminated from the balance sheet) on disposal or when no future economic benefits are expected from its use and subsequent disposal? 17. Are software access rights of different users well defined and commensurate with the functions performed by them? 18. depending on the criticality or sensitivity of a software application, have sophisticated access control tools like passwords, smart cards, fingerprinting, voice printing, etc. been applied and are these effective? http://220.227.161.86/20917frpubcd_iasb3.pdf

Intangible Asset: Related Standards PAS 38 Intangible Assets Valuation and recognition of unidentifiable asset PAS 36 Impairment of Asset In case of whole unit impairment, goodwill shall be written off first PAS27 Consolidated and Separate Financial Statements Goodwill is not recognized under a consolidated financial statement SIC 32 Intangible Asset Web Site Costs

Investment: Internal Control

Objectives Risks

All purchase or sales transaction are initiated by authorized individuals, conform to investment objectives, policies and regulations and are properly documented and approved.

Unrecorded or unauthorized transactions; transactions at inappropriate prices or at unfavorable terms; payment of fictitious or inflated prices. Unauthorized use of assets for personal gain; loss or theft of assets.

All documents evidencing ownership or other rights are subject to effective custodial accountability procedures and physical safeguards.

All transactions are promptly and accurately recorded in adequate detail records and appropriate reports are issued.

Misappropriation of interest income, proceeds from sales transactions; concealment of unauthorized transactions. Misstating financial statements; concealment of misappropriations.

All transaction are properly accumulated, classified and summarized in the accounts.

Investment: IC Questionnaire
1. Are there approved written policies and procedures that document the investment processing and identify control procedures? 2. Are policies and procedures established to ensure investments are received or appropriately reflected in the custodial accounts? 3. Are investment purchases or sells recorded in the sub-ledger/general ledger on the date traded? 4. Are policies and procedures established to ensure the purchase and sell of investments are properly recorded? 5. Are competitive bids sought for certificate of deposit purchases? 6. Are certificates of deposit and interest coupons sufficiently safeguarded? 7. If applicable, are individuals with access to securities bonded? 8. Are policies and procedures established to ensure investment income received is recorded properly? 9. Does investment income earned get recorded on a timely basis? 10. Are investment earnings credited to the proper fund? 11. Are investments earning calculations and accruals reviewed at year-end? 12. Do specific procedures exist for tracking maturing investments and interest payments? 13. Are investment guidelines including authorized individuals, investment asset allocation, and safekeeping formally approved and reviewed annually? 14. Is the acquisition and disposal of investments authorized by a person with approval authority? 15. Have authority and responsibility been established for investment opportunity evaluation (investment performance review)? 16. Are the following responsibilities performed by different people: a. Cash flow management, investment transactions, safekeeping of the investments, and recording to the general ledger? b. Record-keeping functions for securities and income separate from those having access to physical securities, those authorizing security transactions, and those having duties in the cash area? c. Initiating, evaluating, and approving transactions segregated from those for detail accounting, general ledger and other related functions? d. Monitoring investment market values and performance segregated from that performing investment acquisition? 17. Does a governing body or statute restrict investments by asset type and/or limit amounts? Can officials override these restrictions with proper authorization? 18. Are all securities held or registered in the name of the agency or the State Treasurer, if applicable? 19. Are detail records maintained that include the following information, if applicable, on each evidence of ownership: a. Date of the purchase, identification of the investment, purchase amount or cost, and maturity date? b. Physical location of item, i.e., safekeeping agent, etc.? c. Interest dividend or income rates and accrual or receipt dates? 20. Do procedures exist for reconciling the detail accounting records (custodian fiscal agent statements) with the subledger/general ledger on a monthly basis? Are differences researched and resolved within a timely manner? 21. Is the classification of investments in the sub-ledger/general ledger periodically reviewed? Does this classification agree with the note disclosures? 22. Does a responsible official determine that the income earned is credited to the proper fund? 23. In respect to question 17 above, does a responsible official determine that investments are of the character and type permitted by legal requirements? If restrictions are overridden, are the reasons and authority for the action properly documented? 24. Is the performance of the investment portfolio periodically evaluated quarterly by persons independent of investment portfolio management activities? 25. Are appropriate personnel authorized to release securities from safekeeping agent authorized by the governing body? 26. Are securities or legal documents or agreements evidencing ownership or other rights kept in a vault with limited access, or preferable, protected in a safe deposit box, on deposit with a corporate trustee, or investment broker/custodian? 27. For agencies with an investment portfolio, does a written Ethics Policy, Conflicts of Interest, Delegation of Authority Policy exist and does it apply to all investment employees? 28. Does management require personnel with investment authority to disclose any Conflicts of Interest on an annual basis?

Investment: Related Standards

PAS28 Investment in Associate Measurement, treatment and valuation