Audit and Accounting approaches of Fixed Assets

Audit and Accounting approaches of Fixed Assets

Audit & Accounting Checklist of Fixed Assets

Audit of Fixed Assets broadly divided into 6 approaches

Completeness

1. Obtain Fixed Asset Register from the company (whether maintained manually or electronically) and match the same with the closing Balance of Fixed Assets appearing in books of accounts and observe whether there is any variance or not.
2  check whether the previous year closing balance of fixed asset in the FA register is matched with an opening balance of the current year (This is to be done in both i.e in Accounts and in FA Register)
3. Check Whether the addition and deletion in FA register is the same with the addition and deletion in books of Accounts
4. Addition/ Deletion in Particular head of asset as per Fixed Assets register should be matched with the same head of asset in books of Accounts

Existence

1. For the New Addition of FA, examine the purchase order of the FA and the actual bill of FA and find out whether there is any variance. 
2. Check the cost of FA acquired by the company from other vendors in the market which are dealing in the same category/type of FA. 
3. For any Deletion/Sale, Check whether the sales, deletion, or written off are accomplished according to the order given by top management and recorded correctly. 
4. Check whether the sale proceeds are received by the company or not. This can be check from the bank statement of the company. 
5. Obtained profit/loss calculation sheet from the company in respect of the sale of assets and verify the arithmetical calculation, depreciation charged till date of sale, and match with the actual profit/loss recorded in the books of accounts. 

Accuracy

1. Check the rate of depreciation charged by the company on its fixed assets. Whether the rate charged by the company is as per the useful life prescribed by the Companies Act Schedule II or not? 
2. Select some random FA on the basis of materiality i.e. 5-10% of the total value of FA and Check the arithmetical calculation of the depreciation charged by the company so that to reach the closing balance. 
3. Where, during the financial year, an addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro-rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed. 

Valuation

1. Examining the correctness of capital and revenue expenses. The Expenses incurred until the asset is put to use are treated as a Capital Expense incurred by the company and the same is to be capitalized in the cost of FA. 

Obligation

1. Check whether the company is having proper title deed with respect to every asset held by the company.
2. Check whether the assets held by the company are Fully insured or not?  Obtain and Check the insurance documents against fire, theft, burglary as applicable and also confirmed that the insurance coverage taken by the company is valid
3. If the asset is a mortgage to any lender, check whether the charge is created or not and proper disclosure has been made or not. 

Presentation

1. If the company holds any lease Assets, the same is to be separately disclosed in the respective category of such assets.
2. Classification shall be given as:
(a) Land;
(b) Buildings;
(c) Plant and Equipment;
(d) Furniture and Fixtures;
(e) Vehicles;
(f) Office equipment;
(g) Others (specify nature).
3. The following information shall also be disclosed in the accounts, namely:—
(i) depreciation methods used; and
(ii) the useful lives of the assets for computing depreciation, if they are different
from the life specified in the Schedule.
4. A reconciliation of the gross and net carrying amounts of each class of
assets at the beginning and end of the reporting period showing additions, disposals,
acquisitions and other adjustments and the related
depreciation and impairment losses/reversals shall be disclosed separately.


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