Understand the work through ( Kaise kara jata hai) properly- It means understanding the process or activities.

For example:

Work throuh for purchase:

purchase requisition raised by department ⇒PR assignment to admin department for procurement ⇒ Quotation to different vendors by admin dept ⇒ Accepting the lowest bid vendor ⇒ Issue of purchase order ⇒ Assets delivered and invoice raised  ⇒ paid and recorded in books of accounts

1. There is always a risk of overstatement of fixed assets rather than the risk of an understatement. Check that first.

2. There might be some assets that are in the fixed assets register but they don’t exist. Do physical verification.

3. There might be some assets that are in the fixed assets register which they don’t own. Check that.

4. Date of capitalization of fixed assets can be wrong. It should be the date of purchase. Check it.

6. Impairment testing- Ask the company for its impairment testing report, if any. Go through it thoroughly.

Now check assertions

1. Existence

a. Ask for a physical verification report from the management and you can test check some material items.

b. Check for any discrepancies ( shortage and excess if any ) and its adjustment in books of accounts.

2. Ownership– The ownership title of the asset should be in the name of the company.

3. Rights & obligation– check entity have all the rights related to assets ( title deed) & for obligation check if there is any obligation like decommissioning, restoration & rehabilitation obligation.

4. Completion– Every asset purchased has been properly accounted for. Ensure there is no Omission. Recalculate depreciation.

5. Presentation & disclosure– As per relevant AS or Ind AS & schedule III in case of company.

Practical Approach followed by Big Organizations for Audit of 'Fixed Assets'

Process of audit

1. After receiving books of accounts ( financials, fixed assets register & schedules & trial balance)

Check opening balance, gross block, accumulated depreciation, depreciation for the year.

2. Collect lists of fixed assets addition and deletion- check all documents related to addition and deletion. ( invoices, receiving report & title deed).

For disposal- Authorization of disposal, Quotation of invitation, treatment of sale proceeds & treatment of gain or loss.

3. Recalculate depreciation for the year as per provision.

4. Borrowing with regards to qualifying assets has been considered properly.

5. Self-generated assets- Management’s assumptions, scrutinize WIP account (Supporting- Contractor’s bill, work order records, certificate of completion from independent engineers).

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Author Bio

Qualification: Student - CA/CS/CMA
Company: HDFC bank
Location: Cuttack, Orissa, India
Member Since: 16 Jan 2022 | Total Posts: 1

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