Audit Procedures for Fixed Assets

Businesses may choose to audit selected asset accounts to ensure the integrity and compliance of their financial statements based on generally accepted accounting principles. Fixed assets are major asset-account elements and often the main target in an asset Audit Procedures for Fixed Assets. Audit procedures for fixed assets follow several related steps to ensure that the reported fixed-asset balance is free of material accounting errors. Auditing fixed assets helps uncover invalid asset transactions, noncompliant asset valuation and incorrect asset classification.

Account Balance Accuracy

The account balance of fixed assets in a financial statement is the accumulated value from past asset additions and deletions up to a given point in time. The auditor must first establish that the reported fixed-asset balance agrees with related account records in the general ledger. The auditor verifies the accuracy of the account balance for fixed assets by obtaining a detailed schedule on asset purchases and dispositions in the current period, including beginning balances. Individual asset accounts are compared to their respective account records in the general ledger for agreement in account balances.

Account Transaction Validation

Matching account balances don't preclude potential accounting irregularities or even fraud from showing in the financial statements. Fixed-asset auditing helps ensure that assets listed in a financial statement are from valid transactions, have been received and actually exist in service. To test validity, the auditor vouches recorded fixed-asset transactions to supporting documents such as vendors' invoices. If an asset purchase is properly authorized, the account transaction is valid. To further verify the existence of a recorded fixed asset, the auditor may physically examine the asset at the place where it supposedly has been placed in service.

Asset Valuation Test

Proper asset valuation ultimately determines the correctness of the account balance for fixed assets. Capital assets are valued at their historical acquisition cost plus any additional money spent on asset improvement. The auditor tests the proper asset valuation of the recorded fixed-asset cost by examining vendors' invoices and other purchase supporting documents, the source information on correct asset valuation audit report on fixed assets bangalore. The auditor may further address the asset valuation issue by assessing the appropriateness of the asset depreciation, which reduces the carrying value of the fixed assets. In recognizing any depreciation expense, the auditor considers the reasonableness of an asset's estimated economic life, the depreciation method used and any expected salvage value.

Asset Classification Test

The asset classification test helps ensure that the recorded fixed assets are correctly classified as capital assets, and certain expenses that should be capitalized are also recorded as part of the fixed assets. For example, while the costs of repair and maintenance normally are treated as expenses, significant amounts of money spent on asset improvement may be capitalized as an addition to the asset's value. The auditor may examine selected repair and maintenance work to vouch it to supporting transaction documents to determine whether it would be appropriate to capitalize the repair costs.

Other Auditing Tasks

Audit procedures for fixed assets also cover issues of asset ownership proof and reporting-cutoff-time test. To prevent potential accounting manipulation from compromising financial statement reliability, the auditor may decide to verify the ownership of the recorded fixed assets by examining and confirming property deeds or title documents as proof of ownership. The cutoff-time test involves examining a sample of vendor invoices from a few days before and after the end of a period audit controls for fixed assets bangalore. The auditor determines whether the fixed-asset transactions are reported in the proper period.

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