Control Objective and Test of Controls of Fixed Asserts
During the internal audit process, while auditing the fixed assert or any other process first thing we should know is if there should be control on this process what are the objective of each of those controls.
Working papers are designed on the bases of these controls, actually you can say that working papers are designed to test these controls, therefore to test these controls you should know the objective of these controls
In the article below I am defining control objectives and test of controls of Fixed Asserts
While defining control objective and test of controls of Fixed asserts it is divided in following parts
2. PURCHASING AND MAINTAINING THE CAPITAL ASSETS BUDGET
4. CAPITAL ASSERT TRACKING AND MONITORING
5. RECORDING AND REPORTING
6. DISPOSALS AND RETIREMENTS
|Control Objective||Test Of Control|
|1) Assess adequacy of relevant Fixed Assets Policies and Procedures.||1) Obtain and review all the relevant policies and procedures for the Fixed Asset Management process.
2)Make an assessment of the adequacy of these policies and procedures in addressing the major aspects of control in this area.
|2) Flowchart/Documentation to gain understanding of the processes contained in this function||1) Prepare a flowchart of information regarding procedures, approvals and documents used in the fixed asset management process.|
|3) Ensure that only valid items are capitalised.||2) Scrutinize the fixed assets register for items that should not be capitalized but expensed instead.|
|4) Agreement of information between FAR and Financial system – if two separate systems used.||1) Compare net book value of fixed assets in FAR to that of the Financial system.
PURCHASING AND MAINTAINING THE CAPITAL ASSETS BUDGET
|Control Objective||Test Of Control|
|5) Proper authorization for purchases.||On a sample basis, select 5 capital asset acquisitions
|6) Limit the number of employees authorized to approve capital asset purchases||1) Check how many employees are authorized to approve capital asset purchases.
2) The number should be limited to as few as practicably possible to reduce the opportunities to make unauthorized purchases.
|7) Maintenance of the capital assets budget||1) Inquire whether the capital budgets are compared to actual expenditures on a monthly basis and significant differences analyzed.
2) Because most capital expenditure is anticipated in advance, comparing budget to actual amounts can help detect misuse of funds.
|8.) Segregation of duties.||1) Determine whether the purchasing function is performed independently of the receiving and recording of acquisition functions.
2) Document the division of duties.
|9) Efficient receiving of assets||On a sample basis select 5 capital asset acquisitions and perform the following procedures:
Capital Assert tracking and monitoring
|10) Can company assets be adequately identified for inventory purposes?
11) Establish responsibility for keeping log of inventory numbers
|1) Select, on a random sample basis, 5 capital assets from the Fixed Asset Register for appropriate tracking and monitoring and perform the following tests:
2) Select on the same basis another 5 items from the floor and trace to the Register. (test for completeness)
4) Perform a general review of the Fixed Asset Register.
5) What type of preventative maintenance standards/policies exists for all types of capital assets?
6) What are the policies for requesting, receiving, tracking and recording a transferred asset?
7) Test the selected capital assets from no 1 above for
RECORDING AND REPORTING
|15) Establish whether the company has formal capitalization and depreciation policies.
16) Establish whether the company has standards for depreciable lives and salvage values.
17) Review adequacy of processes relating to movement of assets between regions/divisions
|1) Select 5 capital assets from the fixed assets register on a random basis.
2) Make inquiries of management/relevant staff about the policies governing the distinction between expenditures to be capitalized and those to be charged to repairs and maintenance.
3) How are detailed asset records maintained? What system is used? (automated IS or manual)
4) From the sample selected above determine if each assets record includes:
5) Is the fixed asset register regularly reconciled to the general ledger
6) What is the policy for fully depreciated property?
7) How are leased assets accounted for? Do asset records distinguish between leased and owned assets?
8.) Are asset values based on historical cost or revalued amounts?
9) Review the policies and procedures relating to movement of assets between regions/divisions/departments
10) Assess and report on adequacy of these procedures as well as the adequacy of reporting of these movements and updating the fixed assets register.
11) Determine from inquiries how often capital asset inventories are taken.
12) Document the process of taking inventory.
13) Obtain records of the latest capital assets inventory and perform the following tests:
DISPOSALS AND RETIREMENTS
|18) Determine whether the company has adequate and effective disposal policies and procedures, which will aid in maintaining accurate fixed asset records.||1) Review the policies for disposing of/ retiring capital assets
2) Review the authorization policies for capital asset disposal/ retirements.
3) Review the policies for reporting items that are retired or abandoned. Make a note of how applicable gains/losses are recognized.
4) On a sample basis, select 5 retired capital assets from the fixed assets records and perform the following tests:
5) Ensure that only a specific employee/employees have access to the asset records for performing the asset retirement function.
|19) Test adequacy of depreciation provision.||1) Download file containing monthly depreciation run to excel (dependant on practicality)
2) Sort the spreadsheet by
3) Sort the spreadsheet by:
|20) Test applicability of depreciation rates used||1) Compare depreciation rates per policy and procedure manual of VSE to that of the Vodacom Group.
2) Sort spreadsheet above by:
3) Review Fixed Assets policy documents and notes depreciation rates specified per asset category.
4) On a sample basis, assess whether correct depreciation rates have been used to calculate the depreciation provision.