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Practical Audit on Tangible Fixed Asset

PRACTICAL AUDIT ON TANGIBLE FIXED ASSETS

Learning Objectives

I.INTRODUCTION

II.TRANSACTIONS AND ACCOUNT BALANCE ASSERTION AND AUDIT PROCEDURE

III. FIXED ASSET REGISTER

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I.INTRODUCTION

Non-current assets are those assets which are held for continuing use in the business and are not intended for resale.

Tangible Non-Current Asset- possesses a physical existence. E.g. land and building, plant, fixtures and fittings.

II.TRANSACTIONS AND ACCOUNT BALANCE ASSERTION AND AUDIT PROCEDURE

In practice, auditing tangible non-current assets requires the auditor to obtain sufficient appropriate evidence over many areas:

Verifies completeness

Select a sample of assets visible at the client’s premises and inspect the asset register to ensure they are included.

Verifies existence

Select a sample of assets from the noncurrent asset register and physically inspect them.

Verifies valuation and allocation

Inspect assets for condition and usage to identify signs of impairment.

Cast the noncurrent asset register totals and subtotals to ensure arithmetical accuracy.

Ensure that sale tax is appropriately capitalised where it is not recoverable.

Rights and obligations

Inspect supplier invoices (for equipment), title deeds (for property), and registration documents (for motor vehicles) to ensure they are in the name of the client.

Verifies Accuracy of Profit on Disposal

Select a sample of disposals and agree sale proceeds to supporting documentation such as sundry sales invoices.

Occurrence

Sample of invoices, contracts, finance leases or other evidence of title to assets.

Accuracy

Recorded appropriately

Classification and understandability

Value of assets held under finance lease is disclosed separately.

 III. FIXED ASSET REGISTER

What is fixed asset register? And fixed asset register may help to control fixed assets.

Fixed asset register is used to keep track of the fixed assets of company. The register shows the value of assets, date of acquisition and other details of fixed assets to compute for depreciation and tax purposes. Fixed assets include land, buildings, machineries and other items used in the business and are not for sale in the ordinary course of operations. Fixed asset register is way for the easy identification of an asset by assigning each asset a unique ID which may be printed on labels in the form of a barcode.

Questions are as follows:

Question 1

ALK Group Co faces problem of managing fixed assets, and non-current assets may lose.

Now shareholders of company requests internal auditors, accountants and admin officers corporate each other to make fixed asset management procedure for their company.

Required:

Make tangible fixed asset management procedure

Question 2

Recently company noted that two computers are not included in list of fixed assets controlled by admin offer. Company suspects that other fixed assets may be excluded in list of fixed assets.

If fixed assets are excluded from list, company will face risk of loss or fraud of fixed assets.

Required:

  1. For verifying completeness of fixed assets, you may require additional information for internal audit of fixed assets, list additional information that you will request from admin officer and related parties.
  2. You are required to make procedures for auditing fixed assets to make sure physical fixed assets are completeness with list of fixed assets.

 Question 3

VBC Company is a big company that has many fixed assets, but they seem different between list of fixed assets and physical fixed assets.

Company assigned list of fixed assets controlled by admin manager.

The following extract of list of fixed assets for internal audit for June 2016 as follows:

Type of Fixed assets Units
Computers 100
LCD 20
Air conditioners 70
Printers 40
Photocopiers 20
Tables 100
Scanners 30

 Required:

  1. For verifying fixed assets existence, you may require additional information for internal audit of fixed assets, list additional information that you will request from admin manager.
  2. You are required to make procedures for auditing fixed assets to make sure physical fixed assets are existence.