Ensuring accurate representation of fixed assets in year-end financial statements is crucial for organizations. While many may confidently believe their fixed assets are accurately reported, audits can reveal discrepancies. Conducting regular inventories of fixed assets and performing reconciliations play a vital role in establishing internal controls for precise financial reporting.
The financial reporting of fixed assets relies on the accurate management, verification, and reporting of these valuable resources. By utilizing specialized fixed asset advisory, a dedicated fixed assets department can ensure the integrity of financial statements, through the proper execution of fixed assets audits and physical verifications.
The Need for Fixed Asset Advisory and Audits
Fixed asset audits are instrumental in verifying the accuracy of reported fixed asset information. Audits provide an opportunity to identify any discrepancies between recorded fixed asset data and the actual assets within an organization.By conducting audits, organizations can establish robust internal controls, ensuring the integrity of fixed asset information and reducing the risk of misstatements.
In addition, fixed asset audits help organizations comply with financial reporting regulations and accounting standards, maintaining transparency and reliability in their financial statements.
How Do Auditors Verify Fixed Assets?
Fixed assets are probably one of the most repetitive areas of accounting. With the wider adoption of SOX, auditors increased the scrutiny of fixed assets, deemed them as a risky area. A typical fixed asset audit approach includes:
- Rollforward analysis and review of the costs and depreciation account balances
- Vouching of current-year purchases
- Review of the net book value of the aggregate investment in fixed assets
- Test and perform reconciliation procedures
- Examine the fixed asset register, which contains detailed information about each asset, including its acquisition cost, useful life, and depreciation method
- Scrutinize invoices, purchase orders, contracts, and other relevant documents to verify the existence and authenticity of fixed asset transactions.
- Physically inspect a sample of fixed assets to ensure their existence, condition, and proper classification.
- Test internal controls and evaluate the effectiveness of internal controls related to fixed asset management
What is the Role of a Fixed Asset department?
A fixed assets department is responsible for managing and accounting for a company’s tangible assets, such as buildings, machinery, equipment, and vehicles. Their key responsibilities include:
- Recording and tracking fixed asset acquisitions, disposals, and transfers.
- Calculating and maintaining accurate depreciation schedules.
- Ensuring compliance with accounting standards and regulatory requirements.
- Conducting regular audits and physical verifications to validate asset existence and condition.
- Collaborating with other departments to facilitate accurate financial reporting.
How to Conduct Fixed Asset Inventories and Audits?
Fixed asset inventories involve systematically reviewing and documenting the existing fixed assets. First, one should create a detailed list of all fixed assets, capturing essential information such as descriptions, serial numbers, locations, and acquisition dates. So then, physically verify the existence and condition of each fixed asset, ensuring alignment with the recorded information.
Addressing discrepancies and residual data (assets)
Investigate and reconcile any discrepancies between the recorded data and the actual assets, updating the fixed asset records accordingly. Performing fixed asset reconciliations aim to align the recorded fixed asset data with supporting documentation and financial records.
Steps to conduct reconciliations include:
- Gather relevant supporting documents, including purchase orders, invoices, and disposal records.
- Compare the recorded fixed asset data with the supporting documentation, ensuring accuracy and completeness.
- Investigate any discrepancies identified during the reconciliation process and take corrective actions to rectify the records.
- Visit department to verify and clean up the fixed asset data until a match or an unrecorded information is determined.
Where to start if you think Fixed Asset Advisory Services can help
Accurate financial reporting of fixed assets is a critical aspect of organizational transparency and compliance. Conducting regular fixed asset audits and reconciliations not only strengthens internal controls but also ensures the integrity of financial statements. By prioritizing these practices, organizations can confidently present reliable and accurate fixed asset information in their year-end financial statements, instilling trust and credibility among stakeholders.
The most appropriate place to start is to reevaluate the organization’s fixed asset accounting and management procedures, that includes acquisition and disposal of fixed assets.
Our Fixed Asset Advisory team has deep experience in managing fixed assets throughout the entire lifecycle, from acquisition to disposal. Each year, we provide fixed asset management services to hundreds of clients in virtually every industry.
Contact us today to learn more.