Audit Procedures for Fixed Assets

Audit Procedures for Fixed Assets

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. 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...