Anggelina Ariresta 008201900008

ACC Batch 2019

Computer Based Auditing

 Introduction

Audit : Fixed Asset Verification

Review fixed asset refister and ensure material and large cost amounts in the register
are verified that they exist and in addition invoices checked for item purchased in the
year.

Fixed Assets are categorised as non-current assets as they have useful lives of 12
months and above. There are many types of Fixed Assets, a few of the notable ones
are furniture and fittings, office equipment, motor vehicles, etc.

 Risk
Risk of Material Misstatement: Fixed Assets recorded may not exist at the reporting
date either due to fraud or theft or the entity may not be the rightful owner of the
items shown on the Fixed Assets register

Control Risk : Control Risk includes failure to recognize a Fixed Asset, lack of
safeguard on Fixed Assets, no authorization or approval obtained for the purchase of a
large value asset based on the entity’s policy, etc.

Detection Risk : Basically the risk that the auditor may not be able to detect the
material misstatements in the reported amounts of Fixed Assets

 Assertions
Completeness: All Fixed Asset transactions during the accounting period have been
properly recorded in the financial statements.

Rights and Obligations (Ownership): The entity owns the Fixed Assets and has
rights for them as of the reporting date.

Valuation: The cost of capitalisation and recoverability of the Fixed Assets compared
to their net book values are properly evaluated.

Existence: Fixed Asset reported on the balance sheet actually exists at the reporting
date.

Presentation and Disclosure: The Fixed Asset balance is correctly presented as non-
current assets on the balance sheet and adequate disclosures on accounting policy,
 significant purchases and disposals have been made in the notes to the financial
statements.

 Procedures
Audit Procedures for testing Fixed Assets include Test of Controls and Substantive
Tests.

Test of Control :

Addition and Disposal of Fixed Assets: This to make sure each addition and
disposal is processed, reviewed, authorized, and approved by different persons
(segregation of duties) in the entity following the authorization matrix stated in the
entity’s policy. Higher value items may sometimes require approval by the board of
directors before they can be acquired.

Fixed Assets Tagging: This procedure is to ensure each Fixed Asset is uniquely
tagged so that it can be easily matched to the Fixed Asset register. It allows the entity
to keep track of all its assets especially when there are additions and disposals. It can
also help avoid misappropriation of Fixed Assets for personal gain.

Segregation of Duties: Other than having segregation of duties in terms of purchase

and disposal, it is also vital that the person taking care of the assets being different
from the person purchasing them. This will discourage the employee from
inappropriately purchasing the assets for their own use and reduce the risk of theft.

Impairment Policy: Having this control in place allows the entity to properly identify
assets that need to be impaired on a timely basis. Without this in place could lead to
an overstatement of assets especially when there is a downturn in the entity’s
business.

Before doing the Test of Controls, auditors will first perform a walkthrough to gain an
understanding of how the control is carried out. Samples will then be selected to test
the controls. If no exception is noted, the controls will be deemed effective and
reliable. This can, in turn, reduce the number of substantive audit procedures required.

Substantive Audit Procedures for Fixed Assets:

1) Substantive Analytical Procedures:

Substantive Analytical Procedures include the consideration of whether there are any
major changes in the entity’s operations, e.g. discontinuation of product lines. Such
changes are indications that the Fixed Assets should be classified as assets held for
sale or be retired. If the Fixed Assets need to be retired, we need to determine if they
have been reflected in the level of disposals. Test of details is normally performed for
this purpose.
We could also review insurance coverage if the entity insures its Fixed Assets. A
significant drop in insurance coverage may suggest that some assets have been
disposed of. An uninsured asset could also indicate that the asset has been disposed
of.

2) Test of Details for Fixed Assets:

To test details for Fixed Assets, audit procedures are designed around assertions

Example and description of test of details are given in the table below:

Audit Assertion :

Completeness : Selecting a sample of purchase invoices or contracts and determine

whether it has been properly recognized as Fixed Assets instead of being expensed.

Rights and Obligations : Checking the Fixed Assets recorded in the register to the
land titles.

Valuation : Testing the useful life and depreciation rate allocated to the samples
selected are appropriate and in line with the entity’s accounting policies.

Existence : Selecting a sample of Fixed Assets to perform physical sighting.

Presentation and Disclosure : Reviewing the financial statements prepared by the

entity and identifying if information regarding Fixed Assets have been sufficiently
disclosed.