An audit means the audit firm asks for the documents behind every balance, on a date. Fixed Assets gets you ready. Every asset checked against your register, your bills and your policy for writing its cost off over years, so the books show what you own.
What it checks
- Capitalise or expense. A purchase above the price at which you count something as an asset is on the register, and one below it is not.
- Addition supported. Every asset added in the period has a bill in the Data Room whose amount and date match it.
- Asset still exists. An asset with no activity, location or owner for twelve months raises a question: confirm this asset exists.
- Disposal recorded. An asset you sold or scrapped is taken off the register, with the gain or loss on it recorded.
- Depreciation recomputed. Each asset's depreciation for the period, the share of its cost written off, is worked out again from your policy.
- Register ties to the ledger. The register's totals for cost and depreciation to date equal the balances in your books.
- Useful life within policy. No asset is written off over more or fewer years than your policy sets for its class.
A finding, in its own words
Bill 5521 from Brewtech for $6,400.00 on 14 April is posted to Repairs expense. Your policy capitalises equipment above $2,500, that is, records it as an asset and writes it off over years. It is not on the register: $6,400.00 written off as an expense that your policy says to capitalise.
Asset FA-031, a forklift bought in 2023, has had no location, owner or maintenance activity for twelve months. Confirm it still exists and where it is.
What it may ask you
- Above what price does a purchase count as an asset rather than an expense? Unless you say otherwise: 2500.
- How many years do you spread the cost of each kind of asset over? For example 'computers 3, equipment 7'. Unless you say otherwise: computers 3, furniture 7, equipment 7, vehicles 5.
- Do you spread an asset's cost evenly over the years, or front-load it? Unless you say otherwise: evenly (straight line).
- Where do your assets live? For example 'taproom, brewhouse, warehouse'.
- Any big items you lease rather than own? Name them.
What it draws on
- Purchases are capitalised or expensed according to the policy. COSO Control Activities, principle 10; SOX: Capital expenditure classification.
- Assets on the register exist and are supported. COSO Control Activities, principle 10; SOX: Fixed asset existence and disposals.
- Transactions are supported by documents. COSO Information and Communication, principle 13; SOX: Audit trail and supporting evidence.
- Depreciation follows the policy and the register ties to the ledger. COSO Information and Communication, principle 13; SOX: Depreciation accuracy.
- The ledger agrees with its sub-ledgers. COSO Information and Communication, principle 13; SOX: Sub-ledger to general ledger reconciliation.
What it needs
- your asset register, the list of what you own with cost and date bought
- the bills for anything you bought that might be an asset
- your capitalisation and depreciation policy, asked for a question at a time and only when a check needs it
- Connections, optional: QuickBooks or Xero, which keep a register and the ledger balances. A register export and the bills are enough to start.