There are very few people who understand auditing and there is an even fewer number of people who understand the roles and responsibilities of asset auditors.
Therefore, in this blog, we will discover things every auditor should know about fixed assets. So, let us begin!
What Are the Fixed Assets?
Fixed assets are those assets that have an expected life of more than one year. They are also known as capital assets. Moreover, they cannot be converted into cash within a year.
A company utilizes fixed assets in its daily operation and generates income from them. They appear in the balance sheet as machinery, furniture, a vehicle such as company trucks, etc.
And fixed assets are subject to depreciation. Depreciation plays a crucial role in tax saving & finding the accurate worth value of fixed assets that a company owns. Moreover, they are also important during fixed assets audits.
A fixed asset to a company might not be a fixed asset to another company. Here is an example, a truck will be classified as a fixed asset by the delivery company. But the same truck that manufactures it will classify it as an inventory.
Therefore, the nature of the business decides what is a fixed asset for them & what is inventory!
Who Is an Asset Auditor?
An asset auditor is a person who is one of the most important people who conduct a fixed asset audit. He or she finds the exact worth value of assets, this evaluation of assets is also very helpful in calculating the worth value of the organization.
In this procedure, various aspects are considered that we will discuss later! They cross-check all assets with their documents.
Overall, an internal or external asset auditor provides an unbiased and objective view. They directly report to the top management. An effective asset auditor is high-skilled, has analytical and decision-making skills & experienced.
Why Fixed Asset Auditing Is Important?
To avoid fraud or any suspicious activity auditing is done. According to the Small business Chron, “it is estimated that almost one in five instances of small business fraud involve fixed assets, with an average loss of $70,000.”
There are several cases of fraud such as theft, exaggerating asset value, purchasing an asset at a low price, and mentioning in the book at a high price, or selling an asset at a high price and mentioning in accounts at a low price.
When an organization record is clear and transparent, it creates a clear picture for investors in understanding either to invest in the organization or not.
What Are the Aspects Every Auditor Should Know About Fixed Assets?
Here are few aspects every auditor should know about fixed assets:
1. Asset Verification
First of all, assets are need to be verified physically. It is done to ensure that assets exist or not. Then location and asset conditions are checked. Through this asset verification process, auditors will know how many assets you have, where they are located, and when they are purchased.
Auditors also cross-check purchase asset documents with asset condition. To see if conditions and documents are matching or not! The audit will not be complete without the asset physical verification process.
2. Asset Acquisition & Disposal
When an asset is purchased and when it needs to be disposed of all these sorts of activities are the responsibility of the company. However, asset auditors can suggest if the asset is about to expire and help organizations. An asset auditor must know about asset life, as it helps in calculating the current value of assets.
3. Asset Depreciation
Asset depreciation is crucial for the company as well as the auditor because companies mostly have some sort of mistake & errors. Because there are so many factors while calculating depreciation.
We know that asset actual values decrease each year and depreciation is the way an organization spread the asset cost over its useful life. Hence, it is important for organizations and asset auditors to re-assess value.
For which depreciation tracking methods are used such as straight-line method, double declining balance method, units of production method & sum of years digits method.
4. Legal Compliance
An asset auditor should know the legal compliance related to assets. The auditor needs to ensure that the organization adheres to the rules and regulations related to the business.
If there are certain guidelines related to the industry, then auditors need to ensure that the organization complies with it. Otherwise, the organization will have to pay a penalty!
Moreover, the auditor needs to keep track if the violation is done for the first time or not. Hence, it is very important for an organization that they adhere to regulatory compliance.
5. Risk Evaluation
For an asset auditor, cross-checking every financial statement is practically impossible. However, an experienced auditor knows where misstatement can be found.
Other than this an auditor will look at those organizations carefully which have a bad reputation, where the risk is high & internal control members are unreliable.
An asset auditor should not forget to calculate and check inventory as well as they are also very significant in estimating the worth value of the organization. However, the company can easily avoid all these issues with asset management software!
When your organization is equipped with this software you will not have to worry about depreciation calculation as this software keep track of depreciation. As it comes with many depreciation methods inbuilt.
This software keeps your organization adheres to rules and regulations and no rules are violated. Moreover, this software keeps track of assets so all asset locations can be found within minutes so capital asset verification will be a cakewalk.
You can know all the asset-related information such as when asset acquisition is done when it needs to be disposed of. All these above points are very helpful during the audit. It also keeps your company organized. You will never have to worry about your assets. Other than this it will be very beneficial for your business growth.
Frequently Asked Question (FAQs)
1. How fixed assets are different from current assets?
Current assets can be easily converted into cash within a year. Current assets include cash, cash equivalents. Fixed assets depreciate but current assets do not depreciate.
2. Do all fixed assets depreciate each year?
Yes, all fixed assets depreciate until its useful life is finished. However, there is one fixed asset that does not depreciate which is the land.
3. What is the asset audit?
In assets, audit assets are physically verified. An audit is conducted to maintain the accuracy and transparency in a company. An audit can be divided into two categories internal audit and external audit.