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Fixed Assets Audit

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Fixed Assets Audit

What are Fixed Assets?

Fixed Assets are defined as the assets held to be used to produce or providing goods or services and are not held for sale in the ordinary course of business which is expected to be held in use for more than one accounting period

Some of the examples are: 
  • Buildings & Furniture 
  • Machinery & Equipment
  • Computer 
  • Vehicles
In simple words, physical verification of above is called Fixed Assets Audit. We at MAG provide best Fixed assets auditing solutions in Delhi and across India.If you are looking for the service of Fixed Assets Audit in Delhi, you can feel free to approach us.

Audit Objective: 

  • To ensure proper records relating to fixed assets are being maintained.
  • To ensure that only capital expenses are being capitalised. 
  • To validate the correctness, accuracy and completeness of depreciation calculated and compliance of Schedule II of Companies Act, 2013. 
  • Compliance of relevant IND AS applicable and of disclosure requirements as per Schedule III of Companies Act,2013

Documents required from the client: 

  • Details of internal policies and guidelines regarding fixed assets and their depreciation.
  • Fixed asset register maintained by the client and the features of fixed assets’s budget. 
  • Copies of supporting documents/ vouchers like purchase requisitions request for quotations, quotations, comparative statements, POs, invoices etc. for the samples selected. 
  • Obtain the list of authorised people who can approve the purchase/disposal of fixed assets at different stages of the purchase or disposal processes. 
  • Physical verification register of the fixed assets maintained by the client. 

Process of Verification:

  • Examine the internal policies of the client and analyse whether they are in line with the statutory requirements or not. 
  • Verify whether the opening balances being reflected in Financials and FAR are same as the closing balances as per last year audited Financials. 
  • Verify the FAR for its completeness, correctness and accuracy and its compliance in accordance with the Companies Act, 2013. (CARO 2016 requirements) 
  • In case the assets are revalued, ensure that the entire class of such fixed assets are revalued. 
  • Ensure revaluation increase/decrease is adjusted against the Revaluation Reserve/Profit & Loss Account. 
  • Conduct the physical verification of fixed assets to ensure the following: 
  • The physical existence of the asset. 
  • Fixed assets are appropriately labelled with the respective asset number for identification. 
  • Ensure that assets are in working condition.
  • Details regarding the number of fixed Assets are adequately captured in FAR. 
  • There prevail proper controls to restrict unauthorised access to fixed assets. 
  • Physical verification of fixed assets is done at regular intervals by the management.
  • Ensure relevant fixed assets auditing procedures  

Acquisitions

  • Ensure compliance with internal policies for acquisitions.
  • Ensure that the actual expenses incurred are within the estimated/expected budgets. 
  • Check the entire process of procurement/purchase of fixed assets for the samples selected with the documentary shreds of evidence available for such purchase. 
  • Compliance of AS 10(Revised), AS 26, AS 16 and AS 12 while accounting the fixed asset in books of accounts.  

Disposals:

  • Compliance of internal policies for the disposal of assets. 
  • In case of any substantial part of a fixed asset is disposed off ensure that it doesn’t affect the going concern concept of the business.
  • Ensure that any profit/loss, if arising from such disposal is correctly calculated and recorded in the books. 
  • Depreciation on such assets disposed off is adjusted. 
  • Fixed assets which are relieved from being used actively and is held for sale shall be recorded/noted at lower of Net Book Value and Net Realisable Value. 

Depreciation / Amortisation:

  • Depreciation is the measure of reduction in value, wearing out and such other losses in the value of the depreciable fised asset arising from the use, wear and tear, effluxion of time or obsolescence through technology or market changes. 
  • Ensure compliance of AS 10(Revised), AS 26 for calculating depreciation.
  • Depreciation for acquisitions is calculated on a pro-rata basis.
  • Ensure the compliance as per Schedule II of Companies Act, 2013 is complied while calculating the depreciation. 
  • In case, there is any deviation from Schedule II requirements, the same has to be disclosed in notes to accounts. 

Disclosure requirements: 

  • Ensuring that the fixed assets are classified under the classifications mentioned in the Schedule III of Companies Act, 2013. 
  • As per Schedule III of Companies Act, 2013, the below-mentioned details are to be disclosed regarding fixed assets in “notes to accounts”:
  • The gross value of each class of fixed assets at the beginning and end of the reporting period. the useful life of the fixed asset; 
  • Accumulated depreciation of such quality till date depreciation charge during the year; 
  • Details of the acquisitions and disposals during the year, if any depreciation relating to such acquisition/disposal separately. 
  • Netblock of each class of the fixed assets at the beginning and end of the reporting period. 
  • Method of depreciation followed for charging depreciation and details of the change in the process if any during the year. 
  • Deviation from the Schedule II of the Companies Act, 2013 has to be disclosed as a part of “notes to accounts”. 
  • In case of the revaluation of the asset, particulars of assets revalued, amount of such revaluation shall be shown for a period of 5 years from the date of revaluation by way of a note in financials. 

Change in accounting policy 

In case, any intangible asset is amortised for a period exceeding 10 years, then the factors helpful in determining the asset’s useful life beyond 10 years have to be disclosed in financial statements.
 
Reach us at info@manishanilgupta.com for any assignments related to Fixed Assets Audit Services in Delhi.

Rahul Garg

Director-Taxation & Compliances

“Don’t Be Intimidated By What You Don’t Know. That Can Be Your Greatest Strength And Ensure That You Do Things Differently From Everyone Else.” .

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Frequently Asked Questions


Fixed Assets Audit is not required under any law. Still, every organisation should get the fixed assets audit done as the fixed assets are the primary resources for any business. Fixed Assets audit is necessary to be carried out once a year to update all the records of the assets properly. If asset records are not correct, it can be harmful to a business because it will affect taxation and overall financial statistics. A fixed assets audit is also done to secure the asset from theft and unauthorised access.
 
Stock Audit is a procedure of physical verification of the inventory held in the storehouse of the entity and matching the result with the stock registers maintained by the company. Conversely, the fixed assets audit procedures are for those assets that are expected to last more than a year, such as land, buildings, machinery, and equipment.

Hence, it can be said that the Fixed Assets audit and Stock audit focus on two different categories of assets of the business. Therefore, you need to conduct a fixed assets audit even if the stock audit has already been performed.
 
No, a fixed assets audit is not mandatorily required under any statute.
 
A fixed assets register is a detailed list of all fixed assets owned by a business. Its primary purpose is to enable an organisation to accurately record and maintain financial and non-financial information pertaining to each asset and easily identify and verify an asset when required.
 
Yes. Using barcode scanners is beneficial for Fixed Assets Audit as barcode asset tracking delivers numerous benefits, including increased asset accuracy, faster asset data collection, reduced errors and simplified record-keeping.

Here are some additional benefits of using barcode scanners that can aid the work of a fixed assets auditor:

* Captures vast amounts of information about each asset

* Increases data integrity

* Increases accountability

* Immediate access to the location of each asset

* Eliminates missed maintenance schedules
 

Fixed assets are assets held for use in producing or providing goods or services and are not intended for sale in the normal course of business.

A fixed asset audit is a process of verifying and validating a company's fixed asset records to ensure that they are accurate, complete, and up-to-date.

A fixed asset audit is important to ensure accuracy of financial statements, verify the existence and condition of assets, and identify any potential fraud or errors.

The documents required for a fixed asset audit typically include asset registers, purchase orders, invoices, and depreciation schedules.

Fixed assets are intended for long-term use and are not easily converted into cash, while current assets are short-term assets that can be readily converted into cash within a year.
Validating the depreciation calculations is important to ensure that the company is correctly allocating the cost of fixed assets over their estimated useful lives. It involves verifying that the depreciation method used is appropriate, the rates or useful lives applied are reasonable, and the calculations are accurate and complete.
Physical verification involves conducting on-site inspections to verify the existence of assets, ensuring that assets are appropriately labeled for identification, and assessing their working condition. It also verifies that the number of fixed assets recorded in the FAR accurately reflects the actual assets present.
If there have been revaluations of fixed assets, the verification process ensures that the entire class of such assets has been revalued. Additionally, any increase or decrease resulting from revaluation is checked to ensure proper adjustment against the Revaluation Reserve or Profit & Loss Account, as per accounting standards and policies.
Depreciation is the accounting measure that recognizes the reduction in value, wear and tear, passage of time, or obsolescence of depreciable fixed assets. It reflects the allocation of an asset's cost over its estimated useful life. The purpose is to match the expense with the revenue generated by using the asset.
According to Schedule III of the Companies Act, 2013, the disclosure requirements for fixed assets include:
  • Gross value at the beginning and end of the reporting period
  • Useful life of the asset
  • Accumulated depreciation till date and depreciation charge during the year
  • Details of acquisitions and disposals during the year, with separate disclosure of depreciation related to such transactions
  • Net block at the beginning and end of the reporting period
  • Method of depreciation and any changes in the process during the year
  • Disclosure of deviations from Schedule II of the Companies Act, 2013
  • Revaluation details for a period of 5 years if applicable
  • Factors determining the useful life of intangible assets beyond 10 years if amortized for such period.

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