How to Prepare for and Perform Your Annual Fixed Assets Audit

It doesn’t matter the industry or the size of the company; every organization with fixed assets needs to understand how auditing those fixed assets helps track depreciation more accurately, eliminate fraud, and helps to reduce:

• waste
• theft
• loss
• duplication
• ghost assets

 

When it comes to fixed-asset audits, there are several ways to prepare. Below we list a quick, three-tip guide to help you prepare for your audit and then some steps to perform your audit with less headache.

Don’t miss: The Cost of Lost Assets Toolkit

 

How a Fixed Assets Audit Benefits You

A fixed assets audit’s purpose is to assess whether the information presented in the report reflects the true fixed assets picture for the organization at a given date.

 

Any audit can be stressful, and this one is no different. But understanding how to perform fixed assets audits and committing to routine audits helps confirm the following:

• Existence of the asset
• Date of asset’s purchase
• Cost of the asset
• Classification of asset
• Location of the asset
• Ensure valid barcode/ID number labeling
• Condition of the asset
• Quantities of the asset
• Access to assets
• Depreciation
• Disposition

 

An asset tracking system means you will save time instead of searching high and low for the asset data you need.

 

3 Tips For Staying Prepared For An Asset Audit

With the fiscal year-end approaching, annual audits are right around the corner. Preparation is key! While preparation for asset audits typically sends shivers down your spine, it doesn’t have to this year.

 

Use the three tips listed below to stay prepared and make your audit less awful:

1.   PLAN AHEAD

First, you need to plan ahead. An easy way to get started is to consider creating a proactive internal audit plan. Devote time to the small things, such as proper documentation throughout the year, to help to reduce the time and stress involved in last-minute asset audit preparation.

 

When you document asset purchases as they happen, you not only make your auditor happy but will save time at the end of the year trying to hunt everything down.

2.   PERFORM A RANDOM SAMPLE INVENTORY

While it may seem like there is no time to perform a random sample inventory, if you follow tip one, planning, you should have plenty of time to conduct an inventory through a random sample. In this type of inventory, a small, random subset of assets needs to be inventoried and then identified by a statistically valid sample. This means it needs to represent all of the items in your inventory.

 

After a physical inventory has been completed, we encourage you to review your organization’s current policies and procedures regarding asset tracking. Realistically, the inventory likely revealed some gaps in your process.

 

This opens up an excellent opportunity to clarify or adjust current processes to ensure all policies and procedures are being followed appropriately.

3.   CLEAN UP YOUR DATA

The key to a successful audit is clean and accurate data. One way to ensure your data is clean is to invest in automated asset management software. Benefits your business can reap from this investment include time and money savings, along with clean and accurate data you can depend on for your audit.

 

The right automated asset management software should allow you to have all your asset information in one centralized location at your fingertips.

 

It’s a great tool to have for your annual audit because it eliminates the process of digging through old emails and documents to find information the auditor may need. An automated asset management system can also help keep asset information organized throughout its lifecycle and eliminate human error.

 

How to Perform a Fixed Assets Audit

Auditing fixed assets is essential. This is because auditing is needed to ensure that capital assets and depreciation complies with your organization’s objectives.

 

Below are some basic guidelines on how to audit fixed assets and what you need to know beforehand.

 

UNDERSTANDING CORE TERMINOLOGY

Before you begin to audit fixed assets, you first need to be aware of the terminology and what it means.

 

CAPITAL ASSETS

Capital assets can be defined as equipment, property, furniture, fixtures and leasehold improvements that a company can acquire during the normal course of business. These assets usually have a useful life for at least one year. An example of a capital asset is computer software used for internal use.

 

REPAIRS AND MAINTENANCE

Repairs and maintenance are expenditures made to physically maintain a usable asset without extending its life and/or increasing its capacity.

 

INSTALLATION COSTS

You can define installation costs as expenditures made to third parties to place an asset in service.

 

FREIGHT

Freight is any expenditure to transport an asset to the asset’s resident location.

 

SALES TAX

Sales tax is any state or local tax applied to the purchase of an acquired asset.

CREATING POLICIES FOR VALUABLE ASSETS

Once you are more familiar with the terms associated with auditing fixed assets, you can move on to identifying valuable assets and creating a policy reflecting the set cash threshold.

 

When auditing all items other than software, a policy should be created that states that a single item of tangible property, with a gross (including sales tax, freight and installation) cost of a specified dollar amount or more, will be capitalized.

 

Update: Capital Planning not Limited to Big Corporations Anymore

When auditing all software, a policy should be created that a single package with a gross cost of a specified dollar amount (or local currency equivalent) or more will be capitalized.

 

Items that do not meet the necessary requirements for capitalization should be expensed through one of your business’s major GL accounts. After this is done, a depreciation schedule should be created for your fixed assets.

 

Once created, a retirement and disposal policy should also be created. When an asset is determined to have been sold or disposed of, the asset’s cost and accumulated depreciation should be removed from the general ledger and the sub ledger.

 

For an asset to be properly retired, an asset disposal form must be filled out. This form needs to be submitted to the general ledger by a business unit controller before any disposition. Notably, all asset disposition needs to be approved by department controllers responsible for assets before disposition.

 

An audit is inherently not fun. But a cloud asset management and tracking platform makes this process a whole lot easier because it ensures real-time accuracy from a single, centralized location.

 

Anytime Assets makes fixed assets audits run smoothly. By simplifying a complex process into a seamless step-by-step roadmap, Anytime Assets helps you perform audits faster with the real-time data you need to fix problems and run your business more cost-effectively.

 

If you’re preparing for a fixed assets audit but are finding yourself not-so-prepared, contact one of our audit specialists to lend a hand.