...AUDIT OF FIXEDASSETS
* Fixedassets, also known as a non-current asset or as property, plant, and equipment , is a term used in accounting for assets and property that cannot easily be converted into cash.
* An unbiased examination and evaluation of the financial statements of an organization. It can be done internally or externally.
* Auditing fixedassets is extremely important to ensure that accounting for capital assets and depreciation is in compliance with management’s objectives.
* Audit of FixedAssets involves checking existence, value, rights and obligations, completeness and disclosures. The following are the audit techniques that can be used for checking the following assertions.
Assertions | Audit Techniques |
Existence | Physical Verification |
Valuation | Inspection |
Rights & Obligations | Inspection & Re-computation |
Completeness | Physical Verification |
Disclosures | As per laws, AS, Statutes |
Common points on Audit of FA
* Obtain a schedule/list/break up.
* Trace the total with Trial Balance.
* Physical Verification.
* Confirmation- Balances, external confirmation.
* Check depreciation & amortization.
* Refer Loan documents if...
An asset is anything, tangible or intangible, of value which a business owns or controls and which can be converted into cash.
Assets can be of two types: current and long-term assets
Current Assets: These make up the first major component of a balance sheet. These assets are composed of items that are either in cash terms already or can be easily converted into cash terms within a year, if, for instance, a company decides to wind up its operations.
Examples of current assets are as follows:
1. Cash and cash equivalents: These are the most liquid assets of all i.e. money that can be used for any purpose the business wants. This category includes things like petty cash floats and business bank account balances.
2. Short term investments: These are assets that a business or company may have when it invests some of its surplus cash in securities or bonds to hopefully earn a higher rate of return than if it is just left in the business doing nothing.
3. Debtors/Accounts Receivable: Accounts Receivable and debtors arise from selling goods or services to customers on credit; at the end of a trading period the amount in the debtors category is what they still owe for the goods or services they have already received. In terms of liquidity they are next in line after cash.
Stock: Any business which sells physical goods will probably...
‘Internalaudit’ is an appraisal activity established by management for the review of accounting and internal control systems as a service to the entity. It reviews, monitors and make recommendations for the improvement of systems.
Other activities include:
Examination of financial information
Review of economy, efficiency and effectiveness (‘value-for-money’ audits)
Review of compliance with external laws and regulations
Review of internal policies
Review of the authorization of transactions
Special investigations, including fraud
Comparison of internal and external audit function:
Advise management on adequacy of systems to protect the organisation
Provide opinion on ‘true and fair view’/present fairly
Not a legal requirement but corporate governance guidance recommends its need to be continually assessed
Legal requirement for most limited companies and public bodies
Determined by management, both operational and financial
Financial focus as determine by legislation
Approach to work
Increasingly risk based
Evaluate and test systems and recommend improvements to management
Increasingly risk based
Testing underlying records and transactions that...
Chapter 2: Professional Standards
Self-regulated: the standards governing audits were established by members of the profession themselves
Sarbanes-Oxley Acct of 2002
Created: Public Company Accounting Oversight Board (PCAOB) to provide external and independent oversight over the audits of public entities
Responsible for registering public accounting firms, establishing standards for audit engagements, and inspecting the quality of audits conducted by public accounting firms
****Generally Accepted Auditing Standards (GAAS)****
AICPA’s Auditing Standards Board introduced Statements of Auditing Procedures (1939-1972)and Statement of Auditing Standards (1972-present): to provide guidance for the conduct of audits
PCAOB issues auditing standards which are subject to approval by the SEC
Taken together, the relevant pronouncements of the AICPA and PCAOB are collectively referred to as the generally accepted auditing standards (GAAS)
1. A pronouncement issued by the AICPA prior to April 2003 that has not been amended or suspended by the PCAOB (Interim Auditing Standards)
2. A pronouncement issued by the PCAOB that has been approved by the SEC (Auditing Standard)
Auditing Procedures: the particular and specialized actions that auditors take to obtain evidence in a specific audit engagement
Auditing Standards: quality guides to the audit that apply...
...INTERNALAUDIT DALAM MENCIPTAKAN NILAI
Adapun upaya-upaya yang dilakukan oleh Auditor Internal dalam meminimalkan risiko, yaitu :
(1) Mengarahkan perusahaan dalam meningkatkan laba usaha, baik rekomendasinya untuk meningkatkan penjualan maupun sarannya untuk menurunkan biaya usaha,
(2) Memberikan analisis, penilaian, petunjuk dan informasi sehubungan dengan kegiatan perusahaan dan
(3) Menilai keefektifan system pengendalianinternal yang dimiliki perusahaan.
Dalam upaya menangani kejadian potensial, baik yang mempresentasikan risiko maupun perjalanan dalam mencapai tujuan, setiap organisasi memerlukan ERM (Enterprice Risk Management), karena ERM mendukung penciptaan nilai dengan memudahkan manajemen untuk menghadapi kejadian potensial yang menciptakan ketidakpastian dan memberikan respon yang tepat untuk mengurangi risiko yang dapat mempengaruhi hasil. Selain itu ERM diharapkan dapat meminimalisir besarnya risiko perusahaan secara sistematis dan efektif dalam menghadapi tuntutan dari berbagai pihak.
ERM (Enterprice Risk Management) digunakan sebagai suatu pendekatan pengelolaan resiko yang terkoordinasi untuk menciptakan nilai bagi para pemangku kepentingan (stakeholders) dengan cara menyerahkan segala sumber daya yang dimiliki secara efektif dan efisien sehingga setiap aktivitas yang dilaksanakan memperoleh manfaat yang dapat meningkatkan nilai bagi pemangku kepentingan yang berupa pengembalian investasi...
D. Document the internal control system more extensively.
9. Which of the following is least likely to be a test of a control?
A. Inquiries of appropriate personnel.
B. Inspection of management’s engagement letter.
C. Observation of the application of a policy.
D. Reperformance of the application of a policy.
10. Which of the following controls may prevent the failure to bill customers for some shipments?
A. Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.
11. If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the
A. Cash receipts journal to the sales journal.
B. Sales journal to the cash receipts journal.
C. Source documents to the accounting records.
D. Accounting records to the source documents.
12. Which of the following is least likely to be considered when assessing inherent risk?
A. Nonroutine transactions.
B. Estimation transactions.
C. Susceptibility to theft.
D. Expected effectiveness of controls.
13. The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to as
...Identifying relevant Malaysian Financial Reporting Standard with Inventory Cycle
Referring to have been stated above, the selected company was a small sized entity and therefore, the processes under its inventory cycle was not complex like those in retailers as well as manufacturers.
Figure 1.1 Inventory cycle with shaded area for activities related to MFRS
Principally, the fundamental issue in accounting for inventories is to define the amount to be recognized asasset as well as amount to be charged as expenses in contrast to associated revenue. Therefore, FRS 102 Inventories provide guidelines in determining the cost of inventories, cost formulas used to assign costs of inventories, the amount recognized as expenses and write down to net realisable value. Inventories comprises those:
Held for sale in the ordinary cost of business;
In the process of production for such sale; or
In the form of materials or supplies to be consumed in the production process or in the rendering of services (Lazar & Choo, 2008).
Inventories also includes goods purchased and held for resale which encompasses buying merchandise by a retailer.
Connecting to the selected business, the existence of the inventory of Waqec Stationary Sdn Bhd, are essentially buying the merchandise and held them for sale in the ordinary cost of business which is under the classification of inventories.
As we can see from the figure 1.1 above, FRS 102 Inventory in this case mainly...
List below assets you already own that you expect to use in your business. This list is important for several reasons:
• To identify the assets that are available for use that do not have to be purchased.
• To develop your business financial statement if you are planning a business expansion rather than a start-up.
• To develop information for the Personal Financial Statement.
• To develop the information you will use to show your contribution
(non-cash) to the business.
• Much of these assets may be depreciated for tax purposes even though you already have them.
However you may choose to use this information, you should use cash value—it’s current market value if the assets were to be sold. It is not appropriate to use the cost if the equipment were purchased new.
List below the fixedasset (equipment) purchases you anticipate for your business. Remember that all purchases do not need to be new items. Start now to find the best bargains. You should check prices for used equipment, demo-equipment, leasing, etc. Remember, the less you spend for start-up, the sooner you can begin to make a profit.
Two words of caution: (1) Remember, you are still in the planning stage and making purchases at this time is risky. This is a research...