Fixed Assets – Risks and Controls

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Fixed Assets – Risks and Controls

Apr 14, 2021

Fixed assets process ensures that all fixed assets are tracked and fixed asset record maintains details of location, quantity, condition, maintenance and depreciation status.

Typical steps of fixed assets process are as follows:

1. Procuring an asset: An asset is most often entered into the accounting system; when the invoice for the asset is entered; into the accounts payable; or purchasing module of the system.

2. Registering or adding an asset: Most of the information needed to set up the asset for depreciation is available at the time the invoice is entered. Information entered at this stage could include; acquisition date, placed-in-service date, description, asset type, cost basis, depreciable basis etc.

3. Adjusting the Assets: Adjustments to existing asset information is often needed to be made. Events may occur that can change the depreciable basis of an asset. Further, there may be improvements or repairs made to asset that either adds value to the asset or extend its economic life.

4. Transferring the Assets: A fixed asset maybe sold or transferred to another subsidiary, reporting entity, or department within the company.

5. Depreciating the Assets: The decline in an asset’s economic and physical value is called depreciation. Depreciation is an expense which should be periodically accounted on a company’s books, and allocated to the accounting periods, to match income and expenses. Sometimes, the revaluation of an asset may also result in appreciation of its value.

6. Disposing the Assets: When a fixed asset is, no longer in use, becomes obsolete, is beyond repair, the asset is typically disposed. There are multiple types of disposals like abandonments, sale and trade-ins. Any difference between book value and realized value is reported as gain or loss.

Masters

Risks and Control Objectives (Masters-Fixed Assets)

	Risk	Control Objective
1	Invalid changes are made to the fixed asset register and/or master file.	Only valid changes are made to the fixed asset register and/or master file.
2	Valid changes to the fixed asset register and/ or master file are not input and processed.	All valid changes to the fixed asset register and/or master file are input and processed.
3	Changes to the fixed asset register and/or master file are not accurate.	Changes to the fixed asset register and/or master file are accurate.
4	Changes to the fixed asset register and/or master file are not promptly processed.	Changes to the fixed asset register and/or master file are promptly processed.
5	Fixed asset register and/or master file data are not kept up to date.	Fixed asset register and/or master file data remain up to date.
6	System access to fixed asset master file / system configuration is not restricted to the authorized users.	System access to fixed asset master file / system configuration is restricted to the authorized users.
7	System configuration pertaining to definition of the depreciation base, depreciation rate, life of asset and accounting of transactions has not been correctly defined	System configuration pertaining to definition of the depreciation base, depreciation rate, life of asset and accounting of transactions has been correctly defined

Transactions

Risks and Control Objectives (Transactions-Fixed Assets)

	Risk	Control Objective
1	Fixed asset acquisitions are not accurately recorded.	Fixed asset acquisitions are accurately recorded.
2	Fixed asset acquisitions are not recorded in the appropriate period.	Fixed asset acquisitions are recorded in the appropriate period.
3	Fixed asset acquisitions are not recorded.	All fixed asset acquisitions are recorded.
4	Depreciation charges are not accurately calculated and recorded.	Depreciation charges are accurately calculated and recorded.
5	Depreciation charges are not recorded in the appropriate period.	All depreciation charges are recorded in the appropriate period.
6	Fixed asset disposals/transfers are not recorded.	All fixed asset disposals/transfers are recorded.
7	Fixed asset disposals/transfers are not accurately calculated and recorded.	Fixed asset disposals/transfers are accurately calculated and recorded.
8	Fixed asset disposals/transfers are not recorded in the appropriate period.	Fixed asset disposals/transfers are recorded in the appropriate period.
9	Records of fixed asset maintenance activity are not accurately maintained.	Records of fixed asset maintenance activity are accurately maintained.
10	Fixed asset maintenance activity records are not updated in a timely manner.	Fixed asset maintenance activity records are updated in a timely manner.
11	System access to process fixed asset transactions has not been restricted to the authorized users.	System access to process fixed asset transactions has been restricted to the authorized users.

General Ledger – Risks and Controls

General Ledger (GL) process refers to the process of recording the transactions in the system to finally generating the reports from financial transactions entered in the system.

The typical steps in general ledger process flow are as follows:

1) Entering financial transactions into the system

2) Reviewing Transactions

3) Approving Transactions

4) Posting of Transactions

5) Generating Financial Reports

Configuration

Risks and Control Objectives (Configuration-General Ledger)

	Risk	Control Objective
1	Unauthorized general ledger entries could be passed	Access to general ledger entries is appropriate and authorized.
2	System functionality does not exist to segregate the posting and approval functions.	System functionality exists to segregate the posting and approval functions.
3	Interrelated balance sheets and income statement accounts do not undergo automated reconciliations to confirm accuracy of such accounts.	Interrelated balance sheets and income statement accounts undergo automated reconciliations to confirm accuracy of such accounts.
4	Systems do not generate reports of all recurring and non-recurring journal entries for review by management for accuracy.	Systems generate reports of all recurring and nonrecurring journal entries for review by management for accuracy.
5	Nonstandard journal entries are not tracked and are inappropriate.	All non-standard journal entries are tracked and are appropriate.
6	Out-of-balance entries are not prohibited.	Out-of-balance entries are prohibited.
7	Enterprise wide consolidation, including standard intercompany eliminations, is not automated and not performed.	Enterprise wide consolidation, including standard intercompany eliminations, is automated and performed.
8	Variance reports are not generated for use to identify posting errors/out-of-balance conditions.	Variance reports are generated for use to identify posting errors/out-of-balance conditions.
9	System controls are not in place for appropriate approval of write-offs.	System controls are in place for appropriate approval of write-offs.
10	Automated amortization timing, periods and methods are not appropriate and not accurately entered.	Automated amortization timing, periods and methods are appropriate and accurately entered.
11	Transactions can be recorded outside of financial close cutoff requirements.	Transactions cannot be recorded outside of financial close cutoff requirements.
12	The sources of all entries are not readily identifiable.	The sources of all entries are readily identifiable.
13	Account mappings are not up to date.	Account mappings are up to date.
14	An adding to or deleting general ledger account is not limited to authorize accounting department personnel.	Adding to or deleting general ledger accounts are limited to authorized accounting department personnel.

Masters

Risks and Control Objectives (Masters-General Ledger)

	Risk	Control Objective
1	General ledger master file change reports are not generated by the system and are not reviewed as necessary by an individual who does not input the changes.	General ledger master file change reports are generated by the system and reviewed as necessary by an individual who does not input the changes.
2	A standard chart of accounts has not been approved by management and is not utilized within all entities of the corporation	A standard chart of accounts has been approved by management and is not utilized within all entities of the corporation

Transactions

Risks and Control Objectives (Transactions-General Ledger)

	Risk	Control Objective
1	Interrelated balance sheets and income statement accounts do not undergo automated reconciliation to confirm accuracy of such accounts.	Interrelated balance sheets and income statement accounts undergo automated reconciliation to confirm accuracy of such accounts.
2	Account codes and transaction amounts are not accurate and not complete, and exceptions are not reported.	Account codes and transaction amounts are accurate and complete, with exceptions reported.
3	A report of all journal entries completed as part of the closing process is not reviewed by management to confirm the completeness and appropriateness of all recorded entries.	A report of all journal entries completed as part of the closing process is reviewed by management to confirm the completeness and appropriateness of all recorded entries.
4	Entries booked in the close process are not complete and accurate.	Entries booked in the close process are complete and accurate.