Audit of the Property Segment in a Company.
SEGMENT: Piece or cut or separated part of a thing.
The property segment represents all acquisitions owned by the entity, which it maintains to carry out its operations, service its clients and / or develop for its exploitation in various accounting periods.
property-segment-auditACCOUNTING PRINCIPLES
The regulations applicable to the property segment are found in the following provisions of the Financial Information Standards (NIF):
Account --------- Applicable NIF
Fixed assets ------- C-6. Property, plant and equipment
Intangible assets ---- C-8. Intangible assets
PROPERTIES, PLANT AND EQUIPMENT (FIXED ASSETS)
Fixed assets represent those durable goods whose purpose is to be used by the entity in the course of its operations, whether to prepare its products, provide its services or make it available to its clients for use.
NIF C-6 (2015) defines property, plant and equipment as “Tangible assets that:
to. It has an entity for use in the production or supply of goods and services, to lease them to third parties or for administrative purposes, without an immediate purpose of selling them.
b. They are generally expected to be used for more than a year or a normal cycle of operations.
c. Its cost will be recovered precisely by obtaining future economic benefits.
d. With some exceptions, they are subject to depreciation.
The main items that we can consider in this item are (NIF C-6):
Land
The item called land represents the amount of land that an entity owns.
In accordance with NIF C-6 (CINIF, 2015), the acquisition cost of this item must include:
• Acquisition price.
• Notary fees, including fees.
• Indemnities or privileges paid on property to third parties. • Commissions to agents.
• Taxes related to domain transfer.
• Costs of demolitions, cleaning and urbanization for its use.
DEPRECIATION:
NIF C-6 defines depreciation as “The systematic and reasonable distribution in results of the depreciable amount of a component throughout its useful life”.
As established by regulations, depreciation must be recognized in the entity's results in the line of costs or expenses, depending on the type of asset depreciated. It is important to recognize that depreciation is a process of distribution of the cost of fixed assets during their useful life.
Depreciation is calculated by applying methods and bases consistently considering the time when they are available for use.
INTANGIBLE ASSETS
In accordance with the provisions of NIF C-8, intangible assets "are identifiable non-monetary assets, without physical substance, that will generate future economic benefits controlled by the entity." In other words, we can say that the organization's intangible assets are those that do not possess physical substance but that are acquired or developed by the entity for use or exploitation in its normal operations.
AMORTIZATION
Amortization is the process of systematic distribution of the cost of an intangible asset with a defined life, between the years of its estimated useful life (NIF C-8). This process allows the proportional expense applicable to each accounting period to be recognized in the results.
Among the assets of this type that entities frequently manage are:
• Organizational expenses.
• Installation costs.
• Goodwill.
In the property segment, items are recognized that are considered to be classified as fixed assets but also include intangible assets, as well as the corresponding depreciation and amortization.
TYPICAL OPERATION AND CONTROL SYSTEMS
Organizations record the movements in their fixed and intangible assets by:
DOCUMENTS:
* Purchase orders
* Investment plans
* Invoices
* Transfer requests
Documents proving industrial property (trademarks, patents):
–Titles of concession
–Titles of property
–Control of depreciations and amortizations –Format of high and low of assets
–Registration of inventories of assets.
USE OF DATABASES:
* Asset records RR Accounting records.
The property segment must adhere to the objectives of internal control related
to the authorization, processing and classification of transactions, their verification and evaluation, as well as the physical safeguarding of assets.
OF AUTHORIZATION
• Authorization by the management of the method and policies of asset valuation, capitalization, updating, depreciation and amortization.
• Approval of the entity's administration for the acquisition, sale, retirement, destruction and encumbrance of assets, through established policies.
OF PROCESSING AND CLASSIFICATION OF TRANSACTIONS
• There must be documentation that supports the ownership of the assets and this must be preserved, facilitating their location and control.
• Clear capitalization rules must be established to distinguish the acquisition of assets from those expenditures that are only for maintenance or repair.
• Establish procedures for the registration and control of advances to suppliers or builders.
• Information to the accounting department for asset write-downs.
• The registration of assets must be done by homogeneously grouping the assets that by their nature are similar, whether due to their characteristics, depreciation or amortization.
• Identification and location of the assets through the existence of records that allow knowing their physical and quantitative characteristics.
• Reconciliation between accounting balances and individual records.
• Application of information systems that allow recognizing the effects of inflation on goods.
• Existence of records that identify the expenditures that originated the assets, as well as the bases used for their depreciation and amortization.
VERIFICATION AND EVALUATION
• There must be procedures that verify the receipt and proper registration of the goods purchased.
• Verification of the existence of the goods and their physical conditions.
• Periodic review of progress in construction and facilities not completed to timely record their progress.
• The validity of the future benefits that an asset can provide must be constantly reviewed, since due to external situations it can be modified.
OF PHYSICAL SAFEGUARD
• There must be a division of the functions of acquisition, custody and registration of assets, in order to have constant vigilance among those involved in said functions.
• Securing assets for your protection.
• Safeguarding of the supporting documentation of the assets.
• Easily transportable goods must be protected by a limited number of people and assigned specific places for their storage.
INTERNAL CONTROL EVALUATION
PRACTICAL APPLICATION OF THE INTERNAL CONTROL QUESTIONNAIRE TO THE PROPERTY SEGMENT
Considering the above, the auditor should establish the substantive tests required according to
the characteristics that he has found in the entity, reviewing some of the following options:
RELATED TO THE PROPERTY REVIEW:
• Examination of the documentation that supports the acquisitions, as well as their respective authorization.
• In the case of imports, examine the documentation that supports the introduction to the country of the goods.
• In the case of real estate, the Public Registry of Property is requested to certify that the property is registered and the ownership is accredited, as well as the liens that exist on the entity's assets.
• Verify the existence of quotes, authorization of orders, document of receipt of the good, progress of work, delivery of work; corroborating the division of functions at the time of authorization.
• Existence of control formats, records and their respective files.
FOR VERIFICATION OF EXISTENCE AND INTEGRITY:
ANALYTICAL REVIEW
Bulletin 6150 (CONAA, 2015) recommends carrying out the analytical review of the item of property, machinery and equipment, paying attention to the identification of changes, variations or transactions that are not considered as usual; therefore, the auditor may apply the following procedures:
a) Comparison of historical and updated figures for the current period with those of previous years, to judge whether the variations originated and present trends are logical.
b) Analysis of financial reasons that allow identifying variations and trends, as well as judging their reasonableness in relation to the behavior of the business and its environment.
c) Comparison of figures that the entity has with the information available from other entities in the same branch.
d) Obtain information related to variations and any unusual and unexpected relationship, both from the audited period and the previous one, and the budgets.
PRESENTATION AND VALUATION RULES
Under current regulations, assets considered as fixed or intangible must be valued at their acquisition cost.
So the auditor will examine the application of the valuation rules using some of the techniques proposed in Bulletins 6150 and 6160 of the Audit Guidelines, for example:
* Verify that maintenance and repair charges are not included as part of the asset.
* Check that the assets are insured and protected.
* Carry out an investigation into commitments, restrictions and liens that the entity's assets have.
* In the case of intangibles, their capitalization is made when they have been purchased, developed internally or acquired in another way.
* Verify the existence of capitalization policies and amortization periods for the different intangibles and that they adhere to the regulations.
* Examination of the consistent application of the registration methods in terms of capitalization, depreciation and amortization, which must adhere to financial reporting standards.
* Review of the concepts that the work orders show to judge if their application is adequate.
* Verify the correct update of the historical cost of the asset, as well as its depreciation, amortization and effect on the results of the year.
* Check that the result of sales or asset withdrawals is recorded and the accumulated depreciation or amortization has been correctly canceled.
* Verify that the derecognized assets are not within the entity.
* Verify that the accounting treatment of tools and molds, adaptations and improvements, has been carried out in accordance with established policies and review the calculation of depreciation and amortization, as well as its registration.
Regarding the review of the presentation and disclosure of property, plant, equipment and intangibles, the auditor may apply the following procedures:
THE SEGMENT OF INCOME TAX AND PARTICIPATION OF WORKERS IN PROFITS (ISR AND PTU)
As already mentioned, in terms of accounting regulations (NIF D-4), the tax must be recognized as an expense that reduces the results for the year and as part of the entity's short-term obligations (short-term liabilities).
In the structure of the accounting system, each of the taxes to which the entity is subject must be identified, so in this case, both the ISR and the PTU must be separated account by account.
Article 16 of the LISR states that legal entities, residents in the country, will accumulate all of the following income.
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