To validate the information that the company supplies, with respect to property, plant and equipment, an audit program must be established, developing the points required by generally accepted auditing standards.
Reviewing and evaluating the strength or weaknesses of the Internal Control system in the management of property, plant and equipment are of vital importance to ensure the correct application of all the tests provided for in the audit program, and based on said evaluation perform Compliance tests to determine the extent and timeliness of the applicable audit procedures according to the circumstances, as well as perform substantive tests of the figures shown in the financial statements, preparing a report with the result of the work, the conclusions reached and comments about internal control weaknesses, which require immediate action, must be evidenced and corrected in the shortest possible time.
Depending on the circumstances that arise within the organization, the audit program for this item must be prepared with the following parameters:
Conceptual foundations
This component represents the tangible assets acquired, built with the intention of using them permanently, for the production or supply of other goods and services, to lease them, or to use them in the administration of the economic entity, which are not intended for sale in the normal course of business and whose useful life exceeds one year.
The value of these assets includes all the expenses and charges necessary until they are ready for use, such as engineering, supervision, taxes, interest, etc.
This value should be increased with additions, improvements and repairs, which significantly increase the quantity or quality of production or the useful life of the asset.
Compliance testing
1. Verify the existence and application of a policy for the management of property, plant and equipment.
2. Determine the efficiency of the policy for the management of Property, plant and equipment.
3. Verify that the supports of the Property, plant and equipment are in order and in accordance with the legal provisions.
4. Observe if the movements in the fixed asset accounts are properly recorded.
5. Check that there is a complete control system for fixed assets, updated and adequate to the conditions of the company.
6. Check that modifications to property, plant and equipment are properly authorized.
7. Perform physical counts of existing property, plant and equipment periodically.
8. Verify that fixed assets are adequately insured.
9. Check that the state of the fixed assets is optimal and that the security measures are applied correctly.
10. Verify that adjustments to assets for inflation and depreciation are calculated and recorded adequately and in a timely manner.
11. Confirm that the asset conservation conditions are optimal.
12. Verify the existence of a manual of functions of the personnel in charge of the management of Property, plant and equipment. Like the knowledge and fulfillment of this on the part of the employees.
Property, plant and equipment are all those assets that are not intended for sale in the normal course of business and whose useful life exceeds one year
Substantive tests
1. Determine if the additions are properly capitalizable items and represent real costs of the physically installed or built assets.
2. Check the bases for the valuation of fixed asset accounts.
3. Verify the charge to maintenance or other income accounts, of important items that should be capitalized
4. Check if the costs and the respective depreciations or amortizations, due to retirements, obsolescence or important dispositions of assets, have been eliminated from the corresponding accounts.
5. Determine if the impairments have been recognized in the respective accounts, and accounted for in accordance with the legal requirements and generally accepted accounting principles.
6. Observe whether the accumulated provisions and amortizations are adequate, without being excessive, and have been calculated on an acceptable and uniform basis with those applied in previous periods.
7. Verify tables of useful lives of assets, which will be used in the calculation of depreciation.
8. If the accumulated depreciation and amortization balances are reasonable considering the probable life of the assets and the possible scrap values.
9. Verify that the construction in progress account does not contain charges for repairs and maintenance.
10. Verify if the authorizations for the acquisition of new elements indicate the units that are going to be replaced, according to the corresponding quotes.
Comment: Although depending on the study carried out, these tests may change, I hope that the previous ones will serve as a guide to base the analysis of internal control within a company for these areas
