Non Current Assets Flashcards
Non current asset
Main Risks:
1. Unnecessary Orders: Non-current assets that the company does not need could be ordered.
2. Incorrect Recording: Expenditure on non-current assets may be recorded at incorrect amounts or classified as revenue instead of capital expenditure.
Control Objectives:
1. Proper Authorization: Ensure all expenditure on non-current assets is properly authorized.
2. Accurate Recording: Ensure all expenditure on non-current assets is properly recorded and classified.
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Authorization
- Control: Appropriate authorization procedures should be in place. Documentation and analysis should support capital expenditure requests. Approval procedures should be established for the payment of invoices to suppliers of non-current assets.
- Test: The auditor should look for documentary evidence of capital expenditure authorizations. This includes checking that expenditure requests are properly documented and approved by authorized personnel.
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Recording
- Control: Expenditure should be properly analyzed as capital or revenue. Invoices must be analyzed, and account codes entered on the invoices. Management should review the analysis to ensure compliance with standard accounting practices.
- Test: The auditor should check the capital/revenue analysis of invoices and ensure that entries are made in the non-current asset register. This involves verifying that invoices are correctly classified and recorded in the appropriate accounts.
Imagine a company, XYZ Ltd., managing its non-current assets. Here are some controls and tests:
- Authorization: XYZ Ltd. requires all capital expenditure requests to be documented and approved by the finance manager. The auditor reviews the documentation to ensure that all requests have the necessary approvals.
- Recording: The company analyzes each invoice to determine whether it should be classified as capital or revenue expenditure. The auditor checks the invoices to ensure they are correctly classified and recorded in the non-current asset register.
By implementing these controls and regularly testing them, XYZ Ltd. can ensure accurate and secure management of its non-current assets.
If you have any more questions or need further examples, feel free to ask!