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Internal auditors can play a key role in ensuring the efficiency and effectiveness of controls over fixed assets, and in verifying that relevant risks are being addressed.

Fixed assets typically represent the largest store of value that a company has. These are the means of production that the company uses to deliver its services or produce its products. From an internal control viewpoint, fixed asset accounting is probably the simplest and most repetitive area of accounting. In fact, PCAOB Auditing Standard No. 2 allows external auditors to use of the work of others (i.e., internal auditors) most extensively in the area of fixed assets and depreciation calculât ions. In Auditing Standard No. 2, the PCAOB states,"Controls over the calculation of depreciation of fixed assets are usually not pervasive, involve a low degree of judgment in evaluating their operating effectiveness, and can be subjected to objective testing. If these conditions describe the controls over the calculation of depreciation of fixed assets and if there is a low potential for management override, the auditor . . . could use the work of others to a large extent (perhaps entirely) so long as the degree of competence and objectivity of the individuals performing the test is at an appropriate level."1

Once acquired, asset values rarely change. Once depreciation is set up for an asset, it is repetitive until the asset is fully depreciated. So it therefore makes perfect sense that the PCAOB would allow extensive use of calculations year after year if they stay the same.

Here are some examples of fixed asset groupings:

* Land;

* Buildings;

* Leasehold Improvements;

* Furniture;

* Production Equipment;

* Computer Equipment;

* Vehicles - Trucks and Autos;

* Vehicles - Aircraft;

* Software;

* Intangible Assets;

* Patents;

* Goodwill; and

* Copyrights.

When evaluating a company's internal controls and key risks associated with fixed assets, the following aspects should be considered:

* fixed asset acquisitions;

* fixed asset disposals;

* fixed asset inventory;

* safeguarding fixed assets; and

* maintenance of fixed assets.

Fixed asset acquisitions

When assets are acquired, they must be properly added to the accounting records. Capital assets usually require special approvals. These approvals should be specified in the expenditure authorization listing. Because capital...

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