Internal Control of Fixed Assets: A Controller and Auditor's Guide

CHAPTER THREE 3

Asset Life Cycle—Controls and Software

I NASMUCHAS THE TITLE of this book uses the phrase “internal control” this is the place to begin the details. Fundamental to every fixed-asset system is the principle that all transactions are properly recorded. You can ask whether this might be considered a tautology. It is self-evident that you cannot control something if you do not know where it is.

The phrase many years ago, “It’s 11:00 pm, do you know where your children are?” got to that point very quickly. Unless you know where your children are and what they are doing, bad things can happen. Knowing where some asset or person is does not of itself assure good results; similarly not knowing does not mean that bad things are certain to happen. But, as a broad generalization the more knowledge you have, the better off you will be.

The reason for this brief homily is simple. Most companies today have a poor idea both of what assets they own and where they are. Fixed-asset records, when we examine them, rarely reflect underlying circumstances.

What usually happens is that new acquisitions of fixed assets are properly entered into the fixed-asset system, but that is the end. Where they are today, and what has happened to them since acquisition is usually not clear from the property register.

The fixed-asset software is asked to crank out a report on depreciation expense once a quarter for the period, which is then entered via journal voucher to the trial balance. Companies ...