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Auditing fixed assets is extremely important to ensure that accounting for capital assets and depreciation is in compliance with management’s objectives. KnowledgeLeader has over 70 pieces of content focused on the fixed assets process.

Before you can begin to audit fixed assets, it’s important to understand the core terminology:

• Capital Assets: Equipment, property, furniture, fixtures and leasehold improvements (see definition below) that are acquired by the company in the normal course of business. Capital assets have a useful life of at least one year. Computer software purchased for internal use is considered a capital asset.
• Repairs and Maintenance: Expenditures made to physically maintain an asset in usable condition without extending its useful life or significantly increasing its capacity. 
• Installation Costs: Expenditures made to third parties to place an asset in service. 
• Freight: Expenditures made to transport the asset to the asset's resident location. 
• Sales Tax: Any state and local sales tax applied to the purchase value of an acquired asset. 

Next, identify your most valuable assets and create a policy based on a set cash threshold:

• For All Items Other than Software: 

A single item of tangible property with a gross (including sales tax, freight and installation) cost of $_____ (or local currency equivalent) or more will be capitalized (a PC package containing a CPU, monitor, keyboard, etc. purchased together will be considered a single purchase). 

• For Software: 
  
  A single package with a gross cost of $_____ (or local currency equivalent) or more will be capitalized. 
  
  Items that do not meet the requirements for capitalization should be expensed through a major GL account. 

Next, establish a depreciation schedule for your fixed assets. For a sample chart, consult our official Fixed Assets Policy.

Once you have a depreciation timetable, create a retirement and disposal policy. Upon determination that an asset has been sold or otherwise disposed of, the asset's cost and associated accumulated depreciation should be removed from the general ledger and fixed asset subledger.

All asset dispositions should also be approved by the department controllers responsible for those assets prior to the disposition.

An asset disposal form is required to effect any retirement. Each business unit controller is responsible for submitting the form to general ledger accounting prior to any disposition. Consult our sample Fixed Assets Policy to find this form.

Next, determine which assets can – and cannot – be transferred. Individual assets may be transferred as appropriate between departments.

Learn more about the fixed assets process by exploring these related publications on KnowledgeLeader: