Internal controls are vital processes which help protect an organization and promote efficiency. Fixed assets in general tend to have a lower risk for fraud due to the difficulty associated with stealing it, but it is still a good idea to implement internal controls over fixed assets.
Theft risk for fixed assets
How likely is it that someone will steal the building, the land or a highly specialized piece of heavy equipment? Although there is less risk in fixed assets than other company assets, it is still important for companies to have strong internal controls in this area.
Fixed assets like computers and laptops do have a higher risk of being stolen, so companies need to have strong physical and financial controls in place.
Deter asset theft
Here are some physical controls that can be implemented to verify existence of the asset.
- Account for the assets at least annually
- Maintain check-in and check-out logs for assets used by multiple people
- Regularly inspect assets that can be exposed to damage like tools, heavy equipment and vehicles.
- Maintain a list of fixed assets that includes purchase date, identifying number, cost and expected life.
- Implement tracking devices for high-risk valuable assets when possible. Cell phones, laptops, tools, vehicles.
- Vehicles are assigned only to certain employees and are kept on company property overnight.
All these controls help in establishing physical control over the assets and verifying their existence.
Types of internal controls
Companies should utilize financial controls, which ensure the values of the fixed assets are accurately reported on the balance sheet. The main points to remember in accurately reporting fixed asset value are 1) properly calculating the acquisition cost, and 2) properly calculating depreciation.
Acquisition costs generally include the purchase price, sales tax and delivery fee. Once the asset is added to the company books, you will need to select a depreciation method that closely resembles the expected value for that specific asset. The correct depreciation method is important to record an accurate current value of the asset year to year, and it will overall improve the accuracy of your financial statements.
Physical and financial controls help companies to accurately maintain ownership of their assets and record its correct value on the financial statements every year. Other important controls regarding fixed assets are having proper approvals for fixed asset purchases and disposal of fixed assets.
Benefits of internal control
Having these controls in place can provide assurance and piece of mind that your company assets are safer from fraudulent activity. Implementing strong controls will also improve operational efficiency, keep information more organized and reduce overall errors.
As auditors, we always advocate for minimizing risk within your company. Implementing some of these internal controls is a great way to keep your company as safe, organized and efficient as possible.
If you have any questions on how to set up internal controls, contact your Henry+Horne advisor.