Government GPS

The Latest Rules and Regulations That Impact Your Government Entity

Importance of Controls Over Fixed Assets

Are your year-end financial statements accurately representing your fixed assets?

Deficiencies in the recording of fixed assets can often result in inaccurate financial reporting. The area of fixed assets is way too often considered as a lower priority by management, thus easily disregarded. Fixed asset control procedures are not always performed as well as they should be; however, fixed assets are usually a very significant line item on financial statements. We recommend the Board of Directors first adopt a fixed asset capitalization policy, and management needs to be consistent with all procedures regarding fixed assets. The following list includes some important components to help increase internal controls over fixed assets:

  • Capitalization threshold amount (which can vary depending on the size of your entity) consistently followed by management
  • Proper receipt and invoice approval, and posting of fixed asset purchase
  • Adequate asset description, property identification tag, locational information, and serial number included for each asset
  • Reasonable assignment of estimated depreciable life
  • Fiscal year additions and disposals reviewed and analyzed periodically
  • Performance of a periodic physical inventory of fixed assets, at least annually
  • Reconciliation of the general ledger accounts to fixed asset schedule

In conclusion, increased attention and consistent practices in the above areas are important to ensure fixed assets are properly being recorded. When these controls over fixed assets are regularly being performed, then management will be able to say in confidence, “Yes, our fixed assets at year-end are accurately represented on the financial statements.”

By Danielle Roisom