Auditing requirements - assets
Discussion
Been trying to get my head around our requirements for being audited, and it's one of those "I can't quite believe it" moments.
Accountant says we need to know there whereabouts of every single asset and its value at any point in time. I can understand this requirement for valuable assets, e.g. big items of plant, cars, big flat screen displays.
So taking the big LCD as an example, you order it, invoice from supplier shows serial number, you asset tag it, and record its whereabouts. When you come to sell/dispose of it you know which one specifically it is. Likewise when you're audited and the auditor points to the item on the invoice, you can show exactly which one it is and where it is.
I don't understand how this can hold true for smaller assets. We have lots and lots of smaller, less valuable components, that have relatively high liquidity. To give a similar-ish example, let's say BT OpenReach has 10,000 vans. In each van they have 10 screw drivers, 3 sockets, a multimeter, and 50 other tools. Say they kit out 1000 vans at once, so they order 1000 multimeters at £3 a go. They put a multimeter in each van; do they *have* to record which multimeter goes with each van? My way of thinking is that they can depreciate the multimeter and do an annual survey to see which tools have been lost from the vans. If they do a survey of 100 vans and 10 have lost their multimeters, can they just say that this is a realistic sample size to assume that of their 10,000 multimeters, they lose 1000 per year?
I just can't understand how this asset tagging requirement can work for loads of small items of equipment. I'm sure someone is older a wiser and can assist.
Accountant says we need to know there whereabouts of every single asset and its value at any point in time. I can understand this requirement for valuable assets, e.g. big items of plant, cars, big flat screen displays.
So taking the big LCD as an example, you order it, invoice from supplier shows serial number, you asset tag it, and record its whereabouts. When you come to sell/dispose of it you know which one specifically it is. Likewise when you're audited and the auditor points to the item on the invoice, you can show exactly which one it is and where it is.
I don't understand how this can hold true for smaller assets. We have lots and lots of smaller, less valuable components, that have relatively high liquidity. To give a similar-ish example, let's say BT OpenReach has 10,000 vans. In each van they have 10 screw drivers, 3 sockets, a multimeter, and 50 other tools. Say they kit out 1000 vans at once, so they order 1000 multimeters at £3 a go. They put a multimeter in each van; do they *have* to record which multimeter goes with each van? My way of thinking is that they can depreciate the multimeter and do an annual survey to see which tools have been lost from the vans. If they do a survey of 100 vans and 10 have lost their multimeters, can they just say that this is a realistic sample size to assume that of their 10,000 multimeters, they lose 1000 per year?
I just can't understand how this asset tagging requirement can work for loads of small items of equipment. I'm sure someone is older a wiser and can assist.
What type of "audit" is this?
Is it the statutory audit as set out under Company Law?
Is it an internal audit carried out for internal control purpsoes?
Who are you referring to when you speak of "your accountant"?
Do you mean the external auditor or your in-house financial controller or financial director?
Is it the statutory audit as set out under Company Law?
Is it an internal audit carried out for internal control purpsoes?
Who are you referring to when you speak of "your accountant"?
Do you mean the external auditor or your in-house financial controller or financial director?
Edited by Eric Mc on Thursday 31st January 13:25
Eric Mc said:
What type of "audit" is this?
Is it the statutory audit as set out under Company Law?
Is it an internal audit carried out for internal control purpsoes?
Who are you referring to when you speak of "your accountant"?
Do you mean the external auditor or your in-house financial controller or financial director?
I'm referring to a statutory audit for companies with >£5.6m revenue. I think below this figure there is an exemption from audit.Is it the statutory audit as set out under Company Law?
Is it an internal audit carried out for internal control purpsoes?
Who are you referring to when you speak of "your accountant"?
Do you mean the external auditor or your in-house financial controller or financial director?
Edited by Eric Mc on Thursday 31st January 13:25
When I say accountant, I mean a 3rd party chartered accountancy practice who complete our end of year returns. They are not licensed (correct term??) for auditing, and my understanding is that you need to be audited by a separate entity anyway.
Is your company required to have a Statutory Audit then?
That is,
Is it's turnover over £5.6 million?
Does it have more than 50 employees?
Have more than 10% of the shareholders requested an audit?
Do the assets in the balance sheet exceed £2.8 million?
If the answer is no to all the above questions, then it can dispense with the need to have an audit carried out on its annual accounts.
Of course, the directors can still elect to have audits carried out if they want to, but it would not be compulsory.
Who can carry out such audits?
Only the following people are allowed to carry out statutory audits under Company Law -
Members of the Institute of Chartered Accountants of England and Wales (ICAEW)
Members of the Institute of Chartered Accountants of Scotland(ICAS)
Members of the Institute of Chartered Accountants of Ireland(ICAI)
Chartered Certified Accountants (ACCA)
And that's it. No other accounting qualifications have this status.
In addition to the above qualifications, auditors must also be Registered Auditors and hold a practising certificate from their professional body.
Not all qualified ACCAs, ICAEWs, ICAS's or ICAIs will meet these additional requirements.
Regarding your situation, if an audit really is required, then the audit report MUST be signed by an individual or firm which meets the above criteria.
Finally, regarding auditing of fixed assets - the main point of suh an audit is to verify existence and ownership. i.e. do the assets physically exist and do they really belong to the business?
However, your accountant is wrong if he thinks that every single fixed asset needs to be checked for these atributes.
Firstly, the concept of materiality needs to be applied. Only those assets which, if wrongfully shown or wrongfully omitted from the accounts, would materially mislead someone looking at the accounts need to be checked.
Secondly, examiming a representative sample of the total assets (rather than all of them) might be sufficient to meet the auditor's needs.
That is,
Is it's turnover over £5.6 million?
Does it have more than 50 employees?
Have more than 10% of the shareholders requested an audit?
Do the assets in the balance sheet exceed £2.8 million?
If the answer is no to all the above questions, then it can dispense with the need to have an audit carried out on its annual accounts.
Of course, the directors can still elect to have audits carried out if they want to, but it would not be compulsory.
Who can carry out such audits?
Only the following people are allowed to carry out statutory audits under Company Law -
Members of the Institute of Chartered Accountants of England and Wales (ICAEW)
Members of the Institute of Chartered Accountants of Scotland(ICAS)
Members of the Institute of Chartered Accountants of Ireland(ICAI)
Chartered Certified Accountants (ACCA)
And that's it. No other accounting qualifications have this status.
In addition to the above qualifications, auditors must also be Registered Auditors and hold a practising certificate from their professional body.
Not all qualified ACCAs, ICAEWs, ICAS's or ICAIs will meet these additional requirements.
Regarding your situation, if an audit really is required, then the audit report MUST be signed by an individual or firm which meets the above criteria.
Finally, regarding auditing of fixed assets - the main point of suh an audit is to verify existence and ownership. i.e. do the assets physically exist and do they really belong to the business?
However, your accountant is wrong if he thinks that every single fixed asset needs to be checked for these atributes.
Firstly, the concept of materiality needs to be applied. Only those assets which, if wrongfully shown or wrongfully omitted from the accounts, would materially mislead someone looking at the accounts need to be checked.
Secondly, examiming a representative sample of the total assets (rather than all of them) might be sufficient to meet the auditor's needs.
Eric Mc said:
Is your company required to have a Statutory Audit then?
Finally, regarding auditing of fixed assets - the main point of suh an audit is to verify existence and ownership. i.e. do the assets physically exist and do they really belong to the business?
However, your accountant is wrong if he thinks that every single fixed asset needs to be checked for these atributes.
Firstly, the concept of materiality needs to be applied. Only those assets which, if wrongfully shown or wrongfully omitted from the accounts, would materially mislead someone looking at the accounts need to be checked.
Secondly, examiming a representative sample of the total assets (rather than all of them) might be sufficient to meet the auditor's needs.
Yes, we're going to need an audit next year due to >£5.6m T/O, so we want to get all the processes in place sooner rather than later to save a last minute Jan 31st-style rush in submitting our returns. Finally, regarding auditing of fixed assets - the main point of suh an audit is to verify existence and ownership. i.e. do the assets physically exist and do they really belong to the business?
However, your accountant is wrong if he thinks that every single fixed asset needs to be checked for these atributes.
Firstly, the concept of materiality needs to be applied. Only those assets which, if wrongfully shown or wrongfully omitted from the accounts, would materially mislead someone looking at the accounts need to be checked.
Secondly, examiming a representative sample of the total assets (rather than all of them) might be sufficient to meet the auditor's needs.
The materiality aspect gives me some comfort that we won't have to go to crazy lengths to meet audit requirements. Phew!
Even if your current accounts don't need a statutory audit, but next year's will - it is prudent that some audit type tests need to be carried out on this year's figures. The balances brought forward into the "audit" year need to be part of the auditor's checks next year and it will give him more assurance and comfort knowing that some form of audit checks were run on the figures underlying the balances brought forward.
If next year's auditor does not have confidence in the balances brought forward from the last "non-audit" year, he might have to qualify the audit retport to some extent.
If next year's auditor does not have confidence in the balances brought forward from the last "non-audit" year, he might have to qualify the audit retport to some extent.
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