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S-OX Fixed Assets Risks and Controls 12/15/2005 Page 1 of 10 Unit: Subject: Sarbanes-Oxley Act Review - Fixed Assets Cycle Title: Risk and Control Identification Year end: E E Y C V R I N O T K E SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER G C S R OBJECTIVE I POTENTIAL RISK E E E R RISK (Internal Audit) excluded from the Scope) (Name) J T F B A E O C R Acquisition of Fixed Assets Recorded fixed asset acquisitions represent fixed assets O,F FAS Recorded fixed asset acquisitions do not represent fixed Written capitalisation-expense policies: Guidelines for acquired by the organisation (validity). Fixed assets represent 101 assets acquired by the organisation. Expense items may be capitalising versus expensing acquisitions should be assets to which the entity has legal rights. Only valid items incorrectly capitalised. established. Periodic review by management of assets are capitalised. captured to assets recorded on the fixed assets register. Physical asset verification to asset register. Authorisation of Capex forms in terms of the Limits of Authority including a review of the cost centre, cost element, Capex number, asset value and description of the item. All fixed asset acquisitions are recorded. (completeness) O,F FAS Not all fixed asset acquisitions are recorded. Periodic independent inspection of fixed assets are 102 conducted. The results are agreed to fixed asset records and differences timeously investigated, explained and resolved. Acquisitions of fixed assets are not incorrectly expensed. O,F FAS Acquisitions may be incorrectly expensed. The Adequate policies are in place to ensure the clear distinction 103 understatement of purchases of capital goods will lead to the between items to be capitalised as fixed assets and items understatement of liabilities and assets. Overstatement of (below certain amounts) to be expensed. Periodic reviews of income is also likely as a result of failing to depreciate the the repairs and maintenance account are conducted for any asset which has not been recorded. significant items which should have been capitalised. Fixed asset acquisitions are accurately recorded. (accuracy) O,F FAS Fixed asset acquisitions are not accurately recorded: Fixed Detailed fixed asset records are maintained and updated 104 asset accounts may be misstated, depreciation amounts may directly from source purchase documentation (e.g. supplier be incorrect as a result of this. Incorrectly recorded assets invoice, contract etc). Review by management of source may also be difficult to identify physically at a later stage. documentation to loaded data in order to verify the accuracy of the data captured. Fixed asset acquisitions are allocated correctly. (classification) O,F FAS Fixed assets recorded in the wrong asset or expense Each asset record is allocated to a specific asset class in 105 accounts. Misclassification of fixed assets to conceal SAP. Master data for an asset class is defined once at the unauthorised purchases (possibly for the benefit of employees client level. Asset classes determine the depreciation method or third parties). utilised. Asset recordings are scrutinised for correctness. Authorisation of Capex forms in terms of the Limits of Authority including a review of the cost centre, cost element, Capex number, asset value and description of the item. Fixed asset acquisitions are recorded in the appropriate O,F FAS Fixed asset acquisitions are not recorded in the appropriate Fixed assets purchases are recorded at the date of receipt period. (proper period) 106 period. Asset register is not updated promptly. (per GRN). The accounting manual gives detailed instructions for recording fixed assets on the date of acquisition. Asset- related transactions before and after the end of an accounting period are scrutinised and/or reconciled to ensure complete and consistent recording in the appropriate accounting period. S-OX Fixed Assets risks and controls 12/15/2005 Page 1 of 10 E E Y C V R I N O T K E SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER G C S R OBJECTIVE I POTENTIAL RISK E E E R RISK (Internal Audit) excluded from the Scope) (Name) J T F B A E C O R Employees and management are provided with the information O,F FAS No formalised budgets are communicated to cost centre Asset acquisition and related financing agreements are they need to control the capital expenditure process. Cost 107 holders which could result in budget overruns. Non-budgeted reviewed by management (including consideration of the overruns and non-budgeted costs are controlled. costs might not be formally approved through a Capex. capital expenditure budget), before being authorised. When actual expenditures exceed authorised amounts, the excess is appropriately approved. Asset acquisitions are authorised in accordance with Board's O,F FAS Asset acquisitions should be made in accordance with Capital expenditure and leasing proposals are prepared for criteria. (authorisation) The number of employees authorised 108 Company approval limits and the Capex policy. review and approval by responsible officers. Review and to approve capital asset purchases are limited. approval of all capital expenditure requests takes place by a senior independent person/s: Fixed asset requests for purchases are approved in accordance with the Limits of Authority. (e.g. Board approval is obtained for significant capital asset projects and acquisitions above a certain amount.) Authorisation of Capex forms includes a review of the cost centre, cost element, Capex number, asset value and description of the item. The number of employees authorised to approve capital asset purchases is limited. Designated individuals who may initiate capital asset transactions and the limits of their authority are clearly defined. Written approval is required for all capital asset projects and acquisitions. Capital budgets are compared to actual expenditures on a monthly basis and significant differences analysed, investigated and reported. Most capital expenditure is anticipated in advance, comparing budget to actual amounts can help detect misuse of funds. Asset acquisitions are adequate and appropriate to serve the O,F FAS Asset acquisitions may not be suitable to fulfil the purposes for All acquisitions are made after a thorough viability study has purposes for which they are acquired. 109 which they have been acquired e.g. plant capacity may be been handed in as motivation for the acquisition. These inadequate. Unsuitable or unauthorised assets may be documents are attached to the Capex, reviewed, authorised acquired. Unnecessary property, plant or equipment is and kept on file. Clearly documented policy statements has acquired resulting in unused or idle capacity. been developed setting forth asset acquisition criteria for the review and approval of proposed capital expenditure. Management consults with other Mills to obtain unused assets prior to purchasing assets. No payments for acquisitions of assets are effected without correct approval. (See Expenditure Cycle). All acquisitions are made after a thorough viability study has been handed in as motivation for the acquisition. These documents are attached to the Capex, reviewed, authorised and kept on file. The cost of asset acquisitions meets the company's criteria for O FAS The cost of the acquired assets may not meet the company's Documented policy statements have been developed setting meeting the investment. 110 criteria for meeting the investment. forth assets acquisition criteria such as review and approval of proposed capital expenditure, acceptable inventory and service levels, economic analysis and justification. Capital Expenditure Requests exceeding a predetermined limit are supported by a cost-benefit exercise. Tax allowances are correctly applied. O FAS Taxation allowances may not be correctly applied. Not all valid Company Tax Department review and approval of useful life 111 tax allowances may be claimed. Investment decisions may be and depreciation or amortisation method for each property made based on incorrect financial information (i.e. not taking addition over a stated amount. The useful lives established allowances into account). for tax purposes for various classes of properties and equipment must fall within guidelines published by the relevant tax authorities. S-OX Fixed Assets risks and controls 12/15/2005 Page 2 of 10 E E Y C V R I N O T K E SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER G C S R OBJECTIVE I POTENTIAL RISK E E E R RISK (Internal Audit) excluded from the Scope) (Name) J T F B A E C O R Appropriate supporting documentation is retained for fixed O,F,C FAS Acquisition documentation may be lost or otherwise not Capex forms are pre-numbered, authorised and reviewed. Any assets. 112 communicated to appropriate personnel. missing documents are investigated and resolved. Route copy of purchase orders for capital expenditure to personnel who process fixed assets. Reconcile fixed asset additions with capital expenditure authorisation. Company assets can be adequately identified for inventory O FAS Acquired assets may not be adequately described. Assets are All assets should be tagged. It should be possible from purposes. Asset tags are used to control and monitor 113 not identifiable. Assets are not tagged correctly. Asset reference to the tag to determine the asset serial number, inventory. location may be misstated. location, description of the asset and its name. Pre-
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