By definition a fixed asset could be anything ranging from equipment to machinery, land, buildings etc. and represents something that exists physically. These assets cannot be easily liquidated as cash when compared to other assets. Establishing the number of fixed assets and evaluating their value is core to the auditing process for any company. Identifying and evaluating fixed assets, calculating the depreciation rate in uae is easier said than done as it starts with the company providing a detailed list of assets to the auditors.
The list should include relevant details like depreciation, method of depreciation, all costs, life of the asset, vehicle depreciation rate in uae, depreciation expense in the previous years, depreciation rate for fixed assets in uae etc. The auditor will review this list and then ensure that it is accurate as per acceptable norms.
Keeping track of fixed assets and their depreciation rate in uae is a big part of audits. This becomes even more complex for diverse organisations that have presence in multiple locations and maintain a large inventory of assets. You can codify such assets using their location, description, identification numbers, or codes, etc. Details like its cost, acquisition date, date when it entered service etc. are also important data points that are relevant for an audit.
Identify the trends and the deviations
As the next step, auditors will look for any deviations from predicted amounts and identify those to see the accuracy of the information. The auditor can conduct a ratio analysis for this and should take into account any variations detected during the audit of the fixed assets. Track the ratios to three to five years to see if there are any reliable variations. The auditor will then make inquiries about the information provided about the fixed assets and based on the responses from the company, he/she will ascertain the existence and condition of the said assets.
Moving forward, and based on the information gathered till now, the auditors will recalculate the mathematical accuracy of the records and the documents. The accuracy of the previous audits ensures that the current and future audits are in line with established standards and do not land the company in trouble for violations resulting from any possible oversights.
Calculating asset cost & depreciation
Calculating the fixed asset cost includes its cost of acquisition along with other expenses like insurance, import duties, customs duties, etc. that have been spent during its purchase. Note that anything that increases the asset’s life of utilization, such as add-ons, modifications, and maintenance expenses, should be capitalized.
For calculating the exact depreciation, you can deduct the salvage value of the asset from the cost of the asset. Calculate depreciation using four different methods: straight-line depreciation, double declining balance, sum of the year’s digits, or units of production depreciation. When charging the depreciation rate in uae, the management will need to determine a different rate for different asset classes. It should be diligently calculated at the end of each month and recorded for ready reference.
Prepare a fixed asset transfer note in more complex situations where the asset is transferred from one division to another or one subsidiary company to another. Prepare a sales invoice in cases where a fixed asset is sold, including ledger account entries for debit provision for depreciation, debit customer ledger account, debit loss of sales of asset (if loss), credit fixed asset ledger account, and credit profit on sale of asset (if profit). Prepare a fixed asset disposal note in cases where the asset is disposed of due to reasons like damage, wear and tear, redundancy, etc., including ledger account entries for debit provision of depreciation, debit assets written off, and credit fixed asset.
In conclusion
Auditing of fixed assets matters because it has an impact on the company’s balance sheets and inaccuracies will continue to cost the company money year after year. It is always recommended to engage an experienced team of auditors for carrying out fixed asset audits and avoid the various pitfalls that could arise from inaccurate data or accounting practices.
If you have any queries about fixed asset audits, depreciation rate in uae, auditing or bookkeeping services, please feel free to contact us at info@nn-ca.com or +97143577678
