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Are you looking for a guide of control over fixed assets for your annual financial reporting?
Knowing the exact situation of its fixed assets is not a matter of comfort for a company. Internal control is a very important concept for companies, for their management, and the aim of which is to better control all the processes implemented by the business to achieve its objectives.
This is most often an obligation, imposed by an increasingly restrictive legal and regulatory framework. However, good control over fixed assets can significantly improve the profitability of the business.
Discover what control over fixed assets is, their importance, key internal risks, and how to control it in this article.
Let’s go!
Internal control is a company mechanism, defined and implemented under its responsibility. It includes a set of means, behaviors, procedures, and actions adapted to the specific characteristics of each business which:
The management of fixed assets is undoubtedly one of the most important aspects of the management of the assets of an industrial or commercial enterprise. To guarantee the protection of its fixed assets, the business must put in place a reliable internal control system and carry out a periodic physical inventory. In addition, fixed assets obey specific accounting and tax rules that the business must comply with.
For the main operations relating to fixed assets, the main objectives of internal control are as follows:
It's a priority not only to have an exact and reliable view of the company's assets at the time of the balance sheet, but also to have a permanent follow-up of the various fixed assets, and their book value through the follow-up of depreciation, in order to deal with any eventuality, in particular a legal obligation of a government or fiscal obligation.
For the internal control over fixed assets, compliance with which must be examined in one year, are the following requirement :
Assets include not only "tangible assets" such as machine, equipment, ... but also "intangible assets" such as capacity, image, or reputation. These assets can disappear as a result of theft, fraud, unproductivity, errors, or the result of poor management decisions, or weak internal control.
Particular attention should be paid to the related processes. The same applies to the processes relating to the preparation and processing of accounting and financial information. These processes include not only those that directly deal with the production of financial reporting, but also the operational processes that generate accounting data.
Each prime contractor who acquires, owns, manages, uses, changes, and/or controls a fixed asset must monitor this asset and guarantee that it is not lost, damaged, stolen, or misused, including fraudulently. The prime contractor will therefore need to have adequate policies and procedures to manage operational aspects related to fixed assets such as, among others, distribution, use, insurance, maintenance, repair, and physical metering of the assets concerned.
Fixed assets generally constitute a large part of the company's assets. It is therefore important that the business protects itself against risks that may threaten its physical existence. Most often, the measures that should be required in this area are:
While the management of fixed assets is in itself a constraint for the business, it is also a potential profitability lever that should not be overlooked. It is therefore advisable to see the management of fixed assets from this dual angle of regulatory constraint and profitability.
Precise knowledge of the company's assets and monitoring of the book value of fixed assets, compared to their market value, in particular, makes it possible to: manage the disposal of fixed assets as effectively as possible, and therefore to deal with obsolescence of the production while generating any capital gains on the disposal of fixed assets.
It is up to each business to set up an internal control system adapted to its situation. As part of a group, the parent company guarantees the existence of internal control systems within its subsidiaries. These arrangements should be adapted to their specific characteristics and to the relations between the parent company and the subsidiaries.
For significant holdings value, in which the parent company exercises significant influence, it is up to the latter to assess the possibility of acquainting itself with and examining the measures taken by the holding concerned with regard to internal control.
The accounting rules applied in the business define intangible and tangible fixed assets:
the identification criteria including, in particular, the rules for distinguishing between charges (maintenance, repairs) and fixed assets; the criteria for recognizing fixed assets dealing with the following issues:
These rules are reviewed regularly:
The internal control system of fixed assets, no matter how well- designed and applied, cannot provide an absolute guarantee as to the achievement of the company's objectives. The likelihood of achieving these goals is not a matter of the will of society alone. There are in fact limits inherent in any internal control system.
These limits are the result of many factors, including uncertainties in the outside world, the exercise of judgment, or malfunctions that may arise from human failure or simple error.
In addition, when setting up controls, it is necessary to take into account the cost/benefit ratio and not to develop unnecessarily costly internal control systems, even if it means accepting a certain level of risk.
In conclusion, knowing how to control fixed assets is essential. Remember that there are 2 types of control: physical and financial control. Physical control is used to confirm the existence, and condition of the fixed asset while financial control is designed to verify if the values recorded in the books of the record are accurate.