Question

Explain the implication and provide a recommendation.

To prepare this analysis, use the following table structure: Weakness Implication Recommendation

Fixed asset cycle:

• No fixed asset schedule is maintained.

Answer 1

Safeguarding the assets of the organization is one of the important functions of the management. This duty cannot be achieved if there is no way of tracking the movement of assets of the firm.

Fixed assets are those which are required for generating revenues for the firm in the form of sales or services.Therefore, if these assets are lost, the firm ceases to be a going concern.

The fixed asset schedule has details of each fixed asset of the company, i.e, unique identification no. cost, date of acquisition,date of commissioning, accumulated depreciation, book value etc. Impairment charges can also be recorded.

The fixed asset schedule is used by the auditors of the company as the primary source to verify the existence of fixed assets, and to trace them back to the general ledger balances.

Not maintaining a fixed asset schedule is a grave lapse in internal control, and exposes the firm to huge losses.

Recommendation: A fixed asset schedule must be prepared immediately by a physical verification of the assets, coupled with the supporting documents evidencing their acquisition and the relevant vouchers.