Updated: Feb 25
As businesses grow and evolve, so do their fixed assets, which include property, plant, and equipment (PPE). It is essential for businesses to properly record, report, and audit their PPE to ensure accuracy and compliance with accounting standards. In this article, we will discuss best practices and key considerations for the RRA of PPE.
The first step in properly managing PPE is to record it accurately in the company's financial statements. This includes identifying and classifying assets, determining their useful lives, and calculating depreciation expenses. It is important to maintain a detailed fixed asset register (FAR) that includes all relevant information, such as the date of acquisition, the purchase cost, depreciation method, rate, and any impairment losses or disposals.
Once PPE has been recorded, it is important to report it accurately in the company's financial statements. This includes disclosing any significant changes in the PPE balance from the prior period, such as acquisitions, disposals, and impairment losses. The financial statements should also disclose the depreciation method and rate used, as well as the useful lives of each category of assets. It is important to ensure that the financial statements are prepared in accordance with accounting standards, such as International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP).
Auditing PPE involves assessing the effectiveness of the company's internal controls over PPE, testing the accuracy of PPE balances, and evaluating any impairment losses or disposals. Auditors should review the FAR and test a sample of assets for accuracy and completeness. Physical inspections of selected assets may also be necessary to ensure that they are still in use and in good condition. Auditors should also evaluate the company's depreciation policies and procedures, as well as any impairment losses or disposals recorded during the year.
In conclusion, properly managing PPE is essential for businesses to accurately record and report their financial statements, as well as ensure compliance with accounting standards. By following best practices and key considerations for the RRA of PPE, businesses can effectively manage their fixed assets and provide reliable financial information to stakeholders.
To further explore this topic, please review my presentation slides on the RRA of PPE, which provide additional insights and best practices for managing fixed assets.