Fixed Asset Register v/s Depreciation Schedule: A Crucial Tool for Internal Audit

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Fixed Asset Register v/s Depreciation Schedule: A Crucial Tool for Internal Audit
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Fixed Asset Register vs. Depreciation Schedule: A Crucial Tool for Internal Audit

Introduction

Fixed assets form a significant portion of an organization’s financial position. Whether it’s land, buildings, machinery, or office equipment, businesses must ensure proper recording, tracking, and valuation to maintain financial accuracy and regulatory compliance. Two critical records used for this purpose are the Fixed Asset Register (FAR) and the Depreciation Schedule.

While both deal with fixed assets, they serve distinct purposes. The FAR is primarily a management and control document, ensuring that assets are properly recorded and verified, while the Depreciation Schedule focuses on the gradual reduction in asset value for financial reporting and tax compliance.

For internal auditors, the FAR plays a pivotal role in verifying the existence, valuation, and movement of assets. Let’s explore this in detail.

Fixed Asset Register (FAR) and Its Role in Internal Audit

A Fixed Asset Register (FAR) is a structured record that maintains detailed information on all tangible assets owned by an organization. It is a vital tool for internal control and audit and is used to ensure that all assets reported in the financial statements exist, are properly valued, and comply with statutory requirements.

Key Components of a Fixed Asset Register

A well-maintained FAR includes the following details:

  1. Asset Identification– Unique asset number, description, and category (land, building, machinery, etc.).
  2. Capitalization & Valuation– Purchase cost, related acquisition expenses (freight, installation, duties), and initial recognition.
  3. Legal Ownership & Documentation– Title deeds, lease agreements, mortgages, and encumbrances.
  4. Depreciation & Impairment– Depreciation method, rate, accumulated depreciation, and impairment losses.
  5. Physical Verification & Asset Movement– Location, periodic verification records, inter-branch transfers.
  6. Security & Insurance– Details of insured assets, pledged securities, and loan collateral.
  7. Regulatory Compliance– Ensures alignment with Schedule III of the Companies Act, 2013, CARO 2020, and Ind AS 16 (Property, Plant & Equipment).

FAR in Internal Audit: Key Areas to Examine

Internal auditors rely on the FAR to verify compliance with financial regulations and corporate governance. Here’s how:

  1. Existence & Physical Verification

    2. Internal auditors cross-check physical verification reports with the FAR to confirm asset existence. CARO 2020 mandates auditors to verify whether:

    • The company maintains proper records of all assets.
    • Assets have been physically verified at reasonable intervals.
    • Any discrepancies found are properly dealt with in the books.
  2. Ownership & Legal Title Verification

    3. The FAR should contain title deeds and lease agreements. Under Schedule III of the Companies Act, 2013, if a company does not hold title deeds for immovable properties, it must disclose this in financial statements. Internal auditors should verify:

    • Whether all land and building title deeds are in the company’s name.
    • If leased assets are properly recorded and lease agreements are valid.
    • Whether any assets are pledged as security for loans.
  3. Depreciation & Asset Valuation

    4. Internal auditors compare the FAR with the Depreciation Schedule to ensure proper accounting treatment. Ind AS 16 requires:

    • Assets to be depreciated based on their useful life and method (SLM or WDV).
    • Proper disclosure of revaluation gains/losses if any asset is revalued.
    • That accumulated depreciation matches recorded book values.
  4. Fraud & Misappropriation Detection

    5. A missing asset in physical verification but recorded in the FAR may indicate fraud or misstatement. Internal auditors check:

    • If disposed assets are still recorded in the FAR.
    • Unauthorized sale, transfer, or personal use of company assets.
    • Whether asset insurance policies are valid and premium payments are up to date.
  5. Compliance with Regulatory Requirements

    6. Under CARO 2020, auditors must report on:

    • Whether the company has properly maintained the FAR.
    • If there are discrepancies in physical verification.
    • If assets have been revalued by a Registered Valuer.

    The Companies Act, 2013 and Ind AS 16 require companies to disclose:

    • Details of capital work-in-progress (CWIP).
    • Whether asset revaluation was done by a Registered Valuer.
    • Aging schedules for assets under construction.

    Depreciation Schedule: Role in Financial Reporting

    Unlike the FAR, which tracks assets for control and management, a Depreciation Schedule helps companies systematically allocate the cost of an asset over its useful life.

    Key Components of a Depreciation Schedule

    1. Asset Details– Name, category, acquisition date.
    2. Depreciation Method– Straight-Line Method (SLM) or Written Down Value (WDV) Method.
    3. Useful Life & Residual Value– Determines depreciation expense.
    4. Annual Depreciation Expense– Affects the Profit & Loss Statement.
    5. Accumulated Depreciation– Total depreciation charged to date.
    6. Carrying Value– Net book value of the asset in financial statements.

    Why Internal Auditors Compare FAR with Depreciation Schedule

    1. Accuracy of Depreciation Calculation– Ensures correct rates and methods are applied.
    2. Compliance with Accounting Standards– Ind AS 16 mandates proper recognition of depreciation.
    3. Matching with FAR Records– Prevents overstatement or understatement of asset values.

    Key Differences: FAR vs. Depreciation Schedule

    Aspect Fixed Asset Register (FAR) Depreciation Schedule
    Purpose Tracks, manages, and verifies fixed assets Calculates depreciation for financial reporting
    Regulatory Requirement Required for asset tracking & disclosures under the Companies Act, 2013 Required for financial statements & tax compliance
    Scope Covers ownership, cost, verification, movement Focuses on value reduction over time
    Contents Asset details, capitalization cost, legal records Depreciation method, useful life, residual value
    Audit Relevance Used to verify existence & control of assets Ensures depreciation accuracy & compliance

    Conclusion

    Both the Fixed Asset Register (FAR) and Depreciation Schedule are valuable financial reporting and internal auditing tools. While FAR enables the proper verification, tracking, and control of assets, the Depreciation Schedule enables proper valuing and depreciating of assets over time.

    Internal auditors need to reconcile the FAR with the Depreciation Schedule as a n imbalance in asset records may result in financial misstatement, tax loss, or risk of fraud. By maintaining accurate and up-to-date records, companies strengthen internal control, enhance financial transparency, and ensure compliance with statutory requirements—a critical aspect for both auditors and stakeholders.

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