Fixed asset audit testing has two parts: verifying that what is in the books exists physically, and verifying that what exists physically is in the books. Both directions matter and both need preparation.
What you'll learn
→ The fixed asset register → Physical verification → Capitalisation policy review → Disposals and impairmentThe fixed asset register
A complete register lists every capital asset: code, description, acquisition date, supplier, cost, useful life, depreciation method, salvage value, location, custodian, and accumulated depreciation. Auditors will not start fieldwork without it.
Maintain the register continuously, not at year-end. Every acquisition gets entered with the supporting invoice and delivery note. Every disposal gets entered with the disposal documentation. Reconcile to the GL monthly.
Physical verification
Auditors select a sample (10-20 items) and physically verify them. Each item: locate at the address on the register, confirm asset code and description match, photograph if material. Items not located must be explained, possibly disposed without removal from the register.
Verify in reverse too: select 5-10 visible assets at the premises and trace back to the register. Items present but not in the register suggest unrecorded assets, common in fast-growing businesses where capex is informal.
Capitalisation policy review
Auditors test that items were correctly capitalised vs expensed. The threshold should be in your accounting policy (typically AED 5K-10K per item). Items above threshold should be on the register. Items below threshold should be in the P&L.
Improvements vs repairs: improvements that extend useful life or capacity are capitalised. Repairs that maintain are expensed. The line is sometimes blurry. Document the rationale for material items; auditors will probe judgement areas.
Disposals and impairment
Disposals: confirm gain or loss on each disposal in the year. Auditor traces to GL, then to disposal documentation (delivery note, customer invoice, purchase order from buyer). Untraceable disposals raise theft or unauthorised disposal flags.
Impairment indicators: assets damaged, obsolete, or held for sale at less than carrying value. Run an annual impairment review for material items. Document the conclusion. Where impairment is identified, write down the asset to recoverable amount.
This guide is general information, not professional advice. For situations that involve specific facts, talk to your accountant, or hire one of ours from the marketplace.