The critical element of Internal Control

are sometimes referred to as Property, Plant and Equipment (PP&E) and the terms are used interchangeably. In many companies the following elements of Internal Control over PP&E are considered and performed according to standard guidelines:

Fixed Assets

-Approval process for Capital Expenditures (Capex)
-Determination whether planned expenditure is capitalized or expensed
-Purchasing and Accounts Payable systems are correctly applied
-If capitalized, appropriate useful life and salvage value determined
-Correct depreciation expense is calculated and applied each period
-Property tax reports filed with tax jurisdictions
-Insurance coverage relates directly to asset exposure

However, there is one critical element of Internal Control that often is missed. This involves periodically checking that the information shown in the property record system corresponds to the actual assets reported to be there. To put this into perspective, a company may have a very good system of invoicing and accounts receivable, but it is still necessary to confirm the outstanding balances as part of the required annual audit. One well known aspect of this is the verification of ageing debts in the A/R ledger to confirm their collectability.