Fixed asset management and internal control

The PCAOB, and independent auditors, have already started the process of reviewing Internal Controls on Fixed Assets. The best property record system in the world does not represent true Internal Control. The only way to assure that the property record is correct, and that the record truly reflects actual conditions, is to take a physical inventory of PP&E and then reconcile the results.

It is highly likely that there will be some significant discrepancies, due to a multitude of causes. Correcting these discrepancies, in turn, may involve material accounting entries. Whether it is possible to offset discrepancies, assets present but not on the books (zombie assets), with assets on the books that cannot be found (ghost assets) is a matter for each company and its auditors.

In many cases these can be considered corrections of prior accounting errors. In other cases, a charge to expense may be required. Once such an inventory is taken and reconciled, then management can sign the Section 404 assertions with confidence. Right now, it is safe to say, many such 404 assertions are made but without underlying support, at least in the case of fixed asset management.