Internal Control of Fixed Assets A Controller and Auditor's Guide

by King, Alfred M.

• ISBN13: 9780470539408
• ISBN10: 0470539402
• Edition: 1st
• Format: Hardcover
• Copyright: 2011-03-08
• Publisher: Wiley

Summary

For many companies, fixed assets represent the largest single aspect of their financial statement, yet rarely do they command time proportionate to the magnitude of the investment. This is the first book to show how to implement internal controls for fixed assets. It is a step-by-step guide for developing and maintaining a functioning internal control system that will withstand the closest scrutiny from independent public accountants and the PCAOB. With up-to-the-minute discussion of IFRS and GAAP, this is a must-have guide for controllers, auditors, and CFOs.

Author Biography

ALFRED M. KING, CMA, is the Vice Chairman of Marshall & Stevens and the former chairman of Valuation Research Corporation, both of which are national firms of appraisers. In addition, he is the former chairman of the Accounting Committee of the Institute of Management Accountants. He speaks at various conferences (IMA, AICPA, NACVA) on valuation issues.

Table of Contents

Preface	p. xiii
Internal Control, Sarbanes-Oxley, and the Public Company Accounting Oversight Board	p. 1
Internal Controls over Property, Plant, and Equipment-Mandatory but Weak	p. 1
Internal Controls over Working Capital	p. 5
Securities and Exchange Commission and Public Company Accounting Oversight Board Scrutiny of Financial Statements	p. 6
Why Do Auditors Not Spend More Time on Property, Plant, and Equipment?	p. 7
Who Is Responsible for Internal Control over Property, Plant, and Equipment?	p. 9
"What Is So Hard about the Job?"	p. 11
Note	p. 12
Capitalization versus Expense	p. 13
Capitalization Theory	p. 14
Why Capitalization Levels Matter	p. 16
Consequences of Increasing Minimum Capitalization Level	p. 18
What Is the Optimum Capitalization Limit?	p. 22
Summary	p. 24
Note	p. 24
Asset Life Cycle-Controls and Software	p. 25
Software Is the Key	p. 27
Input, Output, and Reporting Capability	p. 29
How to Evaluate Software Vendors	p. 30
Assign Responsibility for Implementation and Beyond	p. 32
Charging Departments Will Ensure Individual Responsibility	p. 33
Return on Investment Analysis	p. 35
Summary	p. 36
Note	p. 37
Depreciation and Amortization for Books and Taxes	p. 38
Internal Control for Depreciable Tangible Assets	p. 39
Determining Useful Lives Whenever New Assets Are Acquired	p. 40
Choosing Accounting Lives	p. 43
How Valuation Specialists Determine Economic Lives	p. 45
Determining Lives for Intangible Assets	p. 46
Changing Lives and Depreciation for Existing Assets	p. 49
Leasing as a Way to Utilize Depreciation	p. 50
Summary	p. 50
Note	p. 51
Impairment Testing	p. 52
Testing Intangible Assets That Are Not Amortized	p. 54
Testing for Impairment of Property, Plant, and Equipment, and Amortizable Intangibles	p. 56
Reviewing Lives for Assets Already in Service	p. 59
Testing for Goodwill	p. 60
Reporting Units	p. 61
Determining the Fair Value of a Reporting Unit	p. 62
Phase II Test of Accounting Standards Codification 350	p. 64
Understanding Impairment Charges	p. 65
Summary	p. 66
Note	p. 67
Physical Control of Property, Plant, and Equipment	p. 68
Tagging of Property, Plant, and Equipment	p. 71
Alternative Tagging Methods	p. 72
Barcode Tagging	p. 73
Radio Frequency Identification Tags	p. 75
Asset Tagging for Expensed Assets	p. 78
Recommendation	p. 79
Summary	p. 80
Notes	p. 80
Taking a Physical Inventory	p. 81
Planning and Using the Physical Inventory	p. 82
Who Should Be Responsible?	p. 83
Use Own Staff, or Outsource?	p. 85
What Minimum Dollar Cutoff Should We Use?	p. 86
Initial Effort-Partial Facility versus Total	p. 87
The $64,000 Question-Assets to Listing or Listing to Assets?	p. 89
Reconciliation of the Inventory to the Records	p. 90
Fully Depreciated Assets	p. 91
Reconciliation Process	p. 92
Revised Asset Lives	p. 94
Summary	p. 95
Note	p. 96
Reconciliation of Physical Inventory to Accounting Records	p. 97
Two Approaches to Reconciliation	p. 99
Ghost Assets	p. 100
Zombie Assets	p. 102
Netting Out Ghost and Zombie Assets-Is It Permissible?	p. 104
Netting Out Gains and Losses	p. 106
Performing the Inventory and Reconciliation Piecemeal	p. 108
Summary	p. 109
Fixed Assets in a Business Combination	p. 110
Carryover of Target's Book Value	p. 111
Applying Indexes to the Target Company's Asset Register	p. 113
Inaccuracies in the Target's Asset Property Register	p. 114
Detailed Valuation of Property, Plant, and Equipment	p. 116
Summary	p. 121
Note	p. 121
Insurance for Fixed Assets	p. 122
Using the Master Property Record for Insurance	p. 123
Insurable Values Are NOT Fair Value or Fair Market Value	p. 124
How Appraisers Determine Insurable Values	p. 125
Indexing	p. 129
Proof of Loss	p. 131
Summary	p. 132
Property Taxes-Personal Property and Real Estate	p. 133
Reporting Fair Market Values upon Acquisition	p. 134
Equity among Taxpayers	p. 137
Appealing Personal Property Tax Assessments	p. 138
Indexed Costs May Not Reflect Fair Market Value of Property, Plant, and Equipment	p. 139
Real Estate Taxes and Appeals	p. 143
"Contingency" Consultants	p. 146
Summary	p. 147
Note	p. 147
Developing the Fair Value of Fixed Assets	p. 148
What Is the Fair Value of Property, Plant, and Equipment?	p. 149
Value in-Use of Property, Plant, and Equipment	p. 151
What Would Happen if Fair Value Reporting for Property, Plant, and Equipment Was Required?	p. 152
Connection between Fair Value and Book Value	p. 153
What Would Investors Learn from Fair Value Disclosures of Property, Plant, and Equipment?	p. 155
Summary	p. 157
Control of Fixed Assets under International Financial Reporting Standards	p. 158
Component Depreciation	p. 159
Asset Revaluation	p. 162
Investment Property	p. 165
What Is the "Cost" of Property, Plant, and Equipment?	p. 166
Summary	p. 167
Note	p. 167
Component Depreciation for Buildings	p. 168
International Financial Reporting Standards Has a Different Approach	p. 169
Component Depreciation for Taxes	p. 170
Complying with Internal Revenue Service Requirements	p. 171
Internal Revenue Service Review of a Cost Segregation Study	p. 175
Cost Segregation Study for New Construction	p. 176
Will Cost Segregation Lower My Property Tax Expenses?	p. 177
Componentization for Financial Reporting	p. 178
Summary	p. 179
Note	p. 179
Appendix: Excerpt of Internal Revenue Service Cost Segregation Audit Guide	p. 181
Introduction	p. 181
What Are the Most Common Methodologies Utilized for Cost Segregation Studies?	p. 182
What Are the Attributes of Various Cost Segregation Methodologies?	p. 182
Detailed Engineering Approach from Actual Cost Records	p. 182
About the Author	p. 184
Index	p. 187
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