Managements

Audit Objectives & Risks Work Done with observations Observations noted Response

Objective Relevant Managers were inquired There is no overall policy for fixed asset
1. Ensure that organization has developed regarding the asset management, management.
an overall policy for fixed asset acquisition, disposal and accounting There is no documented policy or procedures
management. treatment of the fixed assets. available governing aspects of asset acquisition,
2. Documented procedures are available These inquiries were also disposal etc. But in case of accounting treatment
governing all aspects of asset corroborated with the audited policy in place is in accordance with IFRSs.
acquisition, accounting treatment, financial statements and ERP system The policy to capitalize assets is that asset costing
disposal, etc. records. more than Rs. 50,000 is capitalized, this is a verbally
Risk agreed policy or practice but there is no authorized
In the absence of properly documented document from the management of the company.
policies and procedures, uncertainties may
exist and errors may occur in asset
acquisition, accounting treatment, disposal,
etc. which may ultimately lead to financial
loss and misreporting in the financial
reporting.
Objective Selected a sample of capital No observations noted.
3. Determine if compliance with prevailing expenditures and asset acquisitions
accounting practices and policies made during the year in the Head
adopted by the management are office.
followed. Verified that there was evidence of
Risk management approval for such
Errors may occur in asset acquisition purchases.
accounting treatment. Verified that the asset purchases
were made in accordance with the
company policy and also verified
evidence of management approval.
Objective Interviewed managers for the There are no procedures being followed to verify
4. Pre-numbered identification tags are procedures followed to verify the the physical existence of assets on a regular basis,
attached to fixed assets on acquisition existence of assets on a regular just audited accounts are considered sufficient for
to facilitate accurate identification of basis. physical existence of assets.
assets and recording of details. Selected a sample of assets from the Fixed assets were not tagged at all and they cant
Risk asset register from the ERP system be identified separately for checking physical
Risks may be, and visited the location and verified existence except Vehicles and laptops only.
Difficulty in tracing of fixed asset. if the assets were tagged on the date Completeness of fixed assets cant be ensured as
of acquisition and the identification the distinction of head office/Mill assets in the ERP
Duplication in recording of assets.
in the tag is in match with the system records is not reliable (based on inquiry
Misappropriation of assets. identification in the asset register. from Mr. Tariq Baig DM Accounts).
No record of asset at all. On sample basis, selected the fixed
assets and checked for the
completeness of its records in the
ERP system.
Objective Obtained inventory reports of all Fixed asset records are not updated for current
5. Determine if assets which were recorded fixed assets containing the location of the fixed assets
on the fixed asset register exist. classification of movables, Custodian or the responsibility center of the fixed
Risk immoveable etc. assets is not identified in the fixed asset records.
There may be some assets in the Physically inspected each asset
accounting records which do not selected to verify its existence at the
physically exist. correct location.
Not all fixed asset acquisitions are
 recorded.

Objective Interviewed management if changes There is no evidence that the fixed asset register is
6. The fixed asset register is periodically made to fixed assets register are reviewed periodically and reconciled with the
reviewed and updated by the finance reviewed periodically and reconciled General/ledger as there are no authorization
department and reconciled to the with the General/Ledger. controls in the ERP system or manual document
corresponding general ledger accounts. Obtained evidence of the review signing control for this process activity
7. Any reconciling items are identified and performed by the management. Also there no segregation of duties in this process
addressed in a timely manner. activity as the person responsible for updating
8. Processes are in place to protect the records is the person ultimately reviewing it or
asset records and accounting reconciling it with the GL.
information from loss or unauthorized
access.
9. Requests to change the fixed asset
register are logged; the log is reviewed
to ensure that all requested changes are
processed by authorized personnel.
Risk
Fixed asset register may not be
reconciled with the General Ledger
ultimately results in the possibility of
mismanagement of assets and
misreporting in the financial
statements.
Objective Selected a sample of asset transfers. Intercompany transfers are not approved and
10. Asset transfers (i.e. inter-company and Verified that whether the transfers documented in the asset records as we noted that
within company between plants) are were approved and documented some of the cars of SFL were being used by DFL
suitably approved, documented and appropriately. employees i.e. Asset no. 113417, 109313, 115978.
trailed.
Risk
Assets may be transferred without
management's knowledge and
approval.
Assets transfers may not be
communicated to appropriate
personnel.
Assets transferred on account of
intercompany but misappropriated to
other location
Objective Inquired about any pledges of assets Upon inquiry from the finance department it was
11. All pledges of assets as security are from the finance department. noted that there were no pledges on the fixed
suitably authorized, documented and Verified that whether pledges were assets of the company. But in the audited financial
confirmed as allowable under the made after obtaining appropriate statement of the company it was noted that there
prevailing regulations. approvals from the management of were pledges present on the companys assets.
Risk the company. Further internal audit was ensured that this is by
In the absence of properly Verified whether the pledges of error of external auditors that this mistake is seen
authorized and documented pledges, assets are in compliance with in the audited financial statements.
there are chances of obtaining loan on regulations. Further it should also be noted that according to
the same asset. the applicable IFRSs management of the company
Personal loan may be taken on the is responsible for the financial reporting.
 assets of the company.
Objective
12. All asset disposals are subject to
adequate levels of authorization and
evidenced.
13. Management reviews the asset disposal
proceeds to ensure that they are
accounted for and posted to the
appropriate accounts.
14. The asset records/registers are correctly
updated upon the disposal of an asset
item.
Risk
Disposals are not in compliance to
policy.
Assets may be sold, transferred or
retired without management's
knowledge.
Fixed asset disposals and scrapping
of old and obsolete assets not
recorded.
Asset Register is not updated
timely.
Assets may be disposed of at
inappropriate prices.
Objective
15. Assets are adequately identified and
protected from theft, loss, damage, etc.
Risk
It may lead to financial loss to the company
or Misappropriation of assets.
Objective
16. Key assets are adequately insured and
management ensures that insurance
coverage is maintained and at the
appropriate level.
Risk
Possibility that assets are not adequately
insured, consequently claims can't be
lodged.
Obtained a list of asset disposals
made during the year and obtained
supporting documentation.
Verified evidence of authorization by
management for a sample of
disposals.
Verified that the transaction was
posted to the correct accounts and
are reviewed by management.
Verified if the disposal is updated in
the asset register.
Interviewed management regarding;
The policies implemented to protect
the assets.
Whether management inspects the
assets periodically.
Inquired the management for any
loss/theft/damage to assets during
the year.
Inquired about;
Insurance coverage on assets.
Insurance policies to check that
policies are adequately covering all
risks.
Recent claims submitted.
Whether the assets are insured
adequately and completely.
There were no observations noted except that
there is no authorization control in the ERP system
to ensure that the manager has reviewed the
particular process document i.e. fixed asset
register.
No policy exists regarding safeguarding and
physical custody of assets but in case of vehicles
insurance policy covers theft and accident etc.
Head office furniture and fixtures are the only fixed
assets that are insured under the Sapphire Group
policy.
Insurance policy of the company related to the
Head office is not appropriately providing coverage
to all class of assets i.e. as only one class of fixed
assets is insured.
There have been no recent claims related to the
fixed assets of the head office.