The asset audit is the part of the accounting audit that reviews the asset accounts (both current and non-current).
The objective of the asset audit is to verify that these accounts have been accounted for in a way that reflects the true image of the company.
The assets of a company are the set of goods and rights that it has or can have (both short and long term). Therefore, the asset audit seeks to obtain evidence that different items, such as inventories, collection rights, etc. are accounted for.
All of this, in accordance with the applicable financial reporting framework, in such a way that there are no significant errors or omissions.
Riskier items in the asset
Although there may be a risk of misstatement (whether or not material) in any asset item in the annual accounts, there are some more likely to present such risks.
In relation to non-current assets we can cite:
- Those related to property, plant and equipment: Companies can sometimes overvalue their assets (land, buildings). This can be, for example, to present more solid financial statements and thus improve their ratios. In this way, to be more attractive to investors or for merger purposes. This can also happen in reverse.That is, the assets are registered for a lower value than they should be.
- Those contained in the real estate investments heading: For the same reason as the previous one.
- Those related to long-term investments in group companies: These are the main source of suspicion for auditors of possible accounting irregularities. When there are large business groups, made up of a complex organization chart, it is easier for companies to camouflage operations that have not been carried out according to the applicable financial reporting framework.
In relation to current assets we can mention:
- Those related to inventories (especially in relation to the variation from one year to another): Although there must be consistency between the level of income of a company and the variation in inventories that it has had, they are sometimes subject to manipulation. This can be done, for example, in order to present a lower exercise result.
- Those included in trade debtors and other accounts receivable: There may be customer balances that remain in the balance for a long period without being collected. According to the accounting standard, an impairment should be provided for these items. These items may not have been impaired so as not to worsen the annual accounts.
- Items pertaining to investments in group companies and associates in the short term: The auditor's approach is the same as for the long term.
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