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Unit 11: Introduction to Special and Efficiency Audit

4. Auditing of Fixed Assets: The Guidance Note on Audit of Fixed Assets issued by the ICAI Notes
recommends that the verification of fixed assets consists of examination of related records
and physical verification. The auditor should normally verify the records with reference
to the documentary evidence and by evaluation of internal controls.
The verification of records would include verifying the opening balances of the existing
fixed assets from records such as the Schedule of fixed assets; ledger or register balances to
acquisition of new fixed assets should be verified with reference to supporting documents
such as orders, invoices, receiving reports and title deeds. Self-constructed fixed assets and
capital work-in-progress should be verified with reference to the supporting documents
such as contractors’ bills, work orders and independent confirmation of the work performed
from other parties. When fixed assets have been written off or fully depreciated in the year
of acquisition, the auditor should examine whether these were recorded in the fixed assets
register before being written off or depreciated. In respect of retirement of fixed assets, the
auditor should examine whether retirements were properly authorised, whether
depreciation accounts have been properly adjusted, whether the sale proceeds, if any,
have been accounted for and the resulting gains or losses, if material, have been properly
adjusted and disclosed in the profit and loss account. In case the asset has impaired the
auditor must ensure that the asset has met the criteria as specified in AS 28, “impairment
of Assets”.

The ownership of assets like land the buildings should be verified by examining title
deeds. In case the title deeds are held by other persons such as bankers or solicitors,
independent conformation should be obtained directly by the auditor through a request
signed by the client.

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Caselet Audits as a Tool for Standardization and
Improvement: A Case Study from India

olgate-Palmolive is the world’s number one seller of toothbrushes and its single
largest volume market is the subcontinent of India, where its market share there
Cis in excess of 70%. Indian law classifies the toothbrush as a “light industry”
product and imposes limitations on the volume that can be produced at any one facility.
Although this measure is designed to aid employment by spreading business among a
number of smaller manufacturers, it ensures that Colgate-India, which is entirely
dependent upon contract manufacturers for its toothbrush production, has a large number
of suppliers to manage and control.

To assist Colgate-India in managing its 20+ suppliers and to support their operating at
acceptable quality and manufacturing levels, a special audit standard was created. Audit
criteria were based on minimum requirements for product quality, quality control and
GMP (Good Manufacturing Practice), especially as they pertain to fundamentals in
cleanliness, sanitation and hygiene. Although the author does not, as a rule, favour scoring
audits it was useful to provide a scoring system for this particular audit standard to
establish a baseline for compliance and to measure improvement for follow-up.
Supplier quality engineers from India were trained in the US at Colgate’s centre-of-
excellence facility in Puerto Rico. In July, 195 two engineers from Colgate’s corporate
engineering group went to India, and together with the afore-mentioned CP-India
personnel, they audited twelve key suppliers to the new standard. A corporate person led

Contd....

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