Compliance and Audit Checklist

1. General

a) Have you ensured that assets treated as “Property, Plant and Equipment” (“PPE”) are tangible items that –

1. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
2. are expected to be used during more than a period of twelve months. (Para 6)

b) Have you ensured that Investment property, as defined in AS 13, Accounting for Investments,

1. should be accounted for only in accordance with the cost model prescribed in this standard? Also, biological assets (other than bearer plants) and wasting assets are excluded?

c) Do the audit procedures carried out indicate that the enterprise has adequate internal control systems, to ensure that

1. Tangible Fixed assets can be and are properly grouped into different classes of assets
2. Assets maintained is updated at reasonable intervals (have assets retired from use been removed from Register?)
3. Physical verification of assets can be and are carried out at reasonable intervals

d) Are the internal control systems adequate in the areas of

1. Cost of assets held being correctly recognised as per Revised AS 10
2. Subsequent expenditure being capitalised only where the cost meets the definition criteria
3. Other expenditure being recognised as expense
4. A periodical review is undertaken for derecognition of assets

2. Accounting Policy

a) Do the audit procedures indicate that the auditee has established an appropriate accounting policy for Property, Plant and Equipment?

b) If yes, does the policy incorporate appropriate accounting treatment for

1. Initial recognition of cost
2. Subsequent expenditure
3. Measurement bases used for determining the carrying amount of assets
4. Depreciation methods adopted
5. Annual review of Residual Value, Useful Lives, and Depreciation methods adopted
6. Derecognition of assets

c) Are the policies consistent with provisions of AS 10 Revised?

3) Identification

a) Is the fixed assets register maintained?

b) Have you ensured that items included in the Fixed Assets Register are as per Point 1 mentioned?

c) Whether any PPE is expensed out which could otherwise have been included as PPE, because the amount of the expenditure is not material? (Para 9) If yes, attach a separate list – subject to ensuring that the expensing method adopted for such items is in order.

4) Recognition & Measurement

a) Have you ensured that Cost of an PPE is recognised only if (as per definition), future economic benefits are expected, and cost can be measured reliably?

b) Are items such as spare parts, stand-by equipment and servicing equipment recognised in accordance with this standard if they meet the definition of PPE (have such items been classified as Inventory)?

c) Whether the capitalisation amount of PPE include only the amount specified below? (Para 17)

1. Purchase Price, including import duties and non – non-refundable or recoverable purchase taxes, after deducting trade discounts and rebates
2. Costs directly attributable to bringing the assets to the location and condition necessary for its operation
3. Cost of Decommissioning, Restoration and similar liabilities to be incurred in future (in this case, please ensure that an obligation exists)
4. And, directly attributable costs (subject to proper allocation) such as employee benefit costs, site preparation, professional fees, etc.

d) Where items have been purchased on more than normal credit terms, has the finance costs been separated?

e) Has it been ensured that (i) costs incurred after an item is ready for use, costs relating to initial operating losses, and (ii) costs of relocating or reorganizing a part or whole of operations of an entity, are NOT included in the recognition of costs.

f) For assets acquired under consolidated invoice, has fair value principle been applied in apportioning costs to each item of PPE?

g) For jointly owned assets has the entity apportioned his share of costs equitably, with the terms of ownership sharing? Also, details of ownership share have been obtained, and documented properly?

h) Exchange of assets

1. Are there any instances of assets acquired in exchange?
2. Has the auditee ensured that the assets have been recorded at the fair market value of the asset – except in cases where (i) the transaction lacks commercial substance, or the FV of incoming or outgoing assets is not clear

unless

i) In other cases, has the auditee measured the incoming asset at the carrying amount of the outgoing asset?

j) Self-Constructed Assets

1. Does the auditee have any self-constructed assets?
2. If so, ensure that the costs are determined on the same lines as any acquired asset. Internal profits should be excluded while arriving at the cost, if the enterprise makes similar assets for sale in the normal course of business.
3. Government grants – in case of assets supported by such grants has the auditee measured the asset correctly?

k) Bearer Plants

1. Does the auditee recognised any asset as bearer plant?
2. Ensure that bearer plants are accounted for in the same way as self-constructed items of PPE. Consequently, references to ‘construction’ in this Standard should be read as covering activities that are necessary to cultivate the bearer plants.

l) Subsequent costs

1. Ensure that costs of the day-to-day servicing of the item is not recognised as carrying amount of the item.
2. In case PPE which requires replacement of parts at regular intervals, ensure that such costs are recognised in the carrying amount only if it fulfils the recognition criteria given in Para 7. The carrying amount of those parts that are replaced should be derecognised
3. In accounting for subsequent costs, have recognition criteria been met properly? (expenditure not so covered, should be expensed)

5) Cost Model- For those class of assets:

If the company has chosen Cost Model, have you ensured that items of PPE are carried at cost less any accumulated depreciation, and any accumulated impairment losses?

6) Revaluation Model – For those class of assets selected by the auditee Company

a) Where an item of PPE is revalued, have all items held under that class of PPE to which that asset belongs also revalued? (if not this requires discussion with management and reasons documented)

b) Has the auditee ensured that PPE is carried at fair value at the date of revaluation?

c) Has it been ensured that fair value is in accordance with fair value measurement guidelines prescribed in the Standard?

d) Is the periodicity of revaluation satisfactory? (are the items being revalued at reasonable periodicity)

e) Has the accounting procedure adopted by auditee reviewed, to ensure that ‘revaluation accounting” (gross vs net adjustment) is in order?

• i) Have you reviewed the depreciation accounting for revalued assets? If yes, is it in order?
• ii) Has the auditee followed correct accounting for the second and subsequent revaluations (upward, and downward)

14) Disclosures

a) Are the disclosures under Accounting Policies adequate and include the following

1. Depreciation methods used
2. Useful lives or the depreciation rates used, if they are different from the principal rates specified in the Statute governing the enterprise
3. Recognition of costs incurred for replacement of major parts and towards major inspection and overhaul costs
4. Measurement bases, i.e., Cost Model or Revaluation Model used for determining the carrying amount

b) Does the Schedule supporting Plant, Property and Equipment indicate a reconciliation of the carrying amount at the beginning and end of the period to show –

1. Gross carrying amount, accumulated depreciation, and accumulated impairment loss at the beginning of the period
2. Additions to tangible assets
3. Acquisitions through amalgamations
4. Increases resulting from revaluations under paragraph 41 and from impairment losses reversed directly in revaluation surplus in accordance with AS 28 (also decreases where applicable)
5. Impairment losses reversed in the statement of profit and loss in accordance with AS 28
6. Depreciation
7. Impairment losses recognised in the statement of profit and loss in accordance with AS 28
8. Decreases resulting from revaluations under paragraph 42 and from impairment losses recognised directly in revaluation surplus in accordance with AS 28
9. The net exchange differences arising on the translation of the financial statements of non-integral foreign operation in accordance with AS 11 (The effects of changes in foreign exchange rates)
10. Other Changes, and
11. Gross carrying amount, accumulated depreciation, and accumulated impairment loss at the end of the period

c) Does the Schedule also indicate the amount of expenditure recognised in the carrying amount of tangible fixed assets in the course of its construction?

d) Has the auditee included appropriate Notes on Accounts, to explain under noted points as applicable

1. Existence and amounts of restrictions on title, and tangible fixed assets pledged as security for liabilities
2. The amount of contractual commitments for the acquisition of tangible fixed assets, and
3. If not separately disclosed in the statement of profit and loss, the amount of compensation from third parties for tangible fixed assets that were impaired, lost or given up that is included in the statement of profit and loss.
4. Changes in (i) residual values, (ii) estimated useful lives, (iii) method of depreciation, and (iv) estimated costs of dismantling, removing or restoring tangible fixed assets, being changes in accounting estimates, where material and significant, requires to be disclosed in accordance with AS 5.

e) Where the auditee has adopted Revaluation Model of reflecting the carrying amount of assets, have the following disclosures been made

1. Effective date of revaluation
2. Whether an independent valuer was involved
3. The methods and significant assumptions applied in estimating fair values of the assets
4. The extent to which fair values of the assets was determined directly by reference to observable prices in an active market or recent market transactions on arm’s length terms, or was estimated using other valuation techniques.

f) Useful Lives and where these are different from prescribed in Schedule III?

g) Are the useful lives (shown in f above) supported by technical evaluation?

h) Have the following aspects of Disclosures (optional) been discussed with the auditee, and information incorporated where appropriate

1. Depreciation, whether recognised in the statement of profit and loss or as a part of the cost of other assets during a period
2. Carrying amount of temporarily idle tangible fixed assets, gross carrying amount of tangible fixed assets retired from active use and not classified as held for sale in accordance with the proposed Standard on Non-current Assets Held for Sale and Discontinued Operations.

More Articles on Accounting Standard 10

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• Dive into comprehensive specimen disclosures for AS 10-Click here
• Find answers to frequently asked questions about AS 10: Property, Plant, and Equipment-Click here