Unit:
Subject: Sarbanes-Oxley Act Review - Fixed Assets Cycle
Title: Risk and Control Identification
Year end:
REFERENCE
OBJECTIVE
CATEGORY
OBJECTIVE
Acquisition of Fixed Assets
Recorded fixed asset acquisitions represent fixed assets
acquired by the organisation (validity). Fixed assets represent
assets to which the entity has legal rights. Only valid items
are capitalised.
All fixed asset acquisitions are recorded. (completeness)
Acquisitions of fixed assets are not incorrectly expensed.
Fixed asset acquisitions are accurately recorded. (accuracy)
Fixed asset acquisitions are allocated correctly. (classification)
Fixed asset acquisitions are recorded in the appropriate
period. (proper period)
RISK
POTENTIAL RISK
FAS Recorded fixed asset acquisitions do not represent fixed
101 assets acquired by the organisation. Expense items may be
incorrectly capitalised.
FAS Not all fixed asset acquisitions are recorded.
102
FAS Acquisitions may be incorrectly expensed. The
103 understatement of purchases of capital goods will lead to the
understatement of liabilities and assets. Overstatement of
income is also likely as a result of failing to depreciate the
asset which has not been recorded.
FAS Fixed asset acquisitions are not accurately recorded: Fixed
104 asset accounts may be misstated, depreciation amounts may
be incorrect as a result of this. Incorrectly recorded assets
may also be difficult to identify physically at a later stage.
FAS Fixed assets recorded in the wrong asset or expense
105 accounts. Misclassification of fixed assets to conceal
unauthorised purchases (possibly for the benefit of employees
or third parties).
FAS Fixed asset acquisitions are not recorded in the appropriate
106 period. Asset register is not updated promptly.
SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER
RISK (Internal Audit) excluded from the Scope) (Name)
Written capitalisation-expense policies: Guidelines for
capitalising versus expensing acquisitions should be
established. Periodic review by management of assets
captured to assets recorded on the fixed assets register.
Physical asset verification to asset register. Authorisation of
Capex forms in terms of the Limits of Authority including a
review of the cost centre, cost element, Capex number, asset
value and description of the item.
Periodic independent inspection of fixed assets are
conducted. The results are agreed to fixed asset records and
differences timeously investigated, explained and resolved.
Adequate policies are in place to ensure the clear distinction
between items to be capitalised as fixed assets and items
(below certain amounts) to be expensed. Periodic reviews of
the repairs and maintenance account are conducted for any
significant items which should have been capitalised.
Detailed fixed asset records are maintained and updated
directly from source purchase documentation (e.g. supplier
invoice, contract etc). Review by management of source
documentation to loaded data in order to verify the accuracy of
the data captured.
Each asset record is allocated to a specific asset class in
SAP. Master data for an asset class is defined once at the
client level. Asset classes determine the depreciation method
utilised. Asset recordings are scrutinised for correctness.
Authorisation of Capex forms in terms of the Limits of Authority
including a review of the cost centre, cost element, Capex
number, asset value and description of the item.
Fixed assets purchases are recorded at the date of receipt
(per GRN). The accounting manual gives detailed instructions
for recording fixed assets on the date of acquisition. Asset-
related transactions before and after the end of an accounting
period are scrutinised and/or reconciled to ensure complete
and consistent recording in the appropriate accounting period.

OBJECTIVE
CATEGORY
OBJECTIVE
Employees and management are provided with the information
they need to control the capital expenditure process. Cost
overruns and non-budgeted costs are controlled.
Asset acquisitions are authorised in accordance with Board's
criteria. (authorisation) The number of employees authorised
to approve capital asset purchases are limited.
Asset acquisitions are adequate and appropriate to serve the
purposes for which they are acquired.
The cost of asset acquisitions meets the company's criteria for
meeting the investment.
Tax allowances are correctly applied.
REFERENCE
RISK
POTENTIAL RISK
FAS No formalised budgets are communicated to cost centre
107 holders which could result in budget overruns. Non-budgeted
costs might not be formally approved through a Capex.
FAS Asset acquisitions should be made in accordance with
108 Company approval limits and the Capex policy.
FAS Asset acquisitions may not be suitable to fulfil the purposes for
109 which they have been acquired e.g. plant capacity may be
inadequate. Unsuitable or unauthorised assets may be
acquired. Unnecessary property, plant or equipment is
acquired resulting in unused or idle capacity.
FAS The cost of the acquired assets may not meet the company's
110 criteria for meeting the investment.
FAS Taxation allowances may not be correctly applied. Not all valid
111 tax allowances may be claimed. Investment decisions may be
made based on incorrect financial information (i.e. not taking
allowances into account).
SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER
RISK (Internal Audit) excluded from the Scope) (Name)
Asset acquisition and related financing agreements are
reviewed by management (including consideration of the
capital expenditure budget), before being authorised. When
actual expenditures exceed authorised amounts, the excess is
appropriately approved.
Capital expenditure and leasing proposals are prepared for
review and approval by responsible officers. Review and
approval of all capital expenditure requests takes place by a
senior independent person/s: Fixed asset requests for
purchases are approved in accordance with the Limits of
Authority. (e.g. Board approval is obtained for significant
capital asset projects and acquisitions above a certain
amount.) Authorisation of Capex forms includes a review of
the cost centre, cost element, Capex number, asset value and
description of the item. The number of employees authorised
to approve capital asset purchases is limited. Designated
individuals who may initiate capital asset transactions and the
limits of their authority are clearly defined. Written approval is
required for all capital asset projects and acquisitions. Capital
budgets are compared to actual expenditures on a monthly
basis and significant differences analysed, investigated and
reported. Most capital expenditure is anticipated in advance,
comparing budget to actual amounts can help detect misuse
of funds.
All acquisitions are made after a thorough viability study has
been handed in as motivation for the acquisition. These
documents are attached to the Capex, reviewed, authorised
and kept on file. Clearly documented policy statements has
been developed setting forth asset acquisition criteria for the
review and approval of proposed capital expenditure.
Management consults with other Mills to obtain unused assets
prior to purchasing assets. No payments for acquisitions of
assets are effected without correct approval. (See Expenditure
Cycle). All acquisitions are made after a thorough viability
study has been handed in as motivation for the acquisition.
These documents are attached to the Capex, reviewed,
authorised and kept on file.
Documented policy statements have been developed setting
forth assets acquisition criteria such as review and approval of
proposed capital expenditure, acceptable inventory and
service levels, economic analysis and justification. Capital
Expenditure Requests exceeding a predetermined limit are
supported by a cost-benefit exercise.
Company Tax Department review and approval of useful life
and depreciation or amortisation method for each property
addition over a stated amount. The useful lives established
for tax purposes for various classes of properties and
equipment must fall within guidelines published by the relevant
tax authorities.
 REFERENCE
OBJECTIVE
CATEGORY
SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER

RISK
OBJECTIVE POTENTIAL RISK
RISK (Internal Audit) excluded from the Scope) (Name)

Appropriate supporting documentation is retained for fixed FAS Acquisition documentation may be lost or otherwise not Capex forms are pre-numbered, authorised and reviewed. Any
assets. 112 communicated to appropriate personnel. missing documents are investigated and resolved. Route
copy of purchase orders for capital expenditure to personnel
who process fixed assets. Reconcile fixed asset additions
with capital expenditure authorisation.

Company assets can be adequately identified for inventory
purposes. Asset tags are used to control and monitor
inventory.
FAS Acquired assets may not be adequately described. Assets are All assets should be tagged. It should be possible from
113 not identifiable. Assets are not tagged correctly. Asset reference to the tag to determine the asset serial number,
location may be misstated. location, description of the asset and its name. Pre-
determined group assets identification techniques have been
documented and adhered too.

Depreciating Fixed Assets

Depreciation charges are valid. (validity)
Depreciation and amortisation charges are computed and
recorded accurately (accuracy).
FAS Depreciation charges are invalid. Depreciation charges are dictated by the fixed asset
201 accounting policy. Only the fixed asset accountant has
access rights to change the depreciation period. Fixed asset
accountant assesses whether the asset classification is
appropriate. Depreciation exception items (in terms of
expectations established by management) are consistently
identified, monitored, and corrected.
FAS Depreciation charges are not correctly calculated and Standard programmed algorithms perform depreciation
202 recorded. Assets and other deferred cost accounts may be calculations in SAP. Depreciation and other calculations
charged with incorrect amounts. Overheads rates used to performed by the SAP system are regularly reviewed for
value fixed assets may be incorrect due to incorrect accuracy. Depreciation exception items (in terms of
assumptions with respect to allocations and classification of expectations established by management) are consistently
fixed costs. If depreciation is misstated, asset book values identified, monitored, and corrected. Prior to asset disposition
may not be fairly stated. Sales prices for assets may be all transactions should be reviewed, verified and approved by
established based upon incorrect data. Investment decisions management.
may be made based on incorrect financial information.

Depreciation charges are correctly allocated (classification).
All depreciation charges are recorded in the appropriate
period. (completeness and proper period)
The depreciation method and useful life used for depreciating
individual or classes of assets are established in compliance
with company and policies and with GAAP (locally and
internationally). (validity)
FAS Misclassification of depreciation may affect depreciation and
203 taxation amounts.
FAS Not all depreciation charges are recorded in the appropriate
204 period.
FAS The anticipated useful life of an asset may be incorrectly set,
205 establishing an unreasonable period during which cost is
amortised or depreciated. The wrong method may be used to
depreciate an asset. i.e. RBB vs SL, RBB vs Sum-of-the-
Digits, etc.
Fixed asset accountant assesses whether the asset
classification is appropriate. Computation, reporting, and
classification guidelines for asset related transactions have
been documented. Reconciliation of depreciation run and FI-
AM is performed monthly.
Depreciation charges are reviewed by management including
consideration of recording in the appropriate accounting
period.
Specific individuals have been designated to consider
changes in methods of depreciation or life cycle of the asset in
general. Assigned responsibility exists for periodic
independent review of the reasonableness of useful lives
assigned to fixed assets and the methods of depreciation.
Defined economic life cycles and methods of depreciation for
various classes of assets for financial reporting purposes
exist. Established policies regarding depreciation methods
and asset life cycles exist, are communicate to appropriate
personnel, and periodically review to ensure continued
appropriateness. Depreciation detail is reviewed for accuracy
and compliance with policies and procedures. Company Tax
Department review and approval of life and depreciation or
amortisation method for each property addition over a stated
amount.

OBJECTIVE
CATEGORY
OBJECTIVE
Adjustments to fixed assets processed are correctly calculated
and recorded (accuracy)
Adjustments to fixed assets are valid. (validity).
Adjustments to fixed assets are properly authorised in
accordance with company policy. (authorisation)
Adjustments to fixed assets are processed promptly (proper
period).
Disposal and Transfer of Fixed Assets
Recorded fixed asset disposals are valid. (validity)
All fixed asset disposals are recorded. (completeness)
Disposal and transfer of assets and their related adjustments
are accurately recorded in the relevant asset accounts and
Fixed Asset Registers. (accuracy)
Fixed asset disposals are promptly recorded (proper period).
The transfer and disposal of assets are appropriately
approved by management. (authorisation)
REFERENCE
RISK
POTENTIAL RISK
FAS Adjustments processed are calculated or recorded
206 inaccurately
FAS Invalid adjustments are processed. Adjustments may be
207 recorded to conceal fixed asset inventory differences.
FAS Adjustments are not authorised.
208
FAS Adjustments are not processed in the appropriate period.
209
FAS Recorded fixed asset disposals do not represent actual
301 disposals.
FAS Fixed asset disposals and scrapping of old and obsolete
302 assets not recorded. Equipment is disassembled and used for
spare-parts and parts used do not conform to quality
standards set out by the company.
FAS Fixed asset disposals are not accurately calculated and
303 recorded (including incorrect value when disposing of the
asset)
FAS Fixed asset disposals are not recorded in the appropriate
304 period. Asset Register is not updated timeously.
FAS Assets disposals are not made in terms of the company policy.
305 Assets may be sold, transferred or retired without
management's knowledge. Asset disposals or transfers may
not be communicated to appropriate personnel. Assets may
be disposed of at inappropriate prices.
SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER
RISK (Internal Audit) excluded from the Scope) (Name)
Supervisory review, verification and approval of adjusting
entries are conducted.
Management reviews reconciled adjustments made to identify
any unauthorised changes.
Adjustments are authorised in accordance with the Limits of
Authority and reviewed for authorisation.
Asset-related transactions, before and after the end of an
accounting period are scrutinised and/or reconciled to ensure
complete and consistent recording in the appropriate
accounting period. Cut-off and closing procedures and
schedules are developed and followed.
Clear criteria, in writing, exist for the identification and
disposal/transfer of damaged, obsolete, or unneeded fixed
assets. Management review of additions and disposals are
performed by DHO. Pre-numbered disposal documentation is
completed, authorised, processed and kept on file.
Periodic independent checks from fixed asset records are
conducted to ensure that the assets physically exist, especially
those that could be disposed of without a noticeable effect on
operations. Written approval on a pre-numbered standard
form is obtained and authorised by management.
The asset accountant reviews the authorised disposal form
and checks calculations and processing.
Periodic controlling/accounting review of the fixed asset
register (in conjunction with cost centre heads) (inter alia) to
identify assets that have been disposed/scrapped. Asset-
related transactions before and after the end of an accounting
period are scrutinised and/or reconciled to ensure complete
and consistent recording in the appropriate accounting period.
Periodic review and verification of disposal and transfers are
made by independent supervisory personnel.
A formal policy is in place for authorising and reporting on fixed
asset disposals, sale and lease-backs. All recorded disposals
of fixed assets are approved by management. No property is
allowed to leave the premises without the written approval of a
specified executive on a pre-numbered standard disposal
form. A physical check takes place of all fixed assets leaving
the premises to the aforementioned document. Pre-numbered
fixed asset disposal and transfer authorisation forms are
reviewed and missing documents investigated. Comparison of
critical details of each requested sale or other disposals with
established criteria. Review of significant contracts (e.g.
contracts for sales of land) by legal counsel. All assets being
disposed of are compared to market related items and
depreciated value checked.
 REFERENCE
OBJECTIVE
CATEGORY
SUGGESTED CONTROLS TO MITIGATE THE POTENTIAL MANAGEMENT CONTROL or COMMENTS (if Risk is CONTROL OWNER

RISK
OBJECTIVE POTENTIAL RISK
RISK (Internal Audit) excluded from the Scope) (Name)

Disposals of fixed assets to other group companies are
appropriately controlled.
FAS Asset transfers within the group may not be appropriately
306 controlled.
Transfer of assets valued over R1 million to affiliate
companies are approved by the Board. Transfers of assets
within the company, are done at Net Book Value ("NBV") and
transportation costs and costs to set-up are only capitalised to
the extent of the useful life of the asset being transferred.

Disposal of fixed assets is permitted only in accordance with
company policy.
Assets are not disposed of that could be used in other
company / group operations.
Disposal of physical assets is permitted only in accordance
with company policy: e.g. assets are not sold to a party that
will use them in a manner detrimental to the company.
FAS Assets may be lost, stolen or converted to private use. The responsibilities for authorising the removal of assets,
307 contracting for salvage, and subsequent receipt of payment
should be segregated. Periodic review and verification of
disposal and transfers should be made by independent
supervisory personnel. Physical asset verification takes place
periodically.
FAS Assets may be disposed of that could be used in other Sales do not take place without consultation with the other
308 company / group operations. Mills to ensure maximisation of group assets.
FAS Assets may be sold to a party that will use them in a manner Clearly written statements of criteria e.g. Property may not be
309 detrimental to the company. sold to competitors.

All asset disposals comply with appropriate government FAS Transfer or sale of assets may not be made in accordance All statutory requirements such as tax legislation and the
regulations. 310 with regulatory requirements resulting in fines and penalties. Companies Act are complied with. Procedures for disposal of
salvage or surplus property, including segregation and special
handling of dangerous/hazardous equipment and controls to
ensure salvage and surplus do not utilise costly storage
space. Procedures for legal department review and approval
of contracts prior to execution.

Profits or losses on the disposal of assets should be
accurately and promptly classified and reported. (accuracy and
classification)
Correct accounting for Capital Gains Tax on disposals of
assets.
FAS Assets and related accounts may be charged or credited with In SAP, standard programmed algorithms perform the
311 incorrect amounts. Accounting classifications may be calculation of the profit or loss upon disposal of an asset. The
incorrect. profit or loss upon disposal of an asset is independently
recalculated.
FAS Incorrect accounting for Capital Gains Tax on disposals of Gains and losses from the disposition of assets are computed
312 assets. in accordance with GAAP and the Tax act.

Management of Fixed Assets

Fixed Asset Maintenance Records

Fixed asset maintenance records are updated timeously. FAS If maintenance activities are not recorded timely, duplicate
(proper period) 401 maintenance activities may be performed; this, in turn, might
adversely affect the resources available for maintenance
projects.
Records of fixed asset maintenance activity are accurately FAS An inaccurate or incomplete asset maintenance history
maintained. (accuracy) 402 register may result in inappropriate decisions about repair
versus replacement of fixed assets.
Asset maintenance schedules are prepared, updated, and
monitored by management, and activity per the asset
maintenance schedule is reconciled to the asset maintenance
history register regularly.
Maintenance activity is recorded on pre-numbered
sheets/work orders; numerical sequence of such forms is
accounted for. Asset maintenance activities are edited and
validated upon data entry; exceptions are investigated and
resolved. Changes to the asset maintenance history register
are compared to source documents to ensure that they were
input accurately. Management periodically reviews asset
maintenance activities, per the asset maintenance history
register, to ensure compliance with management's objectives.

Safeguarding of Fixed Assets