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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

While walking through the Pune plant of Sahyadri Auto Ltd., an internal auditor notices three CNC machines in use that cannot be found in the fixed asset register. Which risk does this primarily indicate?

It indicates understatement of assets or unrecorded additions. Assets that exist physically but are absent from the register may have been expensed wrongly or acquired off-book. Fictitious assets would appear the other way round, as register entries with no physical asset.

  1. AOverstatement of assets due to fictitious entries
  2. BUnderstatement of assets or unrecorded additions, possibly expensed or off-bookCorrect
  3. CExcess depreciation charged on existing assets
  4. DWrong classification of assets as current assets

Explanation

Assets found physically but missing from the register suggest incomplete recording, for example capital items charged to revenue or purchased off-book. Fictitious entries would show up as register items not found physically, which is the reverse situation.

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