Audit Program

Process: Capex

Process Note
Process

Purchases

Vendor Management

Accounts

Fixed assets/ WIP, Capitalisation,

Depreciation and Disposal

FAR

Physical Verification

Dewan P. N. Chopra & Co.

Chartered Accountants
Audit Program
Process: Capex
Sub Process: Purchases

Nature of
SL. Control Sample Templat
No. Process Sub Process Risk Control Activity Audit Procedure Documents Required Preventive/ Size e
Detective
Inadequate CAF (Capex 1. Authority matrix for approval Check the CAF used in all the cases of capex
Approval Form) / unapproved of Capex should be defined. approval in the past to see whether the
may lead to inaccurate 2. Reasons for purchase without prescribed form has been used.
decisions. approval should be documented.
1 Fixed Assets Indenting Capex approval forms Detective

Unauthorized/fake vendors Authorization should be done by Comparative Analysis Report prepared by

taken for comparison in HOD's to determine the concerned personnel would be cross checked by
Comparative Analysis Report genuineness of CAR. HOD's to ensure its completeness in all material All RFQs (Request For Quotation)
2 Fixed Assets PO issuance (CAR) can lead to Fraudulent respects. received, Comparative Analysis Preventive
Purchases. Report, List of Black listed vendor.

Less number of vendors taken Ensure that minimum number of Ensure that minimum number of quotation as
for comparison of Quotations quotations as defined in policy defined in policy are received for comparatives.
will lead to Biased are received for comparatives.
Procurement/Bid-rigging/ All RFQs received, Comparative
3 Fixed Assets PO issuance unfamiliarity with market Preventive
Analysis Report
prices.

Required quantity not QCS (Quotation Comparative QCS needs to be prepared keeping in view the
mentioned in Comparative Statement)needs to be prepared quantity required.
Analysis Report can affect keeping in view the quantity
4 Fixed Assets PO issuance negotiations. required. CAR (Comparative Analysis Report) Preventive

Rate are as per the mutual 1. Approval for rates agreed by In case the rates are dependant on a particular
understanding entered with the the vendors should taken. web site, that particular web site and and similar
vendor 2. Such rates should be updated web sites are monitiored regularily to ensure
from time to time as per industry proper negotiations and best deal for the Rates of that particular websites and
5 Fixed Assets PO issuance practice. company changes if any Detective
 All relevant factors (such as QCS needs to be prepared Check whether all relevant factors were
rate, quantity, delivery item, keeping in view all the considered while comparison such as rate,
terms, quality specifications comparative factors. quantity, delivery item, terms, quality
etc.) not considered in specifications etc.
Comparative Analysis Report Comparative Analysis Report ,
6 Fixed Assets PO issuance can lead to inefficacious Detective
Quotations , RFQ.
comparisons.

Comparative Analysis Report Approving authority must Check that approving authority must mention the
after preparation of PO mention the date on all CARs and date on all CARs and the same is before the Date
7 Fixed Assets PO issuance the same is before the Date of of PO. Comparative Analysis Report Preventive
PO.

Quotations not invited from Ensure that minimum number of Ensure vendor selection process should be
vendors quotations as defined in policy followed in respect of the selection of vendors
All quotations not considered are received for comparatives. and adequate documentation to be maintained in
for comparatives respect of deviation from the regular process.
8 Fixed Assets PO issuance Check whether CAR was prepared on the basis of RFQs and Quotations received Preventive
Quotation or not.

PO not approved as per defined Proper authorization as per Check Hard copy of PO's on sample basis to
authority matrix . Authority Matrix defined should examine the approvals as required Authority
9 Fixed Assets PO issuance be complied. matrix. PO's raised, SOP, Authority Matrix Preventive

Difference in rate/quantity Prior to Authorization of PO, QCS Compare CAR with PO on sample basis & Identify
approved as per Comparative should be reviewed as attached the difference if any.
Analysis Report and Rate in PO in the PMMS.
would lead to payment being 1. CAR
10 Fixed Assets PO issuance done to vendor at higher rates. Detective
2. PO

No Comparative Analysis Report QCS should be prepared for Check PO's on sample basis to ensure availability
prepared before PO issuance. every PO to validate the of CAR in all such cases. 1. CAR
11 Fixed Assets PO issuance competitive prices. 2. PO Preventive
 Prices not negotiated with Negotiation with regular vendors 1) Check whether negotiations are conducted
vendors on a regular basis to should be documented. with approved vendors on routine basis to reduce
bring down the prices cost of purchase. Also, the Quotes are compared
for negotiations during the performance review
of the vendors.
12 Fixed Assets PO issuance 2) MIS is reviewed by cross functional on sample PO's Preventive
basis.

Terms and conditions of PO's draft should be filled Check whether all Terms & conditions were
payment not mentioned in PO . properly to incorporate all the mentioned in PO briefly.
13 Fixed Assets PO issuance terms and conditions. PO's Preventive

Purchases being done without Purchases done directly through Identify whether any purchases was done without
preparation of PO results in indents should be analyzed on PO from GRN register where no PO was
14 Fixed Assets PO issuance unauthorized Purchases. regular basis. mentioned against any entry in GRN Register. GRN Register. Preventive

Amendments to PO not Periodic review of amendments Check all amendments PO are approved by
approved can lead to in PO. appropriate authority.
misappropriation/Fraudulent
15 Fixed Assets PO issuance Purchases. Physical Sample PO's Preventive
Audit Program
Process: Capex
Sub Process: Vendor Management

Nature of
SL. Control Sample Templat
Process Sub Process Risk Control Activity Audit Procedure Documents Required
No. Preventive/ Size e
Detective
No Documented process for Vendor Database should be
the vendor registration evaluated on regular basis.
leading to selection of Vendor registration to be
fraudulent vendors/creation documented to avoid duplicate
Vendor of duplicate vendors. vendors. Check whether adequate documentation w.r.t
1 Fixed Assets Vendor Files and Vendor Master Preventive
Management Vendor registration & evaluation was maintained

Inefficacy in negotiations can 1.Ensure that minimum number

lead to Procurement of Fixed of quotations as defined in policy
Assets at higher prices. are received for comparatives.
2.Company should ensure that
PO is raised upon L1 vendor as
Vendor per QCS, in case of any exception Comparative quotations to be obtained and least Monthly Plan For P2P, List of
2 Fixed Assets document the reason for the Detective
Management cost vendor should be selected. vendors and References
same.

Possibility of creation of Fields such as Pan No., Service Check the vendor master for existence of
duplicate vendor codes tax no., TIN should be made duplicate vendor codes
Vendor mandatory. Fields such as Pan No., Service tax no. should be
3 Fixed Assets made mandatory. Vendor Master Preventive
Management
Audit Program
Process: Capex
Sub Process: Capitalization of Fixed Assets/ WIP

SL.
Process Sub Process Risk Control Activity Audit Procedure
No.

Assets capitalized without being Documentation of completion Review whether assets are capitalized only after
Capitalization completed certificate with capitalization completion certificates from concerned
1 Fixed Assets of fixed assets/ vouchers. engineers/vendors
WIP

Non- Review of opening CWIP Periodic review of CWIP should Review Opening CWIP and review the current status , if
be done to ensure capitalization same is still appearing in CWIP do the analysis for same
Capitalization is being done timely. whether the potential benefit can be obtained from asset
10 Fixed Assets of fixed assets/ in near future or to be charged off in P & L.
WIP

Capitalization of fixed assets All assets capitalized in books of Verify all assets capitalized in books of account has been
without actual receipt / account should be duly duly received/ commissioned/ purchased by checking all
acceptance of the same capitalized by checking all the the relevant documents attached with the vouchers i.e.
relevant documents attached MRN prepared for receipt of assets, installation certificate,
with the vouchers i.e. MRN user’s acceptance and approval from Quality. Check that
prepared for receipt of assets, all additions has been timely updated in the Fixed Asset
Capitalization installation certificate, user’s register.
2 Fixed Assets of fixed assets/ acceptance and approval from
WIP Quality.
 Assets appearing in the books as CWIP A/C should be used as Check the detailed break- up of Capital Work in progress &
Capital Work in Progress but not control A/C, a summary of verify whether individual projects can be identified.
Capitalization traceable as individual projects, bifurcation in relation to
3 Fixed Assets of fixed assets/ I.e. loss of control over the individual projects should be
WIP physical location of the asset. prepared.

Actual CWIP and books is not Books of accounts should be Ensure detail of CWIP tallies with the CWIP accounts as
Capitalization tallied with each other reconciled with completion per books.
4 Fixed Assets of fixed assets/ status as provided.
WIP

Non booking of expenses at the The company should ensure that 1.All expenses incidental to the purchase like freight and
time of installation. the all such expenses are other such expenses are debited in the respective assets.
Capitalization capitalized with the respective In case such expenses are consolidated for more than one
5 Fixed Assets of fixed assets/ assets assets, they are properly allocated to the respective
WIP assets.

Non-capitalization of all the Company should ensure al the Review whether all relevant Duties/freights are
relevant cost relevant expenses pertaining to capitalized with cost specially in case of imports
Capitalization such capitalization have been
11 Fixed Assets of fixed assets/ taken care of.
WIP

Delay in capitalization of fixed The company should ensure that 1.Review the date of invoice, date of entry in books, date
assets or amount spent on the Assets is capitalized as when of installation (if applicable) & date of receipt of the asset
Capitalization abandoned / discontinued the asset is ready to use. purchased, if these dates are different then the later date
6 Fixed Assets of fixed assets/ projects not written off. is taken for capitalisation purpose.
WIP

Avoidable delays in project Company should document the Identify all the delays in execution of the CAPEX rollouts &
Capitalization execution not highlighted reasons for delay on account of verify whether the reasons given by the management is
7 Fixed Assets of fixed assets/ project execution. justified.
WIP
 Non- capitalization of all the Company should ensure that the Identify the Assets purchased during the period and
assets asset is being capitalized in the reconciliation of same with capitalized during the
Capitalization books of accounts as and when period/Transferred to CWIP
8 Fixed Assets of fixed assets/ ready to use.
WIP

Incorrect date of capitalization 1.FAR should be properly Identify major capital additions during the period of audit
resulting in wrong financial maintained and updated from from the Fixed Asset register and General Ledger & check
reporting & incorrect time to time. the basis of capitalization in light of capitalization policy, if
depreciation calculation 2.Ensure the proper tagging any to ensure correct depiction of balance sheet.
should be done and all the
Capitalization relevant information like date of
9 Fixed Assets of fixed assets/ capitalization, location of the
WIP assets are specified.
 Nature of
Control Sample Templat
Documents Required
Preventive/ Size e
Detective

1.Fixed Assets Addition List

2. Completion Certificates List of all Preventive
assets capitalized during the period

CWIP Ledger and current work

completion status of assets appearing in Preventive
CWIP

Fixed Asset register & all relevant

supporting documents attached for Preventive
capitalization of fixed assets.
Schedule of capital work in progress. Preventive

Duly accepted copy of the receipt of the

assets/ materials by the transferee Preventive
(where the asset has been transferred.)

1.invoices of Additions during the year.

Detective
2.Fixed Assets Register(FAR)

All Fixed Assets Vouchers with supporting

and Ledger of Freight/duties paid during Preventive
the period

Ageing schedule of capital works in

Preventive
progress.

Planned & actual schedule of all the

Preventive
CAPEX rollouts.
GRN made against Capex PO and
reconciliation of same with Addition Preventive
made in Books ( FAR & CWIP)

Duly vetted capitalization policy in place,

the fixed assets register and the ledger Preventive
accounts for fixed assets.
Audit Program
Process: Capex
Sub Process: FAR

Nature of
SL. Control Sample Templat
Process Sub Process Risk Control Activity Audit Procedure Documents Required
No. Preventive/ Size e
Detective
All addition/deletion to Fixed Verify whether all procurements and disposals done
Assets should be periodically during the period is updated in FAR on timely basis. 1. FAR and list of Assets disposed
1 Fixed Assets FAR Non-updation of FAR updated in FAR 2. Responsibility - Authorization Preventive
Matrix

The company should ensure Obtain the Fixed Asset Register (FAR) and check:
availability of appropriate - the FAR captures all the required details (such as asset
details in FAR (asset code, code, description, category, sub-category, gross book
description, category, sub- value, accumulated depreciation, net book value, date of
category, gross book value, capitalization, start period of depreciation, end period of
accumulated depreciation, depreciation, useful life of asset, depreciation method,
net book value, date of location code, location description, GL code, GL
capitalization, start period of description).
depreciation, end period of - assets are correctly classified for depreciation purposes.
depreciation, useful life of - support documents for abnormal asset items.
Fixed Asset Register may not asset, depreciation method,
2 Fixed Assets FAR location code, location 1. Fixed Assets Register(FAR) Preventive
have appropriate details
description, GL code, GL
description)
Audit Program
Process: Capex
Sub Process: Physical Verification

Nature of
SL. Control Sample Templat
No. Process Sub Process Risk Control Activity Audit Procedure Documents Required Preventive/ Size e
Detective
1.In absence of tagging, •FAR should be properly Check whether all assets have been tagged & see whether
physical presence of assets maintained and updated assets can be verified not only by their numbers but also
cant be verified from time to time. by their specifications.
•Ensure the proper
tagging should be done
and all the relevant Fixed asset register & reconciled it
Physical information like location
p Fixed Assets Verification with fixed assets during physical Preventive
of the assets are verification
specified.

No physical Controls over •Access control Check whether all assets have been properly secured by
Access of Assets mechanism should be physical access controls and review whether they are
defined. working or not
Physical •Ensure the compliance Report of all physical access control
2 Fixed Assets Verification of the same. mechanism Preventive

Locations of assets not •Ensure the proper Review that location of the asset has been mentioned in
maintained properly , in tagging should be done the Register along with the concerned name of the
absence of which existence and all the relevant department & reconcile the same during physical
of asset cant be ascertained information like location verification
Physical of the assets are
3 Fixed Assets specified. FAR and access of Fixed Assets Preventive
Verification
 No control over physical •FAR should be properly Identify from the Fixed Asset register cases where assets
location of the assets may maintained and updated has been held by a third party & cross check from the
lead to losses. from time to time. confirmations received from them.
•Ensure the proper
tagging should be done
and all the relevant
Physical information like location Fixed Asset register & third party
4 Fixed Assets Preventive
Verification of the assets are confirmations.
specified.

Substantial loss in case of •Ensure all the relevant 1. Ensure that for all the assets mentioned in Fixed Asset
unforeseen circumstances. policies for insurance of register, insurance policy is available. Make a list of assets
assets are taken up to that has not been insured & obtain clarification from the
avoid damage from management.
unforeseen 2. Note down the amount for which asset has been
circumstances. insured from the cover note / policy. Verify whether the
Physical amount for which the asset is insured, is reasonable in Cover notes for all the fixed assets
5 Fixed Assets Preventive
Verification light of the valuation of assets in the books of account & insured.
its market value.

Lack of assurance over •Periodic physical Check whether physical verification is carried out for all
physical location of assets as verification should be the assets at one time or it is carried out in phased
reported in books of taken up to ensure all the manner over a period. Examine whether the frequency of
accounts. assets ate in place. physical verification is reasonable & justified as regards
the nature & quantum of all the assets. Whether any
Physical shortage noticed on physical verification & how it has Statement prepared on physical
6 Fixed Assets Preventive
Verification been dealt with. verification of assets.

Misuse / loss of assets •Proper tagging of assets Examine the ways in which the assets could be subjected
should be done. to access by unauthorized persons & the steps taken by
•Periodic physical management to prevent the same.
verification should be
Physical taken up to ensure all the List of persons authorized to access
7 Fixed Assets Preventive
Verification assets ate in place. the various fixed assets.