Fixed Assets Internal Audit Checklist: Capex, FAR and Depreciation RCM
Fixed assets internal audit tests whether capital expenditure is approved, capitalised correctly, physically controlled, depreciated on the right basis and retired or impaired when required. It covers capex approval, CWIP, fixed asset register, tagging, physical verification, depreciation, disposal and insurance.
The highest-risk fixed asset issues usually come from timing and classification: revenue expenditure capitalised, assets kept in CWIP after ready-for-use date, depreciation not started, disposals not recorded, or physical assets missing from the FAR. The RCM below is illustrative and should be tailored to the entity's asset classes, approval matrix, project structure and accounting framework.
Fixed assets RCM: core risks and controls
| Sub-process | Risk | Control | Internal audit test |
|---|---|---|---|
| Capex request | Asset acquired without approved business case | Capex request should include budget, business need and approval | Match additions to approved capex request and budget |
| Purchase and receipt | Asset paid for but not received | Asset receipt and installation evidence should precede capitalisation | Match PO, invoice, GRN/installation certificate and FAR entry |
| Capitalisation | Revenue expense capitalised or wrong date used | Capitalisation checklist should assess ready-for-use date and nature of spend | Test additions for classification and depreciation start date |
| CWIP | Completed projects remain in CWIP | CWIP ageing should be reviewed with project owner and finance | Test old CWIP, completion certificate and transfer to FAR |
| FAR maintenance | FAR incomplete or duplicate | FAR should carry asset ID, location, custodian and depreciation fields | Reconcile FAR to GL and physical tags |
| Physical verification | Missing assets not identified | Verification plan should cover high-value and movable assets | Compare count results to FAR and adjustment approvals |
| Depreciation | Wrong useful life or residual value | Depreciation policy should map asset class to Schedule II/Ind AS basis | Recompute depreciation for additions, disposals and useful-life changes |
| Disposal | Asset sold/scrapped without approval | Disposal workflow should require approval, valuation and accounting entry | Test disposal note, sale proceeds, GST treatment and FAR removal |
| Impairment | Idle or damaged asset not assessed | Impairment indicators should be reviewed periodically | Test idle, damaged, obsolete or loss-making CGU assets |
Fixed asset audit data fields to request
| Data table | Minimum fields |
|---|---|
| FAR | Asset ID, description, location, custodian, acquisition date, capitalisation date, cost, accumulated depreciation, net block |
| Additions | Vendor, invoice, PO, GRN/installation date, project code, capex approval, accounting ledger |
| CWIP | Project, opening balance, additions, transfers, ageing, completion status, project owner |
| Depreciation run | Asset class, useful life, residual value, method, depreciation for period, reviewer |
| Disposal register | Asset ID, disposal date, approval, buyer/scrap vendor, proceeds, gain/loss, GST treatment |
| Physical verification | Count date, asset ID, book location, physical location, condition, variance, action taken |
Fieldwork checklist
- Additions capitalised before installation or ready-for-use date
- Repairs and maintenance capitalised without technical support
- Old CWIP with no project-status evidence
- FAR assets without location or custodian
- Physical-count variances not approved or investigated
- Fully depreciated assets still in use but not reviewed for useful life
- Disposal proceeds not matched to bank receipt
- Asset sold/scrapped but still appearing in FAR
- Insurance coverage not matching high-value asset register
Fixed assets audit programme
| Step | Procedure | Evidence expected |
|---|---|---|
| 1 | Reconcile FAR to GL fixed asset balances | Asset-class bridge with additions, disposals and depreciation |
| 2 | Test additions from capex approval to capitalisation | Capex note, PO, invoice, installation/ready-for-use evidence and FAR entry |
| 3 | Review CWIP ageing and transfer controls | Project ageing, completion certificate and transfer approval |
| 4 | Test physical existence and tagging | Count sheet, asset tag, location and custodian confirmation |
| 5 | Recompute depreciation for selected assets | Useful life, residual value, method, start date and depreciation working |
| 6 | Test disposals and write-offs | Approval, sale/scrap evidence, bank receipt, GST treatment and FAR removal |
| 7 | Review impairment indicators | Idle/damaged asset list, utilisation data and management assessment |
Sample and population guidance
Use full-population tests for old CWIP, additions without capitalisation evidence, fully depreciated assets still in use, disposals still in FAR and missing location/custodian fields. Use samples for invoice testing, physical verification and depreciation recomputation. Select all individually material assets and risk-weight the balance toward movable, high-value and high-theft-risk assets.
What to report
- Condition: CWIP worth ₹3.4 crore was older than 18 months. For ₹1.1 crore, project owners confirmed the assets were already in use, but capitalisation had not been recorded.
- Criteria: Fixed asset policy requires capitalisation from ready-for-use date and monthly CWIP ageing review.
- Cause: Project completion certificates are not routed to finance.
- Effect: Depreciation may be understated and fixed asset classification may be incorrect.
- Recommendation: Link project closure to finance capitalisation workflow and require monthly CWIP ageing sign-off by project owner and controller.
Fixed assets internal audit FAQ
What is fixed assets internal audit?
Fixed assets internal audit reviews controls over capex approval, asset receipt, capitalisation, CWIP, fixed asset register maintenance, physical verification, depreciation, disposal and impairment indicators.
What is the most common fixed asset control failure?
The common failure is mismatch between physical assets, FAR and general ledger. Assets may exist physically but not in FAR, appear in FAR but be missing physically, or sit in CWIP even after use has started.
Should internal audit recompute depreciation?
Yes, at least for additions, disposals, useful-life changes and high-value classes. The objective is to confirm that depreciation starts from the right date and follows the entity's policy and applicable accounting framework.
Related CORAA resources
- Fixed Assets Internal Audit Checklist
- Fixed Assets Audit Workbook
- Internal Audit Software for India
- Schedule II Depreciation Calculator
- CARO 2020 Complete Guide
Sources
- ICAI Internal Audit Standards Board, Compendium of Standards on Internal Audit - as on February 2026 and listed by ICAI as applicable from 1 April 2026
- Companies Act, 2013, Section 138, Section 143(3)(i) and Schedule II
- The entity's applicable accounting framework, fixed asset policy and Schedule II assessment should be used as the criteria for AS 10 / Ind AS 16 testing, rather than assuming one framework applies to every company