Fixed Asset Additions: Vouching, Capitalization Tests and the Repairs-and-Maintenance Sweep

Additions are where fixed asset balances move, and where two opposite errors live. Items expensed that should be capitalized understate assets and profit. Items capitalized that should be expensed overstate them. A good program tests both directions. This post is the additions program. Companion posts: depreciation and disposals testing and PBC requests for fixed assets. For the accounting see PP&E capitalization, depreciation and disposals.

Step 1: Roll forward the register

Obtain the fixed asset register and the rollforward by class: opening cost, additions, disposals, transfers, closing cost, and the same for accumulated depreciation. Tie opening to the prior audited balance, closing to the ledger and the trial balance. Differences between the register and the ledger have to be resolved before sample selection. The rollforward gives the population of additions.

Step 2: Understand the capitalization policy

Read the client's policy: the dollar threshold, the useful lives by class, and what the client capitalizes (purchase price, freight, installation, testing, interest during construction, internal labor). Check that practice follows policy and that the threshold is reasonable relative to materiality. A threshold at $500 is a burden. A threshold at $50,000 for a client with $2 million of equipment lets significant items go to expense.

Step 3: Select additions

Select by size using monetary unit sampling or select all additions above a threshold, then sample the rest. Include all additions from related parties, from new vendors and in the last month of the year. For construction in progress, test all material projects.

Step 4: Vouch each addition

For each selected item, examine:

Then test the substance:

• Capitalizable cost. Components of the capitalized amount: purchase price, freight, installation, sales tax, duties. Exclude costs that are expenses: training, relocation of existing equipment, repairs.
• Correct class and life. Compare to the policy.
• In-service date. Depreciation starts when the asset is ready for use. A delivery in December might not be in service until the following February.
• Cutoff. Assets received after year end belong to the following period even if invoiced in the current year, and assets received before year end belong to the current year even if invoiced afterward.
• Financing. For assets bought with debt or leases, check the contract, since a finance lease or purchase financing changes the entries.

Step 5: Sweep repairs and maintenance

Review the repairs and maintenance, supplies, small tools and other expense accounts for items that belong in fixed assets. Obtain the ledger detail and scan for amounts above the threshold or the clearly trivial level. Look at invoice descriptions: "replacement of roof," "new HVAC unit," "engine overhaul," "software implementation." For each candidate, ask whether it extends the useful life, increases capacity or adds a new asset. Select and vouch. Misclassification found here goes to the adjusting entry log.

Step 6: Test construction in progress

For each project:

• Obtain the project budget, spending to date and estimated cost to complete.
• Vouch costs to invoices, payroll for internal labor and contracts.
• Test capitalized interest: the qualifying assets, the rate, the period.
• Confirm that completed projects have been transferred to in-service classes and depreciation started.
• Test stale projects, items that have not moved for a year that may need to be expensed or impaired.
• Read contracts for commitments to disclose.

Step 7: Look at impairment indicators

Idle assets, discontinued lines, obsolete equipment and changes in use are impairment indicators. Ask management whether any exist and document the response. See ASC 360 and ASC 350 impairment.

Worked example

A client has additions of $1.84 million for the year. The auditor selects 18 items by size, covering $1.31 million (71 percent), plus the repairs and maintenance sweep.

• 16 items agree to invoice, approval and receiving without exception.
• Item 9 ($118,000 packaging line): invoice dated December 21, the line was installed in January and went into service February 3. The client's half-year convention charged $5,900 of depreciation in the current year ($118,000 / 10 years / 2). The asset was not in service at year end, so the charge should be zero. Misstatement: $5,900 of depreciation expense.
• Item 14 ($64,000 truck): the invoice includes $6,500 for painting and lettering, which the policy allows to capitalize, and $3,200 of annual registration and insurance, which should be expense. Misstatement $3,200 overstating cost.
• Repairs and maintenance sweep: of $412,000 total, 11 items above $10,000 are selected, totalling $187,000. One item of $46,000 is the replacement of a conveyor system with a 12-year life. It should have been capitalized. Misstatement $46,000 understating assets and overstating expense, less depreciation not recorded.

The three items total $55,100 gross. The auditor proposes entries and asks the client to review the repairs account for similar items below the sampled amounts. The conveyor error suggests a gap in the approval of maintenance work orders, which feeds the deficiency evaluation.

Controls to understand

Capital expenditure approval, a review of invoices coded to repairs before payment, a periodic reconciliation of the fixed asset subledger to the ledger and a physical verification. See control testing guide.

Documentation

Rollforward and tie-out, policy, selection basis, vouching results with evidence references, the repairs sweep scope and findings, construction in progress tests, entries proposed and conclusion.

CORAA prepares ready-to-review audit files for US CPA firms; the firm keeps the client, the review and the signature. See /us.

Sources

• AICPA, AU-C Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained; AU-C Section 500, Audit Evidence
• FASB, Accounting Standards Codification Topics 360 (Property, Plant, and Equipment) and 835-20 (Capitalization of Interest)
• U.S. Government Accountability Office, Financial Audit Manual, Volume 1 (GAO-26-108577), June 2026, sections 470 and 480 on substantive procedures and detail tests: gao.gov

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error