Financial statement audits are performed to provide reasonable assurance that an entity’s financial statements are fairly presented in accordance with generally accepted accounting principles. To obtain this assurance, auditors examine material account balances. The fixed asset balance, which deals with assets that can't easily be converted into cash, is a common material account balance on an entity’s financial statements. It is audited through procedures that confirm the existence and valuation of the reported account balance.

Gather Evidence

The auditor’s client, or the auditee, provides the auditor with a detailed listing of items included in fixed asset accounts. The detailed list, or a depreciation schedule, includes a description of the asset, the original cost, method of depreciation, depreciable life and prior and current years’ depreciation expense. The auditor reviews the list for reasonableness and determines if the account balance on the financial statements matches the depreciation schedule.

Perform Analytics

According to Qualified Advice and Audit Partners, analytical procedures encompass the investigation of identified fluctuations and relationships that are inconsistent with other relevant information or deviate significantly from predicted amounts. For instance, auditors compare the current year account balance to the prior year balance and determine if the difference is reasonable. A financial statement ratio, such as “depreciation expense as a percentage of fixed assets,” is also considered an analytic. The auditor tracks ratios for a period of three to five years and evaluates ratios that produce unexpected variances.

Review Documentation

Review invoices to determine the client correctly recorded acquisition costs and dispositions of assets. To test existence of fixed assets, the auditor selects a sample of items and matches the detail on the invoice to the detail on the client’s depreciation schedule. While reviewing invoices, or vouching, the auditor checks the date of purchase, the description of the asset and other costs incurred to place the asset in service. In addition, an auditor reviews gain and loss accounts to determine if dispositions are correctly recorded.

Inquiry and Observation

The auditor asks the client about the location of fixed assets and any changes in value of existing assets. The client’s response helps the auditor determine which fixed assets he selects to physically observe. While observing an asset, the auditor determines that the asset exists and that the asset’s condition is comparable to the remaining life listed on the depreciation schedule.


According to Qualified Advice and Audit Partners, recalculation consists of checking the mathematical accuracy of documents and records. The auditor selects a sample of items from the fixed asset listing and recalculates prior and current depreciation expense. The auditor determines if the amounts are accurate and records any necessary adjustments.