Internal Control Questionnaires and Verification Procedures
Verification Procedures
Obtain all subsidiary asset and depreciation ledgers, foot on a test basis, and agree to the general ledger control accounts.
Inspect tax receipts on real and personal property, where applicable, and confirm paid or accrued amounts by tracing them to appropriate general ledger expense and/or liability accounts.
Investigate and explain any significant charges to the accumulated depreciation accounts other than for the current year’s depreciation expense or for retirement or sale of assets.
Review maintenance and repair accounts for any significant expenses that should have been capitalized.
Review transactions in the summary of changes for any items that should have been expensed, rather than capitalized.
Review the construction in process account to determine that any items fully completed, contained therein, are being depreciated at the proper rate.
Determine, on a test basis, that when items are acquired as replacements, the applicable entries to remove the original asset value and accumulated depreciation are made.
Using an appropriate sampling technique, test the summary of changes by reviewing invoices, disbursements, title data (where applicable), and by inspecting the files for evidence of proper approval by an officer of fixed asset acquisitions and sales. Retain, for the permanent file, all working papers concerning major additions or sales of fixed assets, or any significant change that is in process.
Test the propriety of significant asset acquisitions by comparing their cost to that of other similar assets, by reviewing the method used to select a vendor, and by physical inspection of the asset.
Test the propriety of the sale price of fixed assets by comparing the price to that of other similar assets and by reviewing the method used to establish the selling price.
Determine if there have been any fixed asset transactions with bank affiliated personnel, and, if so, answer the following questions for:
Fixed assets acquired:
Were independent appraisals obtained prior to consummation of the transaction?
Was the board of directors’ approval obtained based on full disclosure of all relevant factors?
Fixed assets sold:
Were any fixed assets sold below their fair market value?
Was the board of directors’ approval obtained based on full disclosure of all relevant factors?
Check computation of gain or loss on fixed asset sales, and trace proceeds to general ledger.
Reconcile tax values of fixed assets and accumulated depreciation to book values.
Test the tax value of assets acquired and tax depreciation since the last examination.
Inspect the bank’s books to determine that any deferred taxes resulting from the use of dual depreciation is accurately reflected.
Test computation of depreciation, and trace depreciation expense to the subsidiary and general ledgers.
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