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Assets are resources or things of value that are owned by a company.

When making assertions about an asset, management needs to remember several key points:

  • Existence

Check depreciation and anything else related to the claimed asset to make sure that your balance sheet is accurate.  Check that you have the rights to this equipment. Check with banks about your accounts receivable. Never look for a way to produce fictitious paperwork-proof.

Send confirmations to banks about your company’s cash balances, to investments custodians about marketable securities, to customers about accounts receivable, to makers about notes receivables, to consignees about inventory on consignment, to insurance companies about cash surrender value.

  • Disclosure about the accounts/notes receivable (completeness)
  • Accuracy and valuation (footnote disclosure about schedule of receivables and tie the notes to Balance Sheet accounts and to Sales accounts to confirm company Sales and Revenues)
  • Completeness

Check that you recorded ALL of your assets. Is there inventory in transit?

  • Valuation

You need to make sure that you value your:

  1. Assets- at Lower of Cost or Market,   Costing: Ordering cost plus Holding cost
  2. A/R- at Net Realizable Value;
  3. Long -term debt- at PV of Future Cash Flow
  • Classification

You must properly classify your assets

  1. Current and non-current
  2. Work-in-progress
  3. Raw material
  4. Finished goods
  • Cutoff
  1. Check FOB shipping or FOB destination
  2. Was all inventory purchased added to Ending Inventory and All sold inventory removed from Year End?
  3. Impaired inventory has to be written down at year end
  • Rights and obligation
  1. Make sure that your company owns the asset, and the asset is not on consignment, for example.
  2. Inventory is not pledged as collateral

It is important to remember that you need to use techniques of predicting account balances, based on analytical procedures, for example. Compare ratios from previous years to current year. Check what company’s depreciation is to company’s assets. Check accounts that arrive from what company claims on Financial Statements and then check if what your company claims makes sense. Keeping financial records in order is critical to any business operations, as well as following company’s policies and procedures is a good way to stay on track.

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