Based on the following description, determine appropriate tests of controls for the company’s controls over tangible long-lived assets.
A corporation operates a highly automated flexible manufacturing facility. The capital-intensive nature of the corporation’s operations makes internal control over the acquisition and use of tangible long-lived assets important management objectives.
A tangible long-lived assets budget that indicates planned capital expenditures by department is established at the beginning of each year. Department managers request capital expenditures by completing a tangible long-lived assets requisition form, which must be approved by senior management. The firm has a written policy that establishes whether a budget request is to be considered as a capital expenditure or as a routine maintenance expenditure.
A management committee meets each month to review budget reports that compare actual expenditures made by managers to their budgeted amounts and to authorize any additional expenditures that may be necessary. The committee also reviews and approves, as necessary, any departmental request for sale, retirement, or scrapping of tangible long-lived assets. Copies of vouchers used to document department requests for sale, retirement, or scrapping of fixed assets are forwarded to the accounting department to initiate removal of the asset from the tangible long-lived assets ledger.
The accounting department is responsible for maintaining a detailed ledger of tangible long-lived assets. When a tangible longlived asset is acquired, it is tagged for identification. The identification number, as well as the cost, location, and other information necessary for depreciation calculations, are entered into the tangible long-lived assets ledger. Depreciation calculations are made each quarter and are posted to the general ledger. Periodic physical inventories of tangible long-lived assets are taken for purposes of reconciliation to the tangible long-lived assets ledger as well as appraisal for insurance purposes.