Generally, Other Assets are assets that the entity owns and can generate future economic benefit to the entity. Other Assets can be classified into current or non-current depending on the nature of the asset and how it fits into the definition under IAS 1, Presentation of Financial Statements
The reason that some of these assets owned by the entity are presented as Other Assets is that either they are insignificant to the entity or they do not fit into any common categories of assets that we see in an entity’s balance sheet such as fixed assets, trade, and other receivables or prepayments. Some examples of Other Assets are advances to employees, prepayments, deferred tax assets, and loan issuance costs.
Before the auditors decide what procedures to perform, the risks associated with auditing Other Assets should first be identified:
- Risk of Material Misstatement: The Risk of Material Misstatement when auditing Other Assets can vary from low to high. The reason for this variation in risk is because Other Assets could consist of prepayment that can be verified easily through testing the underlying supporting documents or deferred tax assets which require auditing complex estimation of future taxable profit.
- Control Risk: The common Control Risk present in Other Assets is the absence of a control list or accounting system which can effectively keep track of the different amortisation timings of prepayments especially when there are a lot of prepayments. Another Control Risk is that various categories of assets could have been simply grouped as Other Assets resulting in incorrect treatment per applicable accounting standards.
- Detection Risk: Detection Risk is technically the risk that an auditor is not able to detect the material misstatements in the reported amounts of Other Assets.
The audit risk for Other Assets usually varies depending on the nature of the assets.
For an auditor to be reasonably assured of the Other Assets balance, tests will be performed to cover the relevant audit assertions. The assertions applicable to Other Assets are as follows:
- Completeness: All Other Assets that the entity has rights to or has paid for are recorded and presented in the financial statements.
- Rights and Obligations (Ownership): The entity has the right of control over the assets and the risk and reward that comes with having such control.
- Valuation: Other assets have been appropriately remeasured up to the end of the accounting period based on applicable accounting standards.
- Existence: The rights to control the assets and entitled to the risk and reward that come with the assets are still with the entity at the end of the accounting period.
- Presentation and Disclosure: The Others Asset amounts in the financial statement and relevant disclosure notes to the financial statement are complete and in accordance with the applicable accounting standards.
Audit Procedures for testing Other Assets include Test of Controls and Substantive Tests.
Test of Controls:
Controls relevant to Other Assets include control list on amortization of prepayments, authorisation to acquire (tangible assets) or make payment (prepayment), review of deferred tax assets assessment, and segregation of duties.
- Control List on Amortisation of Prepayments: This is to ensure that a schedule or accounting system is in place to keep track of the different amortisation timings and amounts of each separate prepaid expense. This is because each prepaid expense is usually incurred at a different timing over the accounting period.
- Authorisation to Acquire (Tangible Assets) or Make Payment (Prepayments): Similar to the process of acquiring any tangible assets or making payment for expenses, the entity needs to have an appropriate acquisition or payment authorisation process in place.
- Review of Deferred Tax Assets Assessment: This control is crucial for any entity that recognises a deferred tax asset. Both the preparer and reviewer should be well-versed with the business prospect as it often contains complex estimation over the future performance of the business. Some tax knowledge would also be required to perform such an assessment.
- Segregation of Duties: This control is crucial here as in any other part of the entity process. This control effectively ensures the work prepared is properly reviewed which effectively reduces the Risk of Material Misstatements arising due to error or fraud.
Substantive Audit Procedures for Other Assets:
Substantive Audit Procedures for Other Assets consist of the following components:
1) Substantive Analytical Procedures:
Substantive Analytical Procedures effectively analyses the changes or lack of changes in the entity’s financial performance. The changes or lack of changes must be benchmarked against a set expectation such as historical performance, latest business developments, and any other information relevant to the entity. This will allow the auditor to detect potential areas with a higher inherent risk.
For example, a significant increase is noted in Other Assets, specifically caused by an increase in prepayments. This significant increase related to prepayment should be checked against whether the entity has paid for any new services in advance compared to the previous financial year. If there are no such new services, there is a risk that the entity may have wrongly capitalised certain paid expenses that are not actually prepayments.
2) Test of Details for Other Assets:
To test details for Other Assets, audit procedures are designed around assertions. Example and description of Test of Details are given in the table below:
|Example of Audit Procedure
|Reviewing the nature of an expense to identify if the item is a capital expenditure and should have been capitalised and amortised over a specific period.
|Rights and Obligations
|Inspecting purchase invoices, payment vouchers or legal rights from the agreements to ensure the entity has control over or rights to use the assets.
|Reviewing the assumptions made in the taxable income forecast in assessing the extent to which a deferred tax asset can be recognised.
|Inspecting the original supporting documents such as agreements, contracts and invoices or performing physical asset sighting.
|Presentation and Disclosure
|Reviewing the financial statements prepared by the entity and identifying if information regarding Other Assets has been sufficiently disclosed in accordance with the applicable accounting standard.