PLANT AND EQUIPMENTS Financial controls over the acquisition, use, and retirement of property provides guidelines for

distinguishing between charges to capital accounts and charges to expense accounts consistent with the Statement of Federal Financial Accounting Standards (SFFAS). Objectives Financial accounting for PP&E should be governed by the following basic principles: Department of Energy (DOE) property should be accounted for and reflected in the official DOE financial records in accordance with the capitalization criteria contained in this chapter, regardless of funding source; Depreciation should be calculated and recorded in the appropriate cost-ofoperation account, using the appropriate fund type; Timely and accurate financial reporting on facility construction and capital equipment activities should be provided to DOE management; Financial control over property should be maintained; The primary basis of accounting for property is its acquisition cost (with the general exceptions of transfers, excess property received, foreclosures, and discoveries); and

Common-use temporary construction facilities and equipment should be budgeted for by the Landlord Program without chargeback to the benefiting construction projects.

INTERNAL CONTROLS All capital equipment, except as qualified below, should be recorded in the completed Plant and Capital Equipment ledger control account, which is supported by summary and detail accounts for each DOE activity.

The Construction Work in Progress account should identify the costs to purchase, fabricate, and install individual items of capital equipment not related to construction using PP&E appropriated funds. When the individual items are installed and placed in operation (or, in the case of offsite nonintegrated contractors, reported in the semiannual report), they should be closed to the completed PP&E category. The costs to similarly acquire capital equipment using expense funds should be accumulated in the program value programmatic activities and transferred (using accounting entries) directly into the completed Plant and Equipment account.

Financial records should not duplicate the detailed property records maintained by the cognizant property officer. However, for internal control purposes, the balances in the financial accounts should be reconciled semiannually with the detailed property records. The cost of equipment acquired by purchase includes invoice cost, less discount, plus transportation charges, modification, and installation costs. If property acquired by purchase includes a trade-DOE In, the recorded cost of the purchased item should be the net invoice cost plus the allowance for the traded-in item.

The amount capitalized under an installment contract includes the purchase price, other costs incident to the purchase (for example, freight), and the net cost to make the equipment ready for use. Record such equipment in the accounts at the time it is placed in service.

Depreciation charges should be based on the cost of depreciable assets recorded in the PP&E categories, less the estimated net salvage value, if significant. Net salvage value is the actual or estimated amount recovered or recoverable from the sale, transfer, or reuse of retired PP&E, less expenditures for the sale or transfer. Charges to inventory or other appropriate accounts for reusable materials or parts recovered from retired units also are considered as salvage (including plant and equipment with inherent useful value, as well as the value as scrap material).

Generally, all limited-life property, including property being acquired by capital lease, is considered depreciable, whether in service or in standby.

All items of property that have an unlimited life, or for which the salvage value is estimated to equal the original cost of the assets, should be considered as nondepreciable. Such assets include those recorded in the asset type classifications for Land, Land Rights, and Site Preparation, Grading, and Landscaping. However, land rights acquired for a limited period of years are depreciable.

INVENTORY AND COSTS OF GOODS SOLD Objectives in Audit of Inventories and Cost of Goods Sold are to: Consider internal control over inventories and cost of goods sold. Determine the existences of inventories and the occurrence of transactions affecting cost of goods sold. Establish the completeness of inventories. Establish that the client has rights to the recorded inventories. Establish the clerical accuracy of records and supporting schedules for inventories and cost of goods sold Determine that the valuation of inventories and cost of goods sold is arrived at by appropriate methods. Determine that the presentation and disclosure of inventories and cost of goods sold is adequate, including disclosure of classifications of inventories, accounting methods, and any inventories pledged as collateral loans. To allow for the proper assignment of costs to an accounting period To present an accurate portrayal of the departments assets on the universitys financial statements

Internal control over inventories and cost of goods sold

Each department is responsible for safeguarding the universitys assets, whether those assets are in the form of cash, merchandise, or supplies. A system of internal control is needed to ensure that appropriate management of these assets occurs. Good inventory internal controls incorporate the following.

Written departmental inventory management policy and procedures, Staff must be trained on departmental policy and procedures.

Adequate separation of duties between those responsible for the physical inventory (ordering, receiving, distributing/selling) and those responsible for the inventory accounting records (approving payments, charging departments/customers, maintaining the perpetual inventory balance in the Finance System and reconciling the Finance System).

An internal inventory system that records all inventory activity, including acquisitions, sales, returns and adjustments

Adjusting the Finance System inventory value for all inventory activity, including acquisitions, sales, returns, and adjustments.

Securing the inventory in such a manner so that inventory may not be removed or otherwise affected without a record being made of the event

Conducting a periodic count and costing of the inventory. This must be done at least annually for the universitys June 30 fiscal year-end. More frequent counts should be made depending upon the size and vulnerability to misappropriation of the inventory. Compare the count and costing to the inventory record system and to the Finance System. All differences should be investigated and explained.

Obtain an understanding of internal control over inventories and cost of goods sold. Assess control risk and design additional tests of controls for inventories and cost of goods sold. Perform additional tests of controls for those controls which the auditors plan to consider supporting their planned assessed levels of control risk a. Examine significant aspects of a sample of purchase transactions. b. Test the cost accounting system. Reassess control risk and modify substantive tests for inventories and cost of goods sold.

ACCOUNTS RECIEVABLES, NOTES RECIEVABLES AND SALES TRANSACTIONS Auditors Objectives in Auditing Receivables and Revenue Determine that the trade accounts and notes receivable represent bona fide receivables and are valued properly (Existence and Valuation). Determine that the allowances for doubtful accounts are adequate and reasonable (Valuation). Determine the propriety of disclosures pertaining to pledging, assigning, and discounting of receivables (Presentation and Disclosure). Determine the correctness of the recorded interest income that is attributable to accounts and notes receivable (Completeness). Determine that receivables are properly classified in the balance sheet (Presentation and Disclosure). Consider inherent risks of material misstatement, including fraud risks. Consider internal control over receivables and revenue. Substantiate the existence of receivables and the occurrence of revenue transactions.

Establish the completeness of receivables and revenue transactions. Determine that the client has rights to recorded receivables. Establish the clerical accuracy of records and supporting schedules of receivables and revenue. Determine the valuation of receivables and revenue is at appropriate net realizable values. Determine that the presentation and disclosure of receivables and revenue are adequate Separation of receivables into appropriate categories Adequate reporting of any receivables pledged as collateral Disclosure of related party sales and receivables Use the understanding of the client and its environment to consider inherent risk, including fraud risks, related to receivables and revenues. Obtain an understanding of internal control over receivables and revenues. Assess the risks of material misstatement and design tests of controls and substantive procedures.

INTERNAL CONTROLS The custodian of notes receivable should not have access to cash or to the general accounting records The acceptance and renewal of notes be authorized in writing by a responsible official who does not have custody of notes The write-off of defaulted notes be approved in writing by responsible officials and effective procedures adopted for subsequent follow-up of such defaulted notes Orders from customers should be recorded and reviewed by as sales order department. Numerically controlled sales orders should be prepared for all customer orders received.

Sales orders should be approved by the credit department before shipment. Employees other than the accounts receivable personnel should perform the following functions: a. Handling cash and maintaining cash records. b. Opening incoming mail. c. Credit and collection. d. Reviewing and mailing customer statements. e. Approval of adjustment credits and write-off of uncollectible accounts. Prenumbered shipping advices should be prepared for all goods shipped. Sales invoices should be prenumbered and all numbers accounted for. Sales invoices should be verified before mailing for prices, quantities, extensions and footings, credit terms, comparison with customers orders, and comparison with shipping advices. Credit memoranda should be prenumbered and all numbers accounted for. Receiving reports should be prepared for all returned merchandise. Write-offs of uncollectible notes or accounts receivable should require prior authorization from company official. (Treasurer) Notes and accounts written0ff should be carried in a separate ledger. Subsidiary accounts receivable records should be maintained.

AICPA. Audit and Accounting Guide for Audits of State and Local Governmental Units. New York, New York: AICPA, 1986. Location: SAO Library. AICPA. AuditandAccounting Manual. Chicago, Illinois: Commerce Clearing House, Inc., 1992. Location: SAO Library. AICPA. Codification of Statements on Auditing Standards. Chicago, Illinois: Commerce Clearing House, Inc., 1993. Location: SAO Library. Defliese, Philip L. Montgomery's Auditing. New York, New York: John Wiley & Sons, 1975.

Location: SAO Library. GAO. Government Auditing Standards (Yellow Book). Washington, D.C.: The Comptroller General of the United States, 1994. Location: SAO Library. GASB. Codification of Governmental Accounting and Financial Reporting Standards. USA: GASB, June 30, 1993. Location: SAO Library. Granof, Michael H. Financial Accounting. Englewood Cliffs, New Jersey: Prentice-Hall, 1980. Location: SAO Library. Robertson, Jack C. and G. Frederick Davis. Auditing. Plano, Texas: Business Publications, Inc., 1982. Location: SAO Library. SAO. Audit Materials Package. Austin, Texas: SAO, 1993. Location: SAO Texas Comptroller of Public Accounts. Annual Financial Reporting Requirements for Colleges and Universities. Austin, Texas: Texas Comptroller of Public Accounts, 1993. Location: SAO