A mining company located in Africa.

BUSINESS REQUIREMENT

The organization has instituted a policy for its mining operations, mandating the verification of Fixed Assets once every three years by an external third party. The primary objectives of this verification process are to ensure

1. The completeness of the Fixed Asset Register (FAR).

2. The existence of Fixed Assets throughout the Mine Plant and Offices.

3. The establishment of accountability and ownership.

4. The proper tagging of assets.

This engagement was planned to span a duration of three months.

IDENTIFIED PROCESS CHALLENGES

Several challenges were identified within the verification process, including

1. Lack of established ownership for assets.

2. Absence of granular Asset Class and Asset Description in the FAR.

3. Incompleteness of the FAR.

4. Ambiguity regarding the definition of Capital Expenditure (CAPEX) and Operational Expenditure (OPEX).

5. Presence of multiple data points at the individual department level.

6. Failure to conduct Asset Componentization as per IAS 16 (Property Plant and Equipment).

7. Inconsistent and illogical tagging of assets.

8. Treatment of Insurance Spares not aligned with IFRS definitions.

9. Issues identified during Physical Verification, including excess, shortage, duplicate line items in the FAR, assets under scrap or not in use, and inadequate asset descriptions.

APPROACH AND SOLUTION DESIGN

To address these challenges, the following approach and solutions were implemented

1. Identification of Asset Ownership Face-to-face discussions with users to showcase the existing FAR and identify assets relevant to respective Heads of Departments (HODs).

2. Physical Verification of Assets Conducted based on Single Points of Contact (SPOCs) identified.

3. Finalizing Asset Listing Derived from the FAR, confirmed with respective HODs and SPOCs.

4. Logical Asset Tagging Achieved through consensus among Management Personnel.

5. Drafting SOP Developed a Standard Operating Procedure (SOP) for Fixed Asset Capitalization for the entity, covering aspects such as treatment of Insurance Spares, categorization of CAPEX and OPEX, criteria for asset componentization in line with IAS 16, and depreciation-related guidelines.

6. Issuing Reports Provided the Fixed Asset Verification Report, signed by the Engagement team and the Client, as well as the drafted SOP for Fixed Asset Capitalization and Verification.

BUSINESS BENEFIT AND RESULT

The engagement delivered two critical reports

A) Fixed Asset Verification Report

1. Cleansed FAR.

2. Identification of new assets during verification.

3. Identification of assets as short.

4. Identification of excess assets.

5. Detection of duplicate entries in the FAR.

6. Identification of assets categorized as scrap or not in use.

7. Recommendations for changing asset descriptions.

B) SOP for the Entity for Fixed Asset Capitalization and Treatment of Special Cases

1. Drafted SOP covering aspects like treatment of Insurance Spares.

2. Guidelines for the categorization of CAPEX and OPEX.

3. Criteria for asset componentization aligned with IAS 16.

4. Guidelines for depreciation and related matters.