Audit of property explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Fixed assets are usually the largest balance in a manufacturing or infrastructure business and one of the easiest to get wrong, because errors hide in capitalisation, depreciation and old balances that nobody revisits. This article explains how an auditor tests property, plant and equipment (PPE) and intangible assets, and what an accountant should have ready. A clean register is mostly a bookkeeping task, and our books of accounts and compliance support covers it.
This article is based on the Standards on Auditing issued by ICAI as in force on 4 October 2026; ICAI may revise standards, so check the current text on icai.org. The standards are explained in full in our posts, linked below; this piece applies them to one balance.
The auditor ties each class of asset to the assertions: existence, rights and obligations, completeness, valuation and allocation, and presentation and disclosure. For PPE the usual tests are vouching additions, examining disposals, recomputing depreciation, inspecting title documents and challenging impairment and useful-life estimates. The auditor must judge whether information from the entity is reliable before using it (SA 500, paragraph 9). A fixed asset register that does not agree with the ledger is the first thing that slows an audit.
The standards behind the work
SA 500 requires the auditor to design procedures that are appropriate in the circumstances to obtain sufficient appropriate evidence (paragraph 6), to consider the relevance and reliability of the information used as evidence (paragraph 7), and, where the information was produced by the entity, to evaluate whether it is sufficiently reliable, including evidence on its accuracy and completeness and whether it is precise and detailed enough (paragraph 9). A fixed asset register, a depreciation schedule and a list of capital work in progress are all information produced by the entity, so the auditor first checks that they agree with the ledger and are complete. Where a valuer's report is used, paragraph 8 asks the auditor to evaluate the competence, capabilities and objectivity of management's expert and the appropriateness of the work. Our post on SA 500 covers the standard.
The assertion categories come from the application material of SA 315 (paragraph A123): for balances these are existence, rights and obligations, completeness, valuation and allocation, and for presentation and disclosure, occurrence and rights, completeness, classification and understandability, and accuracy and valuation. Estimates such as useful lives and impairment are audited under SA 540; paragraph 13 of that standard lists the ways the auditor responds, including testing how management made the estimate, and paragraph 18 asks whether the estimates are reasonable or misstated. If a valuer is engaged by the auditor, SA 620 applies (for example paragraph 9 on competence and paragraph 12 on adequacy of the work).
Assertions applied to PPE
| Assertion | What is checked | Typical evidence |
|---|---|---|
| Existence | The asset is there and in use | Physical verification reports, inspection of selected items, photographs of high-value items |
| Rights and obligations | The entity owns or controls it, and is not merely holding it for someone else | Title deeds, registration certificates, sale deeds, lease agreements, charge records |
| Completeness | All assets, including those bought near year end or paid for by others, are recorded | Reconciliation of register to ledger, review of repairs and capital expenditure accounts for items that should be capitalised |
| Valuation and allocation | Cost is right; depreciation, useful life and impairment are reasonable | Invoices, import documents, capitalisation memos, depreciation recomputation, impairment working |
| Presentation and disclosure | Classes, movement schedule and policies are correctly disclosed | Movement schedule agreed to the ledger, review of notes |
Additions: the main risk
Most errors enter through additions. The auditor takes a sample of significant additions and checks the purchase order, supplier invoice, delivery or installation record and payment, and whether the cost is capital rather than revenue. For self-constructed assets, the question is which costs were directly attributable and whether the asset was put to use on the date from which depreciation starts. Capital work in progress deserves its own look: what is in it, how old it is and whether anything has been completed but not transferred. The treatment of interest during construction is covered by AS 16 and the recognition and measurement principles by AS 10.
Disposals, transfers and write-offs
Disposals are tested for approval, sale documents and receipt of consideration, the correct removal of cost and accumulated depreciation, and the profit or loss. The auditor also looks for assets that are missing, scrapped or no longer in use but still in the register, and for related-party sales at unusual prices.
Depreciation and useful lives
Depreciation is recomputed for a sample of assets and the total is compared with the figure in the accounts. The auditor checks the method and the useful lives against the accounting framework and the company's stated policy, that the policy is applied consistently, that additions and disposals during the year are depreciated for the right period, and that a change in estimate is properly accounted for and disclosed. Analytics help: depreciation as a proportion of average gross block is compared with earlier years, and large movements are explained. See our post on SA 520 for analytical procedures.
Title and charges
For land and buildings the auditor looks at the documents that show the entity's right: sale or conveyance deed, registration, mutation, lease agreements and, for assets pledged to lenders, records of the charge. Where title is in another name or documents are missing, this is a rights and obligations point that may need disclosure. The specific reporting requirements for companies are in our post on CARO 2020 clause 3(i); this article does not repeat them.
Intangible assets and impairment
Intangibles are tested for whether recognition criteria were met, whether costs were properly capitalised or expensed, amortisation periods and the evidence for any asset treated as having a long life. The accounting principles are in AS 26. For impairment the auditor reviews management's indicators, the cash-generating unit definition, the forecasts and discount rates used, and compares them with budgets and history; the principles are in AS 28. Impairment is an estimate, so the SA 540 approach applies, including checking for management bias.
Documents to keep ready
- Fixed asset register by class, reconciled to the ledger, with the opening, additions, disposals and closing figures.
- Purchase orders, invoices, import and installation documents for significant additions.
- Capital work in progress ageing and capitalisation approvals.
- Depreciation computation and the policy note, with useful life assumptions.
- Physical verification report with action on differences.
- Title documents, lease agreements and charge records.
- Impairment working, forecasts and valuer reports where used.
Worked example (illustrative)
Rajan Engineering Pvt Ltd, an invented company, reports gross block of Rs 42 crore and additions of Rs 6.5 crore. The auditor selects the five largest additions, covering Rs 4.8 crore. For one machine, the invoice is dated in March but the installation certificate is from May, so the asset was not ready for use at year end. It sits in capital work in progress, not in plant. Management had begun depreciating from the invoice date; the difference is an illustrative Rs 9 lakh of excess depreciation, which is corrected. The auditor also finds that the register total is Rs 12 lakh higher than the ledger because a disposed asset was removed from the ledger but not from the register. After reconciling, the auditor accepts the register as reliable for sampling.
Common lapses
- A register that does not agree with the ledger.
- Capitalising repairs, or leaving completed assets in capital work in progress.
- Depreciation started or stopped on the wrong date.
- Assets that no longer exist or are idle, with no impairment review.
- Title documents in the name of a former owner, a promoter or a group company without any disclosure.
Need help getting fixed assets audit-ready?
An asset register that agrees to the ledger, a clean capital work in progress schedule and organised title documents save most of the audit time on this balance. Our team can reconcile registers, rebuild depreciation schedules and prepare the supporting file; see our books of accounts and compliance support.
Key takeaways
- Tie each test to an assertion; the main risks for PPE are existence, rights, valuation and completeness.
- Reconcile the register to the ledger before the audit; it is information produced by the entity and must be reliable (SA 500, paragraph 9).
- Additions and capital work in progress are where errors usually enter.
- Useful lives and impairment are estimates; expect challenge under SA 540.
- Title documents and charge records support the rights and obligations assertion.
Read next
- Audit of inventories
- Audit of share capital, reserves and borrowings
- SA 500, audit evidence
- AS 10, property, plant and equipment
Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.