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7/27/2019 Property, Plant, And Equipment Narrative
1/3
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for
professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.
Property, Plant, and Equipment Narrative
The Property, Plant, and Equipment process consists of the following activities:
Acquisitiono Budgetingo Approvals for Actual Spendo Purchase Orders/Invoicingo Recording
Depreciation Disposals Managing Fixed Assets Impairment & Revaluation
Acquisitions
Budgeting
An annual budget is prepared to estimate all capital expenditures necessary for the ensuing year.
The Plant Controller and Plant Manager meet to discuss and prepare this budget for the ensuing
year. Once established at the plant level, the budget is uploaded into the ERP and approved by the
Vice President Finance.
Approvals for Actual Spend
The scope of the capital expenditure project is determined by a cross-functional team, including
representatives from Plant Engineering Department, the Plant Controller, and the Purchase
Controller. Next, the Plant Controller loads the expected spend amount, timing, and payback
schedule into the ERP. Once loaded, the project is routed to the Global Director of Capital Project
Management for approval. The Plant Controller then schedules a meeting with the cross-functional
team Global Director of Capital Project Management, Global Engineering Manager, and Product
Group Controller to obtain the Project Financial Analysis approval. The Global Director of Capital
Product Management updates the status to show approved in the ERP and the ordering process
can begin.
Purchase Orders/Invoicing
Purchase requisitions are initiated at the plant level, by the Plant Engineer. Once initiated, the Plant
Manager and Plant Controller must approve the purchase requisition. Once the purchase requisition
is approved it is sent to the Purchasing Department for procurement in ERP. (Refer Accounts Payable
for procurement process).Each year, an annual budget is prepared to estimate all capital expenditures necessary for the
following year. During late Q2, the Controller, Engineering Manager, and Plant Manager meet to
7/27/2019 Property, Plant, And Equipment Narrative
2/3
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for
professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.
discuss and prepare this budget for the following year. Once established at the plant level, the
budget is uploaded into the ERP system and approved by the Product Group Controller. At the end
of every month, the Plant Manager and the Product Group Controller prepare a Variance Analysis
spreadsheet to compare the forecast along with the actual spending to the budgeted expense. Anyvariance greater than the threshold limit should go through the entire approval process above. The
Plant Manager and the Product Group Controller will also closely review the variances exceeding the
threshold limit and will determine whether any capital improvements made to Property, Plant, and
Equipment have been expensed instead of being capitalized(R_PPE_4),(C_PPE_4).
Recording
The Plant Controller works with plant personnel to determine when Construction in Process (CIP) is
complete and transferred to fixed assets. Once determined to be a capitalized, the Plant Controller
completes the Property Management Report (PMR) form and sends it to the Finance Accountant for
booking. In the case of direct purchase (No CIP), the Plant Controller also completes the PMR form
and sends it to the Finance Department for booking. The Finance Accountant is responsible for
recording the transfer of the CIP into the Fixed Assets register and recording the journal entry into
the general ledger based on the PMR. The Finance Accountant obtains the Purchase Requisition,Property Management Report, and Purchase Invoice to ensure completeness, accuracy, and the legal
title of all the additions; once complete, the Finance Accountant creates a journal entry to record to
the ERP (R_PPE_2)(C_PPE_2).The Finance Manager reviews the journal entry by obtaining the
Purchase Requisition, PMR, and the Purchase Invoice and then completes the posting of journal
entry into the ERP system(R_PPE_3), (R_CAS_5) (C_PPE_3). The Finance Accountant also establishes
the depreciation method when recording the fixed asset in fixed assets register. The fixed asset
register is maintained by the Finance Department. On a monthly basis, the Finance Accountant
reconciles the fixed asset register to the general ledger. The reconciliation is reviewed by the
Finance Manager and any differences identified are investigated and resolved by the preparer
(R_PPE_7)(C_PPE_6).
Deprecation
The ERP system automatically calculates the depreciable amount based on the useful life and the
depreciation methods that are entered in the ERP. On monthly basis, a Fixed Assets Report is
extracted from the ERP by the financial accountant for verifying the correctness of the depreciable
amount applied until the present, the future depreciable expense amount , and the depreciation
method used. Once verified by the financial accountant, the report is forwarded to the Financial
Managers for approval. Once approved by the financial managers, the accountant books a
depreciation journal entry in the ERP. The journal entry and supporting documents are reviewed by
the Finance Manager prior to booking in the ERP(R_PPE_6)(C_PPE_3). At the end of each quarter,
the Finance Manager prints out a detail Fixed Asset Report from the ERP system and verifies the
useful life, depreciation rates, and depreciation method, and for a sample of assets recalculates the
depreciation expenses to its check the accuracy (R_PPE_5)(C_PPE_5).
Disposals
Disposals are identified by plant personnel. Once identified, the Plant Controller completes the
Asset Retirement Form, inputting necessary information such as type of asset, value, any proceeds
from sale, etc., and submits to the Finance Accountant for processing. The Finance Accountant is
responsible for recording the asset disposal into the Fixed Assets register and recording the journal
entry into the general ledger based on the approved Asset Retirement Form. The journal entry and
supporting documents are reviewed by the Finance Manager prior to booking in the ERP(R_PPE_6)
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7/27/2019 Property, Plant, And Equipment Narrative
3/3
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for
professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.
(C_PPE_3). The Finance Accountant performs all calculations such as gain or loss on
disposal/scraping of fixed assets.
Managing Fixed Assets
Physical Inventories
On an annual basis, physical inventories are performed, with the results reconciled with the Fixed
Asset Register. The physical inventories are performed by the Operation Manager, the Accounting
Manager, and the Engineering Team(R_PPE_1)(C_PPE_1). This is to verify whether all items listed
on the books exist and whether all assets that physically exist have been recorded in the books.
Impairment and Revaluation
A quarterly meeting is also held between the Operations Manager and Accounting Manager to
identify Impairment indicators/upward revaluation for fixed assets that may exist. The lists of assets
identified for impairment/upward revalued are approved in the meeting(R_PPE_8)(C_PPE_7). All
write-offs/adjustments are sent to the Finance Accountant for booking. The journal entry andsupporting documents are reviewed by the Finance Manager prior to booking in the ERP (C_PPE_3).
IPE:
PPE_IPE_1 Purchase requisition PPE_IPE_2 Variance Analysis Spreadsheet PPE_IPE_3 Property Management Report PPE_IPE_4 Fixed Asset Report
PPE_IPE_5 Asset Retirement Form
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