Another common audit observation/findings of the Commission on Audit (COA) on government property, plant and equipment (PPE) is the recognition of properties amounting to less than P15,000 (now ₱50,000.00) as PPEs in the books of accounts which is contrary to Section 4, Chapter 10 of the Government Accounting Manual for National Government Agencies (GAM for NGAs). If your agency is doing this and found by your auditor, he/she may issue an Audit Observation Memorandum (AOM).
Briefly, an AOM is an audit document issued by COA to government agencies, usually called as auditees, to inform them of deficiencies noted in audit related to financial/operational matters which do not involve pecuniary or monetary loss.
[Read: Eight (8) Audit Documents Every Accountant Need To Be Familiar About]
According to Section 4, Chapter 10 of the GAM for NGAs, the capitalization threshold of P15,000 (now ₱50,000.00) represents the minimum cost of an individual asset recognized as a PPE on the Statement of Financial Position.
This threshold shall be applied on an individual asset or per item basis. Hence, individual properties with cost less than P15,000 (now ₱50,000.00), while they may look like PPEs such as printers, office tables, sports equipment, etc., should not be recognized as PPE, instead, should be recognized as semi-expendable properties.
If, however, there are items with individual values below the threshold but which work together in the form of a group of network asset whose total value exceeds the threshold shall be recognized as part of the primary PPE. Examples of these are computer network, PABX system, sewerage system, etc.
How to fix this?
The quick fix is to tell your auditor that you will review all your existing PPEs to check the items affected by the AOM. Usually, your auditor will give you sufficient time to do this; however, on a limited time only.
Note: Based on existing auditing rules and procedures, the AOM shall be replied to by agency officials concerned within 15 calendar days (CDs) from receipt thereof. Read more >>>
On the other hand, to effect a permanent fix, the GAM provides what to do.
Section 10, Chapter 8 of the GAM for NGAs provides that tangible items below the capitalization threshold of P15,000 (now ₱50,000.00) shall be accounted as semi-expendable property. The following policies apply as follows:
a. Semi-expendable property which were recognized as PPE shall be reclassified to the affected accounts. This may require adjusting entries in your books of accounts.
b. These tangible items shall be recognized as expenses upon issue to the end-user.
If correctly done, this may already comply or answer the AOM of your Auditor.
[Related: AOM on PPE: Non-Submission Of Complete And Reliable Inventory Records – How To Fix It?]
