Question

13–5. Explain the use of a system of authorizations for additions to plant and equipment.

Answer 1

A "system of authorizations" for property and equipment additions is a plan requiring written executive approval in advance for all acquisitions of plant assets, whether by purchase, lease, or construction. Serially numbered capital work orders may be used to record authorizations.

The authorization step addresses whether your client’s management and staff follow proper internal control or other company authorization procedures when approving the purchase or disposal of fixed assets.

Authorizations for additions to plant and equipment should come from executive management because of the dollar amount related to the cost of the asset in relation to the total cost for assets.