This is a composite, illustrative scenario, not an account of a named client. The depreciation charge appearing in the trial balance for the plant and machinery class was roughly ₹6.2 lakh higher than the amount the fixed asset register's own calculation produced when the standard useful life and rate were applied for the full year. Tracing the difference back to the asset-level working sheet showed that the useful life for one machinery sub-class had been shortened partway through the year, with the higher depreciation applied from October onward — a change in accounting estimate that had never been disclosed in the notes to the financial statements, and that the finance team had not flagged to the audit team on their own initiative.
Why the gap was caught at the reconciliation stage, not the vouching stage
A sample of individual depreciation entries for the year would likely have looked internally consistent, since each month's charge from October onward was calculated correctly off the revised life — the entries matched the register as it then stood. It was only reconciling the register's year-end subtotal to the trial balance's depreciation expense line, a full-population tie-out rather than a sample, that surfaced a gap precise enough to not be a rounding or timing difference, which is what prompted tracing it to its source.
What tracing the gap found
- 01Isolated which asset class accounted for the mismatchNarrowing by class showed the entire gap sat in one plant and machinery sub-class, not spread across the register.
- 02Pulled the asset-level depreciation working sheet for that sub-classThe useful life had been revised from 15 years to 10 years for that sub-class, with the revised rate applied from the second half of the year.
- 03Asked management for the basis of the revisionAn internal engineering assessment had concluded the machinery was wearing faster than originally estimated — a legitimate basis for a change in accounting estimate, but one that still required disclosure.
- 04Checked Schedule II and the applicable Ind AS for the disclosure requirementA change in useful life is a change in accounting estimate requiring disclosure of its effect on the current period's depreciation charge, which had not been made.
| Status | |
|---|---|
| Basis for the useful-life revision | Reasonable — supported by an internal engineering assessment |
| Timing of application (from October) | Consistent — applied prospectively as a change in estimate should be |
| Disclosure in the notes to accounts | Missing entirely — no mention of the change or its ₹6.2 lakh effect |
What went into the file
- The register-to-trial-balance reconciliation that surfaced the gap, with the amount isolated to the one sub-class.
- The engineering assessment supporting the revised useful life.
- The disclosure drafted and added to the notes, quantifying the effect on the current period's depreciation charge as the applicable standard requires.
- A note on why this was accepted as a reasonable estimate change once disclosed, distinct from an unsupported or arbitrary rate change.
Regulatory requirement
A change in the useful life of an asset is a change in accounting estimate and must be accounted for prospectively, with its effect on the current period disclosed — it is not something that can simply be absorbed into the depreciation line without a reader of the financial statements being told it happened.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexDepreciation testing: audit procedure and recomputationChecking useful lives against Schedule II, recomputing the charge independently for a sample, and handling mid-year additions, disposals and changes in estimate.
- Fixed assets & capexDeparting from Schedule II useful lives is allowed — but only with a disclosed reasonUsing a different useful life than Schedule II isn't the compliance gap. Not disclosing why is.
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
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