Depreciation in the statements: checked, not calculated
Achekam presents a client's depreciation from the trial balance rather than calculating it. How its flag works and how to correct the figure.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Depreciation is one of the few figures in a small client's statements that the client almost never works out properly. Some post a round number at year end, some post nothing, some run a register in a spreadsheet that stopped matching the ledger three years ago. The firm then has to decide whether to accept the charge, fix it or rebuild it.
Achekam takes a clear position on this. When it prepares statements from a client's trial balance, it does not calculate depreciation. It presents what the trial balance holds, flags when the figures do not hang together, and gives staff a controlled way to post a year-end adjustment. This article explains each step and what the preparer should do when the flag appears.
Presented from the trial balance
The Studio builds the draft set from the mapped trial balance with every figure calculated in code, but depreciation is a figure it presents rather than computes. The charge in the income statement and the accumulated depreciation in the property, plant and equipment note are the amounts mapped from the client's accounts.
The reason is sound. A depreciation calculation needs an asset register: costs, dates of acquisition, useful lives, residual values and disposals. A trial balance has none of that. Any figure Achekam invented from balances alone would look precise and be a guess. The IFRS Foundation's summary of IAS 16 sets out the principles for recognising property, plant and equipment, measuring its carrying amount and working out depreciation charges.
So the depreciation in the draft is the client's depreciation. If it is wrong, the statements are wrong until someone corrects it.
The flag when the charge disagrees with the movement
What Achekam can do from balances is test consistency. It flags when the depreciation charge does not agree with the movement in accumulated depreciation.
In a simple year those two should match: the charge for the year increases accumulated depreciation by the same amount. When they differ, there is a reason, and the preparer needs to find it. The common ones are:
- Disposals. Accumulated depreciation on assets sold or scrapped is removed, so the movement is smaller than the charge. A legitimate difference, but the disposal should then appear in the note and the profit or loss on disposal should be in the income statement.
- A charge posted to the wrong account. Depreciation booked to repairs, or accumulated depreciation booked against cost.
- No charge at all. The client simply did not post one.
- Reclassifications between asset classes, which move accumulated depreciation without any charge.
The flag sits alongside the fixed, non-AI checks the Validation & Math Engine runs, such as double entry and note ties. Staff can also run the automated review, which lists findings for a person to accept, resolve or dismiss; that review is advice only and does not block signing.
Posting a year-end adjusting entry
Where the client's depreciation is wrong or missing, staff can post a year-end adjusting entry in Achekam to correct it. The calculation behind the entry is the firm's: from the client's register if it has a reliable one, or from a register the firm rebuilds.
Keep the working with the file. The entry changes the statements, and a reviewer will want to see how the amount was reached, which policy and useful lives were applied, and that they match the depreciation policy in the set.
Reversing a wrong entry, with who and why
Adjusting entries are not deleted. If an entry turns out to be wrong, it is reversed, and the reversal records who reversed it and why. The original stays visible.
That matters at review and inspection time. A file in which the depreciation adjustment was posted, reversed with a reason and reposted tells a clearer story than one in which a figure simply changed. Write the reason as if the reader is the engagement partner a year from now.
Clients who keep a fixed-asset register in Achekam
Some clients keep their own books on Achekam, appoint the firm and have the firm accept and link those books to a client record. A business on Achekam can keep a fixed-asset register that adds assets at cost, depreciates them monthly by straight line or reducing balance with a journal each month, and disposes of them with the profit or loss posted.
For those clients, the depreciation in the ledger comes from a register rather than a year-end estimate, and disposals are already accounted for. The consistency flag is then a check on the register's postings, and the firm's work shifts from calculating depreciation to reviewing the register's useful lives and methods. The register does not work out tax wear-and-tear, so tax depreciation remains a separate computation.
When the flag appears: a working order
- Get the client's asset register, or confirm it has none.
- Reconcile opening accumulated depreciation, plus the charge, less disposals, to the closing figure.
- Identify each reconciling item: disposal, misposting, missing charge or reclassification.
- If the charge is wrong, calculate the correct amount from the register and the policy.
- Post a year-end adjusting entry with a clear description.
- Check the property, plant and equipment note and the cash flow both reflect any disposal.
- Reverse, rather than edit, any entry that proves wrong, giving the reason.
Making depreciation boring again
The aim is a year in which the flag never fires. That usually means getting the client onto a proper register, whether in Achekam or elsewhere, so the charge is right before the trial balance reaches the firm. The depreciation policy that should match the numbers is discussed in accounting policies and notes: what is filled in, and the effect of disposals on the cash flow in comparatives and the cash flow's current-year column.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
