Land can be classified in separate categories and accounts: bare land (no buildings), land with own buildings; land with buildings of third parties and land with layers. Buildings include installations, repair, adaptations and infrastructure.

Auditing of “Lands” and “Building projects” has the following major goals:

- Make sure of the material existence of such assets;

- Confirm whether the company is the real owner of its own assets;

- Make sure that assets have been assessed and registered in the balance sheet according to their correct value;

- Considering their maintenance condition and age, draw relevant conclusions with regard to justification of depreciation measures as well as depreciation amount and rate applied:

- Make sure that purchase and transferals of fixed assets are reflected in the bookkeeping through relevant registrations;

- Assess the threats to ownership of fixed assets (e.g. fire) and compare them with insurance packages signed.

Accounting and technical recommendations

Auditing includes at least the following:

- Check the justification of property on land and other immovable property, property titles, cadastral registers, mortgage registers and purchase contracts on the date of balance sheet;

- Every fixed asset in this section should be crosschecked and correspond with: purchase cost, cadastral assessment, insurance value, accounting value, mortgage alienation value, sales value, production value (real or theoretical), replacement value, value from examination and tax reports;

- Comment on history of figures for all changes occurring in the respective accounts of these investments;

- Examine every indication or element related to accounts for lands and buildings and judge whether changes should be considered as investments or utilization costs;

- Proceed with site visits in order to observe any new installations or damages for the purpose of crosschecking them with respective costs in the bookkeeping;

- Identify eventual non-occupied areas;

- Ascertain the aging condition and maintenance of buildings and crosscheck with amortizations made till the moment of audit;

- Make sure that necessary amortizations have been properly made, in conformity with relevant laws and rules and check calculations made for these amortizations;

- Consider potentials for fraudulent bookkeeping: unjustified purchase at very high price, unjustified sale at very low price, inclusion of utility costs in fixed assets or vice-versa, free-of-charge lease contracts, free-of-charge contracts for third parties, use of company installations for personal purposes, deviations between real price, registered price and the price in the authentic act;

- For new buildings, check the real cost, eventual destruction costs and verify whether best offers have been observed;

- Examine how the price of buildings is determined and whether personnel wages are entered in the bookkeeping;
- Make sure that values have been modified to reflect changes in replacement price;

- Detect cases when prices have been hidden in notary acts;

- Examine procedures applied so that every investment purchase is immediately covered by insurance packages;

- Examine bookkeeping for damages in the buildings;

- Examine commissions and payments to intermediaries during purchase of lands and buildings;

- Examine measures to maintain fixed assets in good condition to guarantee their best use (maintenance services, periodic inspections, etc.);

- Check for real insurance, mortgage, pledged by the company which affect land or immovable property. If yes, examine the guaranties applied and at least check: the nature of guaranties, nature and amount of commitments guarantied and beneficiaries;

- In the annex, mention changes in land and immovable property occurred during audit;

Special attention should be devoted to accounting treatment of fixed assets in this section:

a) Accounting treatment for land purchase and sale

1. When land is entered in a company’s assets, the value is debited in account 211 “Land” as contribution value, purchase price or credit respectively in account for “principal assets (individual or group 1) or in the account “Partners account for contributions in the company” or “Suppliers of fixed assets”. Account 211 registers the value of land owned by the company. It is important to distinguish between separate accounts, based on the nature of component elements of fixed assets:

- Bare lands (no buildings);

- Improved lands (with channels, etc);

- Underground and above soil: terms used when the company is not the owner of the three elements attached to the same part of terrain: land, underground and above soil;

- Exploited lands (carriers, mineral layers) which are the only elements subject to depreciation;

- Residential terrains with one more buildings.

2. During sales, the value of origin for elements sold and that of amortization, if any, are taken from the respective accounts. Their net sum is debited to account 652 “Accounting value of elements for fixed assets sold”; at the same time, account 752 “Incomes from elements of fixed assets sold” is credited in the debit of account 462 “Request to receive from fixed assets sold”. Provisions are closed in credit of the respective subdivision of account 78 “Reacquisition of amortizations and provisions”.

b) Accounting treatment of sale-purchase operations in construction

In case a construction is purchased for a price which does not separate land price from building price, only the building price portion is subject to amortization. Consequently, when a company purchases a building, we must make sure whether it has divided the global purchase cost in percentage with the relative value attributed to each of the two elements (account 211 “Land” and 212 “Building” in the total value of immovable property).

1. When buildings are entered as company property, account 212 “Buildings” or its subdivisions are debited:

- For incoming value,
- For purchase price,
or for the real cost of property production, in credit of:
- Account 101 “Principal assets (principal or individual)” or account 4561 “Partners – Account for contributions in society”,
- Account 404 “Suppliers of fixed assets or other respective accounts,
- Account 72 “Production of fixed assets”.