What is the procedure for verification of assets?

Physical verification is a procedure performed by an auditor to confirm the existence of tangible assets recorded in the client’s books of accounts. The auditor may also use this to check the condition of those assets. The physical verification is generally performed at the end of every financial year.

In organizations where multiple classes of assets exist and in different offices & departments, keeping track of them can be a formidable task. It has been one of the topmost priorities for the finance and admin teams, for they are accountable for resource management.

Objectives

• Statutory compliance as per CARO 2020 (replaced earlier order under CARO 2016)
• Ensures the physical existence of assets
• Valuation and rectification for any accounting discrepancy
• Internal compliances of the organization
• Critical for continuous customer service

Physical verification of fixed assets is also an essential part of fixed assets management. Physical verification should be done at regular intervals & there are many benefits of assets tracking and verification as:

• Monitoring of assets movement between locations,
• Saving in time and money in replication of assets between departments,
• Put a reasonable control over theft of assets.

The fixed asset management process

• Recording of fixed assets
• Tracking of the location of fixed assets
• Maintenance of fixed assets
• An accurate valuation of depreciation
• Various reports under various regulations
• Physical verification of fixed assets at regular intervals

Procedures
Following are the procedures for physical verification of fixed assets:

• Keeping track and managing fixed assets is critical & compulsory and maintaining a Fixed Assets register helps simplify the process. Check fixed assets register and insurance agreement (if any). A fixed assets register typically record the following data:
  • Netbook value,
  • Current and accumulated depreciation rate,
  • Location of the asset,
  • Custodian rate,
  • Cost of the asset,
  • Asset use life or depreciation rate.
• Physically verify property tag number, serial number, manufacturer/ model, location, description and condition code.
• Follow-up visits as compulsory to verify any residual assets and gather additional information
• Creation of audit trail to link the reconciled inventory file with the existing fixed asset accounting records.

Asset audit techniques for physical verification
Following are the main techniques for physical verification of asset audit:

• Asset physical existence
  This technique is used for verifying assets physically exist or not. These assets could be any movable or immovable property.

• Purchase asset for business
  It is verifying that asset is purchased for the company by the company. The aim of this technique is ‘verify & check the purchased assets’. It shall not be in the name of any employee.

• Asset ownership
  This technique is used for identifying ownership of the asset. It must be in the name of the business, and it should not be on the lease. Deeds and purchase documents are also verified.

• Correct asset evaluation
  This asset technique is used for calculating the correct asset value. Management estimates the value of assets, and the auditor verifies them by cross-checking documents, and the auditor verifies them by cross-checking records and physically inspecting assets.

In order to help the auditors manage quality audits and adhere to the audit compliance standards, ICAI has released guidelines advising auditors regarding conditions that may arise due to the Covid-19 pandemic and how they can carefully examine specific circumstances while undertaking audit assessment the risk accordingly.

At AJSH, we assist our clients in dealing with physical verification and reconciliation of assets, fixed asset management, inventory management, financial planning, operational support, statutory compliances etc., by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the physical verification of fixed assets, kindly contact us.

Avoid risks, conduct a physical verification of assets today

Physical verification of assets is a process conducted by auditors to make sure that the assets of an entity actually exist. It is of immense importance for every business to carry out this process at the end of every financial year. Our approach to verification is to conduct a line-by-line reconciliation of fixed assets accounting records to assets found during the physical inventory taking process. We have a team of associates and supervisors to work on permanent account number (PAN) India & international basis. In order to serve in remote locations, we have a special team adjustable to local language and location.

Objective of Physical Verification of Assets:

• It is a statutory compliance as per CARO 2016
• Ensures existence of assets of an entity
• Facilitates valuation and rectification for any accounting discrepancy
• To manage internal compliances of the entity
• Critical for continuous customer service

This requires objective assessment of ledger contents and internal controls that support asset management. The process includes:

• Automated comparison of asset tag and serial numbers.
• Automated and manual comparison of manufacturer model numbers.
• Comparison of additional available information such as description, location and department are taken into consideration.
• An effort to address potential matches by description, manufacturer, model and serial number that may appear elsewhere in each record entry.
• Allocation of bulk entries and grouped assets to the individual assets (computer equipment, furniture, manufacturing equipment, etc.)
• Follow-up visits as necessary to verify any residual assets and / or gather additional information.
• Creation of audit trail for linking the reconciled inventory file with the existing fixed asset accounting records.

At the closure of the verification, we provide an audit trail in an excel spreadsheet along with several specific reconciliation reports such as matched assets, unrecorded additions and unrecorded retirements.

Our team of experts will:

• Consolidate physical report for all sites and assets / inventories
• Perform reconciliation between physical count and book count
• Compute difference and identifying the reasons
• Executive Summary (signed off by Technical, SCM, Finance, AJSH)
• Provide Physical Verification Report
• Physical Verification of Inventory

FAQs

How do you physically verify an asset?

Physical verification or observations of fixed assets are referring to the same procedure being used by auditors to verify the existence and condition of assets. Auditors also need to review the counting procedures from before count, during the count, and after the count.

What are the objects of verification of assets?

The object of verification is to satisfy the auditor as to existence, ownership, possession (in case of assets) or completeness (in case of liabilities), valuation and disclosure of items mentioned in the balance sheet

What is the purpose for verification of assets?

• To find out the ownership and title of the assets.
• To find out whether assets were in existence.
• To maintain internal compliances of the entity
• To detect frauds and errors, if any.
• To find out whether there is an adequate internal control regarding acquisition, utilization and disposal of assets.

What are the Do’s and Don’ts of physical verification of asset?

Do’s:

• Estimate and gather what you need to track or tag,
• Understand the full project management life cycle,
• Select software which can help you with reporting and analytics functionality,
• Track assets as they get added in to the company
• Conduct a critical equipment analysis

Don’ts:

• Don’t forget to complete the entry for current and future value of the asset
• Don’t forget to check for consistency and categorization,
• Don’t forget to define a strategic objective for the exercise
• Don’t forget to create a comprehensive database
• Don’t forget to track maintenance and repair schedules

What are the asset audit techniques for physical verification?

Following are the asset audit techniques:

• Asset Physical Existence
• Purchase Asset for Business
• Asset Ownership
• Correct Asset Evaluation

What services we offer under physical verification?

At AJSH, we assist you with consolidate physical report for all sites and assets / inventories, perform reconciliation between physical count and book count, compute difference and identifying the reasons, executive Summary (signed off by Technical, SCM, Finance, AJSH), provide Physical Verification Report and provide physical Verification of assets/ inventory.

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