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.
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