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Physical Verification of Assets

While resources can be documented in books, their actual presence is also documented on a regular basis to ensure that they are present. It is a procedure for verifying that an entity’s assets and stock exist. Larger organizations may find it challenging to maintain track of all of its assets, such as machinery, due to the complexity and spread of such assets within the organization.

Companies should perform a yearly physical census of all capital assets and stock to ensure accuracy, as there will be constant additions and clearances.

Physical asset validation is a procedure used by auditors to ensure that the assets listed in an entity’s books of account truly exist. The manager’s major job is asset verification. It is critical for any organization to complete this process at the conclusion of each financial year. It is also a legal obligation for companies under CARO 2016.

Overstating stock-in-trade can lead to exaggerated earnings. When checking the stock, extreme caution should be exercised. They ought to see that they are valued according to established accounting concepts and industry standards.

The higher the asset’s efficiency, the better the company’s end production and outcomes. The resultant profit or loss for the period will be inaccurate if stock-in-trade is improperly reported, checked, or assessed. It will also have an impact on the balance sheet and assets, and net worth will be misrepresented.

As a result, asset tracking and usage may bring substantial value to an organization’s profitability and development.

Physical asset verification is also an important element of fixed asset management. Physical verification must be performed on a regular basis, and there are several advantages to asset monitoring and verification, including:

  1. Asset mobility between sites is tracked.
  2. Cloning of resources between departments’ saves time and money.
  3. Establish an acceptable level of asset theft control.

Objectives

  1. Statutory compliance in accordance with CARO 2020 (replaced earlier order under CARO 2016).
  2. Ensures that assets are physically present.
  3. Accounting discrepancies are valued and corrected.
  4. The organization’s internal compliance.
  5. Consistent client service is essential.

The process of managing fixed assets

  1. Keeping track of fixed assets.
  2. The position of fixed assets may be tracked.
  3. The upkeep of permanent assets.
  4. A correct depreciation valuation.
  5. Various reports required by various laws.
  6. Physical inspection of capital assets on a routine basis.

Procedures

The processes for physical verification of capital assets are as follows:

Keeping track of and managing fixed assets is important and required, and keeping a Fixed Assets register makes the process easier. Examine the fixed asset registry and the insurance policy (if any). The following information is generally recorded in a fixed assets register:

  1. The worth of the net book.
  2. Depreciation rates, both current and cumulative
  3. The asset’s location.
  4. The rate charged by the custodian.
  5. The asset’s price.
  6. Depreciation rate or asset usage life.
    • Check the property tag number, serial number, manufacturer/model, location, description, and condition code with your hands.
    • Compulsory follow-up visits to check any remaining assets and obtain further data.
    • Establishing an audit path to connect the reconciled inventory file to the fixed asset accounting records.

Techniques for physical asset verification audits

The following are the primary asset audit physical verification techniques:

Physical existence of the asset

This method is used to determine if assets are physically present. Any mobile or immovable item might be included in these assets.

Purchase a company asset

It confirms that an asset has been bought for the company by the company. This technique’s goal is to “verify and check the bought assets.” It can’t be in the name of a coworker.

Ownership of assets

This method is used to determine who owns a piece of property. It has to be in the company’s name, and it can’t be on the lease. The validity of deeds and purchase paperwork is also checked.

Correct asset assessment

The right asset value is calculated using this asset method. The auditor confirms the value of assets by cross-checking papers and physically examining assets. Management estimates the value of assets, and the auditor verifies them by cross-checking documents and physically inspecting assets.

 

We specialise in stock auditing for both corporate and non-corporate clients in a variety of industries.

Our group will:

  • Perform reconciliation between the accounting records and the physical asset or stock.
  • Physical report for all sites, branches, and assets / inventory in one place.
  • Calculate differences and give reasons for them.
  • Provide a detailed report on the physical verification.
Accounting & Auditing
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