A Practical Guide to Fixed Asset Verification/Audit

Fixed assets represent a substantial portion of an organization’s value. These long-term assets, including buildings, machinery, vehicles, and more, are essential for business operations. To maintain financial transparency and ensure accurate reporting, organizations must conduct regular fixed asset verification.

This comprehensive guide explores the concept of fixed asset verification, its importance, the role of asset tagging, the verification process, checklists, and the creation of verification reports. Let’s get started right at the beginning.

What is Fixed Asset Verification or Asset Audit?

Fixed asset verification, often referred to as a fixed asset audit, is a systematic process of physically inspecting and verifying the existence, location, condition, and quantity of an organization’s fixed assets.

Fixed assets are typically items with a useful life of more than one year, such as land, buildings, equipment, vehicles, furniture, and technology infrastructure.

The Primary objectives of fixed asset verification are:

1. To ensure the accuracy of asset records, including asset descriptions, quantities, locations, and financial values.
2. To confirm the physical existence of assets listed on the balance sheet or fixed asset register.
3. To validate the condition and status of assets to assess maintenance requirements accurately.
4. To prevent misappropriation, theft, or misuse of assets.

Fixed asset verification is crucial for financial reporting, compliance with accounting standards, and safeguarding valuable organizational assets.

Why is Physical Verification of Fixed Assets Necessary?

Physical verification of fixed assets is necessary for several compelling reasons:

1. Accurate Financial Reporting: Fixed assets significantly contribute to an organization’s financial statements. Accurate verification ensures that financial records correctly reflect the value, condition, and location of these assets, thereby enhancing the credibility of financial reports.
2. Preventing Misappropriation: Regular verification helps detect and prevent asset misappropriation, theft, or unauthorized transfers. By confirming the existence of assets, organizations can deter fraudulent activities.
3. Maintenance and Upkeep: Verification allows organizations to assess the condition of assets accurately. This information is essential for planning maintenance and repairs, ensuring assets remain in good working order.
4. Compliance and Auditing: Many regulatory bodies and accounting standards require organizations to conduct periodic asset verification. Compliance with these regulations is essential to avoid penalties and maintain transparency.
5. Cost Control: By identifying idle or underutilized assets, organizations can optimize their asset management strategies, reducing unnecessary costs associated with unused or surplus assets.
6. Asset Valuation: Verification helps determine the accurate value of assets for depreciation calculations and financial statement preparation, ensuring compliance with accounting standards like Generally Accepted Accounting Principles (GAAP).

How Important is Fixed Asset Tagging in the Verification Process?

Fixed asset tagging is a crucial component of the fixed asset verification process. Asset tagging involves assigning unique identification labels, such as barcodes, QR codes, RFID tags, or asset numbers, to each fixed asset.

These tags serve as a bridge between the physical asset and its digital record in the asset management system. Here’s why asset tagging is essential:

• Quick Identification: Tags enable rapid identification of assets during the verification process. A quick scan or visual check of the tag helps locate assets efficiently.
• Error Reduction: Human errors in asset identification can lead to discrepancies. Asset tagging reduces the risk of errors, ensuring that the right asset is verified.
• Data Accuracy: Accurate data entry is facilitated through scanning or entering tag information. This enhances the precision of asset records.
• Tracking Changes: When assets are moved or transferred, the updated location can be easily recorded by scanning the tag, ensuring real-time tracking.
• Maintenance Tracking: Tags can include maintenance history or service dates, making it easy to monitor maintenance schedules and asset conditions.
• Audit Trail: Tags provide a clear audit trail, showing when an asset was last verified, reducing the chances of duplicate verifications.

Incorporating asset tagging into the verification process significantly improves efficiency, reduces errors, and enhances the overall reliability of asset data.

Fixed Asset Verification Process: How to Conduct Physical Verification of Fixed Assets

Conducting a successful fixed asset verification requires careful planning, execution, and reporting. Here is a step-by-step guide to conducting the physical verification of fixed assets:

1. Planning

• Identify the scope of the verification, including which assets will be verified, where they are located, and who will conduct the verification.
• Set verification dates and establish a timeline for completion.
• Appoint a dedicated verification team responsible for conducting the process.
• Prepare the necessary equipment, such as barcode scanners, RFID readers, mobile devices, and asset tagging materials.

2. Preparing

• Compile a comprehensive list of assets to be verified, including asset descriptions, locations, and quantities.
• Ensure that each asset is tagged or labeled with a unique identifier for easy tracking.
• Create asset verification checklists or templates that specify the information to be verified for each asset.
• Provide training to the verification team on the verification process, equipment usage, and data entry procedures.

3. Physical Verification

• The verification team should visit each location where fixed assets are located.
• For each asset, the team must verify its existence, condition, quantity, and location.
• Use the designated equipment (barcode scanners, RFID readers, etc.) to scan asset tags or labels for accurate identification.
• Compare the physical attributes of the asset with the information on the verification checklist.
• Note any discrepancies, such as missing assets, damaged items, or location changes.

4. Reconciliation

• After completing the physical verification, reconcile the results with the organization’s fixed asset register or asset management system.
• Investigate and address any discrepancies found during the verification process.
• Make necessary adjustments to the asset records, including updates to descriptions, quantities, locations, and condition codes.

5. Reporting

• Prepare a comprehensive fixed asset verification report that summarizes the entire verification process.
• Include details of assets verified, discrepancies identified, corrective actions taken, and recommendations for process improvements.
• Ensure that the report is well-documented, clear, and ready for review by internal and external stakeholders.

The fixed asset verification process should be conducted regularly, typically on an annual or biennial basis, to maintain accurate asset records and ensure compliance with accounting standards and regulations.

What Type of Audit Evidence Would You Need to Verify Fixed Assets?

During the fixed asset verification process, it’s essential to gather audit evidence to support the accuracy and validity of the asset records. Audit evidence serves as documentation to verify the existence, ownership, condition, and value of fixed assets.

Here are the types of audit evidence you may need:

• Physical Inspection: Physical verification involves visually inspecting each fixed asset to confirm its existence and condition. Photographs of assets can serve as visual evidence.
• Asset Tags and Labels: Ensure that each asset is tagged or labeled with a unique identifier. Scanning these tags provides evidence of asset identification.
• Barcode or RFID Scanning Records: Records of barcode or RFID scans during the verification process serve as electronic evidence of asset verification.
• Signed Verification Forms: If verification team members sign off on verification forms for each asset, these signed documents provide evidence of the verification process.
• Maintenance and Service Records: Maintenance and service records help validate the condition of assets and support their current state.
• Purchase Invoices and Receipts: Invoices and receipts for asset purchases provide evidence of acquisition costs and ownership.
• Depreciation Schedules: Depreciation schedules and calculations offer evidence of the asset’s historical cost, accumulated depreciation, and current book value.
• Asset Register: The organization’s asset register or asset management system should include updated information on verified assets, serving as an official record.
• Audit Trails: Audit trails within the asset management system document changes, updates, and activities related to assets, providing a history of asset management actions.
• External Confirmations: In some cases, external confirmations may be obtained from third parties, such as lessors or equipment suppliers, to validate asset ownership or lease terms.

Collecting a variety of audit evidence helps ensure the completeness and accuracy of the fixed asset verification process and strengthens the reliability of asset records.

The Checklist for Physical Verification of Fixed Assets

To conduct a thorough physical verification of fixed assets, it’s essential to have a comprehensive checklist in place. This checklist should include the key information to be verified for each asset.

Here’s a sample physical verification checklist:

Asset Information:

• Asset Name/Description: Verify that the asset’s name or description matches the record.
• Asset Tag/Label: Check that the asset has an accurate and legible tag or label.
• Serial Number: Confirm that the serial number matches the record.
• Manufacturer/Model: Verify the manufacturer’s name and model number.
• Location: Check the asset’s current location against the record.
• Condition: Assess and document the condition of the asset (e.g., good, fair, poor).

Ownership and Documentation:

• Ownership: Confirm ownership of the asset (e.g., owned, leased).
• Purchase Documentation: Ensure that purchase invoices and receipts match the recorded acquisition costs.
• Warranty/Service Records: Check for warranty or service records, if applicable.

Quantity Verification:

• Quantity: Confirm the quantity of assets in the location.
• Check for Duplicate Assets: Ensure that there are no duplicate entries for the same asset.

Depreciation and Financial Information:

• Original Cost: Verify the asset’s original cost.
• Accumulated Depreciation: Confirm the accumulated depreciation amount.
• Depreciation for the Current Year: Calculate and verify the depreciation for the current year.
• Current Book Value: Calculate and verify the asset’s current book value.

Miscellaneous:

• Asset Use and Purpose: Confirm that the asset is used for its intended purpose.
• Maintenance Records: Check for maintenance and service records.
• Asset Transfers: Verify any asset transfers or movements.
• Photographs: Take photographs of assets for visual documentation.
• Notes and Comments: Record any additional notes or comments regarding the asset’s status.

Using a detailed checklist ensures that all relevant information is reviewed during the verification process, reducing the chances of overlooking important details.

Fixed Asset Verification Report

Upon completing the physical verification of fixed assets, it is essential to generate a comprehensive verification report. The report serves as an official record of the verification process and its outcomes. Here are the key components of a fixed asset verification report:

1. Introduction

• Provide an introductory section that explains the purpose and objectives of the verification process.
• Mention the dates during which the verification was conducted.
• Specify the verification team members and their roles.

2. Asset Listing

• Present a list of all assets that were subject to verification.
• Include asset names, descriptions, asset tag numbers, locations, and quantities.

3. Verification Results

• Detail the results of the physical verification for each asset.
• Indicate whether the asset’s existence, location, condition, and other attributes were verified successfully.
• Highlight any discrepancies or issues encountered during the verification.

4. Discrepancies and Corrective Actions

• Summarize any discrepancies found during the verification process.
• Explain the nature of each discrepancy and its potential impact.
• Provide recommendations and corrective actions taken or proposed to address discrepancies.

5. Recommendations

• Offer recommendations for process improvements based on the verification findings.
• Suggest actions to prevent future discrepancies and enhance the accuracy of asset records.

6. Conclusion

• Conclude the report by summarizing the overall outcomes of the verification process.
• Emphasize the importance of maintaining accurate fixed asset records.

7. Appendices

• Include any supporting documents, such as photographs, signed verification forms, or additional data.

8. Signatures

• Obtain signatures from relevant personnel, including the verification team members and management responsible for reviewing the report.

A well-structured verification report provides a clear overview of the verification process, its outcomes, and recommendations for improvement. It is a crucial document for internal record-keeping and may also be required for external auditing and compliance purposes.

Fixed Asset Verification Report Template

You can customize this template to align with your organization’s specific needs and reporting standards. Ensure that the report is comprehensive, well-organized, and includes all necessary details to facilitate decision-making and auditing processes.

AssetCues for Robust Verification & Tracking of Assets

Manual processes and outdated asset management solutions can hinder productivity, lead to errors, and create data discrepancies. This can result in a lack of trust in asset data and inefficient collaboration among teams.

To address these challenges, modern asset management solutions like AssetCues offer intelligent automation tools designed to streamline the verification and tracking of assets effectively.

AssetCues leverages various automated data capture technologies to ensure the accuracy and completeness of asset data. These technologies include:

1. Camera Scanning: Basic camera scanning allows users to capture asset information quickly and accurately by simply taking photos.
2. Barcode and RFID Readers: AssetCues supports enterprise-grade barcode and RFID readers for efficient asset tracking, especially in stock rooms and data centers.
3. Smartphone Scanning: Field users can easily update asset information using smartphone scanning, eliminating the need for additional devices.
4. Fixed Position RFID Readers: These readers automatically track assets without human intervention, enhancing asset visibility.

Hardware is just one aspect of AssetCues’ capabilities. The platform also focuses on user experience by providing:

• User-Friendly Interface: AssetCues features an optimized and user-friendly UI that minimizes complexity and reduces the number of clicks required to perform tasks.
• Error Correction: The system includes error correction features, ensuring that users can easily rectify mistakes.
• Pattern Recognition: AssetCues employs pattern recognition to guide users through processes, reducing the need for precise sequences of actions.
• Streamlined Processes: Streamlined processes trigger workflows in various departments, such as purchasing, service, and HR, to streamline asset management tasks.

AssetCues provides end-to-end asset management solutions, covering the entire asset lifecycle. This includes inventory management, receiving, cycle audits, and end-of-life tracking with ERP integration.

Moreover, it offers a mobile-based verification system that allows end-users to confirm the assets they possess with minimal effort, without the need for extensive development.

The ultimate goal of AssetCues is to deliver complete, current, and accurate asset data that fosters trust and collaboration among teams. By providing a streamlined user experience and robust tracking capabilities, AssetCues helps organizations realize the true value of hardware asset management.

Fixed Asset Verification/Audit FAQs

What are the benefits of an asset audit?

Conducting regular asset audits offers numerous benefits to organizations across various industries. Whether you’re a small business or a large corporation, knowing how to audit fixed assets and routinely performing these audits helps confirm essential aspects of your asset management.

Here are some key benefits of asset audits:

1. Verification of Asset Existence: Asset audits ensure that the assets listed on your balance sheet physically exist and have not been misplaced or lost. This verification is crucial for accurate financial reporting.
2. Asset Classification: Audits help classify assets correctly based on their nature, such as whether they are tangible or intangible, and ensure compliance with accounting standards.
3. Location Tracking: Through audits, you can verify the precise location of each asset. This information is essential for efficient asset utilization and management.
4. Date of Asset Purchase: Asset audits confirm the acquisition dates of assets, allowing you to track their age accurately.
5. Verification of Original Cost: You can use audits to verify that the original cost of each asset aligns with the recorded amount. This is vital for calculating depreciation accurately.
6. Asset Labeling: Audits help ensure that assets are labeled or tagged with their assigned asset barcodes or identification numbers.
7. Asset Condition: Through physical inspections, you can assess the condition of assets, identifying any items that may require maintenance or replacement.
8. Quantities of Each Fixed Asset: Asset audits provide an accurate count of each type of fixed asset, preventing discrepancies.
9. Controls Against Unauthorized Access: Verifying asset conditions and locations helps maintain controls to prevent unauthorized access to fixed assets.
10. Revaluation Information: If assets have been revalued, audits capture the details of the revaluation, ensuring accurate reporting.
11. Rate of Depreciation: Audits confirm the rate of depreciation applied to each asset and verify its accuracy.
12. Accumulated Depreciation: You can determine the accumulated depreciation of each asset through audits, enabling precise financial reporting.
13. Depreciation for the Current Year: By conducting asset audits, you can calculate and confirm the depreciation for the current year.
14. Details About Scrap or Sale: If any assets have been scrapped or sold, audits document the particulars of such transactions.

Asset audits are essential for maintaining the integrity of financial statements, ensuring compliance with accounting standards, and preventing fraud or mismanagement of assets.

They provide a comprehensive overview of an organization’s asset base and are crucial for strategic decision-making.

How frequently should one verify their assets?

The frequency of asset verification can vary depending on the organization’s size, industry, and internal policies. However, a common practice is to conduct a full verification of fixed assets at least once a year.

This annual audit helps ensure the accuracy of asset records and financial reporting. Additionally, organizations may perform partial verifications or spot checks more frequently, especially for high-value assets or in industries with rapid asset turnover.

Ultimately, the frequency of asset verification should align with an organization’s risk tolerance and the criticality of asset data accuracy.

What is the difference between W2W (wall to wall) and FTF (file to floor) verification?

The difference between Wall-to-Wall (W2W) and File-to-Floor (FTF) verification lies in their respective approaches to fixed asset verification and the specific objectives they aim to achieve:

1. Wall-to-Wall (W2W) Verification

Objective: Wall-to-Wall verification is a comprehensive and thorough approach to asset verification. Its primary objective is to establish a complete and accurate asset register from scratch or to update an existing register that may be outdated, incomplete, or nonexistent.

Process: In a Wall-to-Wall verification, every single asset within the organization is physically inspected and verified. This means conducting a comprehensive audit of all assets, regardless of whether they were previously recorded in an asset register or not. During this process, new assets are identified, and a fresh asset register is created or updated based on the verified information.

Typical Scenario: Wall-to-Wall verification is often employed when an organization lacks a reliable asset register or suspects significant discrepancies between existing records and the actual assets on hand. It is a time-consuming and resource-intensive process but is essential for establishing an accurate baseline of assets.

2. File-to-Floor (FTF) Verification

Objective: File-to-Floor verification, in contrast, focuses on validating the accuracy and completeness of an existing asset register. The primary goal is to ensure that the assets listed in the register align with the assets physically present within the organization.

Process: In File-to-Floor verification, the emphasis is placed on comparing the information contained in the asset register (the “file”) with the actual assets in the organization (the “floor”). The verification team cross-references asset descriptions, quantities, values, and other relevant details in the register with the assets physically located on-site. Any discrepancies between the two are investigated and reconciled.

Typical Scenario: File-to-Floor verification is employed when an organization already has an asset register in place but needs to confirm its accuracy and completeness. It is a more focused and efficient process compared to Wall-to-Wall verification since it does not involve physically verifying assets that are already correctly recorded in the register.

Key Differences

• Scope: Wall-to-Wall verification covers all assets, including those not previously recorded, while File-to-Floor verification focuses on assets already listed in the register.
• Purpose: Wall-to-Wall aims to create or refresh the entire asset register, while File-to-Floor aims to validate and correct an existing register.
• Resource Intensity: Wall-to-Wall verification is resource-intensive due to its comprehensive nature, while File-to-Floor is more lean & efficient since it deals with a known subset of assets.
• Frequency: Wall-to-Wall may be conducted less frequently (e.g., annually) to establish a baseline, while File-to-Floor can be performed more regularly (e.g., quarterly or monthly) for ongoing accuracy maintenance.

How asset movement controlling can improve fixed asset verification?

Asset movement control plays a crucial role in enhancing fixed asset verification in the following ways:

Real-time Tracking: Implementing asset movement control systems, such as RFID (Radio-Frequency Identification) or RTLS (Real-Time Location Systems), enables organizations to track asset movements in real-time. This ensures that assets are always accounted for, reducing the likelihood of discrepancies during verification.

Automated Updates: Asset movement control systems automatically update asset locations as assets are moved within the organization. This automation reduces the manual effort required for tracking and improves the accuracy of asset records.

Enhanced Security: Asset movement control systems help prevent unauthorized asset movements, deterring theft or misplacement. This security feature contributes to more reliable verification results.

Quick Location Identification: During verification, asset movement control systems can quickly pinpoint the real-time location of assets, expediting the verification process and reducing downtime.

Historical Data: These systems maintain historical data on asset movements, allowing organizations to track asset usage patterns, identify trends, and optimize asset utilization.

How to track the real-time location of assets indoors with RTLS (Real-Time Location System)?

Tracking the real-time location of assets indoors with an RTLS involves the following steps:

1. Selection of RTLS Technology: Choose the appropriate RTLS technology for your needs. Common options include RFID, Bluetooth Low Energy (BLE), Ultrasound, Wi-Fi, or a combination of these technologies.
2. Asset Tagging: Attach RTLS tags or beacons to each asset you want to track. These tags emit signals that are picked up by RTLS receivers throughout the indoor environment.
3. Deploy RTLS Infrastructure: Install RTLS receivers or access points strategically across the indoor space. Ensure proper coverage to minimize blind spots.
4. Calibration and Configuration: Configure the RTLS system and calibrate it to provide accurate location data. This may involve mapping the environment and optimizing the system’s settings.
5. Monitoring and Tracking: Once the RTLS system is operational, it continuously tracks the location of tagged assets in real-time. Users can access this information through a software interface.
6. Integration: Integrate the RTLS data with your asset management system or software. This integration allows you to view asset locations alongside other asset details.
7. Alerts and Reporting: Set up alerts for specific events, such as asset movement beyond designated areas. Generate reports and access real-time location data for efficient asset management.
8. Maintenance: Regularly maintain and calibrate the RTLS system to ensure accuracy and reliability.

Implementing an RTLS system provides organizations with the capability to monitor and track assets indoors in real-time, improving asset visibility, security, and efficiency in various industries, including healthcare, manufacturing, and logistics.