Physical verification of assets is an important aspect of auditing. Without verification of assets, an audit is incomplete. Auditing is done at the end of every financial year; it helps in calculating the worth value of an organization. Therefore, it is a critical part of the business.
Verification is also defined as “An inquiry into the value, ownership, title, existence, possession, and presence of any charge on the assets.”
And verification is a function of examining assets & liabilities to check:
- Possession and
- to see whether the assets are free from any charge or difficulty etc.
Also Read: What Are the Audit Procedures to Verify the Fixed Assets?
What Is the Objective of the Physical Verification of Assets?
The objectives of the physical asset verification are given below:
In this process, the assets are being verified with their physical presence at a certain location. Once physically verified, the auditor examines all the asset-related data such as status, location, purchase date, last service date, and other documents, etc. This is done to validate if all the assets are present with the right information or not.
Also, the ownership is checked because the asset can be either sold, stolen, or given on a lease. Similarly, the title or the deed of an asset is verified. It's done to validate if the asset is present with the rightful owner or not. Therefore, it is important to check ownership.
Since, Monitoring assets can be a tough task for all associations (huge, medium, or small). Assets can be moved to different areas, get reassigned to other people, get changed or replaced, and so on. Top management requires reports about the allocation of assets, utilization, and service records.
Bookkeeping needs all the above information for effective inventory management and depreciation management. Physical verification helps in recognizing all the assets present with the organization along with their exact location, service status, and so on. Therefore, physical verification is crucial for all companies.
In short, the objective of physical verification of assets are as follow:
- To know that assets that are shown in the balance sheet are true, genuine, and real.
- To know whether assets exist or not.
- Check all the documents mentioned are valid or not.
- To check the assets condition as mentioned is correct or not.
- Find out the ownership and title of the assets is one of the main objectives of verifications.
- To show the correct valuation of assets and liabilities.
- Manage compliance.
- To see if purchased assets are mentioned correctly and sold assets are excluded.
- To ensure that the true value of the asset is represented after depreciation.
- Verification is done to detect fraud because assets might be misused or stolen.
What Are the Common Types of Asset Fraud That Happens?
According to the JW Surety Bond, “Every year businesses lose millions of dollars to employee theft. The financial loss this causes can reach up to billions—with some cases resulting in business bankruptcy."
Asset theft and asset misplacement, it is the most common type of fraud that occurs. Therefore, asset tracking must be done by all organizations to avoid asset loss and theft.
Another fraud of asset is asset disposal and acquisition, asset sold at a high price but in books, it is represented at a low price or vice and versa.
And, last but not the least, presenting wrong asset valuation, to show the greater worth value of an organization, an asset is acquired at price but that asset actually does not exist.
What Are the Asset Audit Techniques for Physical Verification?
There are many asset audit techniques are used:
Also Read: What Is Stock Audit? Why Is It Done and What Are the Stock Audit Processes?
Asset Physical Existence
This asset audit technique is used for verifying assets physically exist or not. These assets could be any sort of movable or immovable property.
Purchase Asset for Business
Verifying that asset is purchased for the company, by the company. The aim of this technique is to “verify & check the purchased assets”. It shall not be on the name of any employee.
This method is used for determining 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 audit technique is used for calculating the correct asset value. Management calculates the value of assets and the auditor verifies them by cross-checking documents and physically inspecting assets.
How to Solve the Audit Issue?
It's simple, conduct an audit by yourself or hires a helping hand, it will be exhausting but will be helpful in the future. Asset management software can assist you in the auditing process.
On occasion when the administration isn't certain of the presence of all the fixed assets that are reflected in books, the solution is to conduct a detailed and exhausting audit about assets and inventory as well.
This will assist associations to gather complete information about fixed assets and inventory. Below we have mentioned some helpful points to resolve the audit problem:
- Create and maintain a fixed asset register
- Cross-check physical asset records with the book records to see if they match or not. If they don't match you can check what is the issue and resolve it.
- Depreciation calculation as per the legal necessities
- Labeling and tagging fixed assets for quick and simple identification of assets.
What Are the Main Features of Asset Infinity's Asset Management Related to Audit?
Below we have mentioned features of Asset Infinity's asset management related to Audit:
- Create & assign audits as per the location of asset & their categories.
- Keep assets counted so it helps in avoiding theft or pilferage.
- Asset verification can be done on offline mode and when you are in an internet zone it will synchronize data
- With this feature audit, physical verification can be done quickly.
- Assets can be marked as present, not present, new asset found, or insufficient information.
- To avoid confusion, assign a specific set of assets to an employee.
Asset audit is an important part of physical asset management. Accurate audits enable you to know your asset location and its status as well. However, performing a precise audit flawlessly can be hectic. This is where asset management software comes into play!
- It assists the organization in conducting fast and effective audits
- It lets you know precise asset location via asset tracking technique (RFID, GPS, BLE, IoT, etc.)
- Get rid of ghost assets.
- Minimizing asset theft or loss
- Assist in depreciation management, and for depreciation calculation, two methods are available in the software
- Generate depreciation reports within minutes
If you want to conduct internal as well as external audits successfully then you must implement asset management software in your organization. We will be happy to help you out. Contact us anytime and we will schedule a demo for you!
Also Read: Simplifying the Physical Verification Processes with Asset Tracking Software
Frequently Asked Questions (FAQs)
1. What is the difference between vouching and verification?
A. Vouching is done to cross-check the transactions recorded in books by verifying their authority and authenticity. Verification is done by the auditor to cross-check and verifying asset existence, ownership, and possession.
B. Vouching is conducted by junior clerks whereas verification is done by senior clerks.
2. What are the two types of auditing methods?
There are mainly two types of audit methods:
A. Internal audit - Internal audit is done by the organization itself. It assists in detecting issues and resolving them internally.
B. External audit - External audit is performed by other people or organizations. External auditor checks, validate & evaluate organization assets. An external audit provides both business and government with a valuable check of an organization's accounting.
3. How asset audits can be conducted?
Asset audit can be conducted via:
A. Onsite audit - It means visiting the site and checking assets physically as well as their documents.
B. Remote audit - Remote audits are those audits which are done by checking documents and papers of assets & verification of assets can be done via scanning the asset tags.