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Fixed Asset Audits & Verification


All private and public entities
are required to conduct an annual physical count of all fixed assets to verify actual assets in hand
and value and ensure the accuracy of related financial records. One of the topics covered in the
Final Asset Management Guide issued by National Treasury is that a comprehensive Fixed
Assets Register must be prepared. Once the Fixed Assets Register has been prepared, there is
need to continuously update with additions and disposals (maintaining a separate Disposal
listing), the assets must be depreciated on an annual basis. More importantly there is need to
estimate the remaining useful lives and residual values of the assets on an annual basis at the
bare minimal.

The fixed asset register shall be maintained in the format determined by the entity, which format
shall comply with the requirements of any accounting requirements, which may be prescribed.

Keeping track of assets can be a challenge to organizations large and small. Assets can move
locations, get reassigned to other people, get replaced, etc. Management wants reports about
asset allocation, usage and service history. Accounting needs accurate data for tracking
inventory and calculating depreciation.

The first core component of asset management is the asset inventory. This component is
probably the most straightforward of all. It is also, arguably, the most important as it underlies all
other aspects of asset management.

Knowing what assets you have, where they are located, when they were purchased, if they are
still in use, etc. is critical to any organization.

Some of our recent Clients

ineffective training. to spreadsheets. including their fixed assets. as users see no value to the systems. It is however more important that companies keep tighter track of their financial data. and duplicate data entry or use of manual entry when the systems could better manage the data. There are many situations where the appropriate tools were not effectively used due to ineffective processes. or poor implementation and configuration. Asset Management Personnel . The selection of inappropriate tools may cause even more issues. How good is the information in your systems? Should you be getting more value from your systems? The use of Spreadsheets While companies for a wide range of tasks use spreadsheets. tools from manual paper based systems. The final result is often a considerable investment in systems with little of the promised benefit achieved. and ERP (enterprise resource planning) systems have been effectively used. Depending upon the size and requirements of the organization. a majority of companies continue to use spreadsheets for financial tracking and reporting. Some negative aspects of spreadsheets when it comes to tracking and depreciating fixed assets are  manual creation of formulas  lack of audit trails  security concern  potential for fraud It is important that companies understand the deficiencies with spreadsheets and implement solutions that are designed specifically for the intended purpose. inefficient processes with considerable manual intervention where the processes are not optimized for the system used. and to use them effectively. These situations can cause poor quality or inaccurate data.Managing Asset Information to Make Better Decisions Are your systems and processes configured to provide you with the information you need to manage your assets? Or are they viewed as a burden with little value? There are many processes and tools to support the management of the information on assets and the maintenance of the assets. to EAMS (enterprise asset management systems). The critical issues are to select the processes and tools most appropriate for your organization.

In many cases. rather than solely upon asset-related technical issues. and naturally focus on the areas in which they are comfortable and competent in working. What is the risk impact to your organization? What is the risk impact to you.Quantity / No / Location / Identification Number / Depreciation / Rate / accumulated depreciation / original cost / additions /deletions/ written down value. They often have promoted based upon their understanding of technical processes and systems. more jurisdictions are imposing jail sentences for the violations. Check that a Fixed Assets Register is maintained and updated at all times ( Manual / Computerized ). Many are very capable long-term employees with limited exposure to other asset management practices. (2) Check that the Fixed Assets Register gives details of the fixed assets . depending upon company policies and practices on attending conferences. . and environmental violations have gotten much more severe. The negative outcomes related to health and safety. is it just lost revenue for the duration of the downtime? Or additional costs due to expedited deliveries? Or is the matter more severe. As well as the amount of the fines increasing for violations.Asset management needs to focus on the organizational requirements of the assets. asset management is the responsibility of individuals with no formal training in business and organizational issues. and opportunities to visit other operations. If you are not able to operate your physical assets when needed. with different probabilities and severity of outcomes. given the responsibility of your position. and environmental risks? There are many risks related to asset management facing organizations today. Often the implications of the risks are not fully understood. Managing Your Assets to Manage Your Risk What risks are the most critical to you? Do you look at production risks? What about health and safety. training. resulting in a permanently lost customer because of missed deliveries in a JIT (Just in Time) manufacturing environment? Customer issues related to quality or customer service can have similar outcomes.

Fixed-asset auditing helps ensure that assets listed in a financial statement are from valid transactions. including beginning balances. Account Transaction Validation Matching account balances don't preclude potential accounting irregularities or even fraud from showing in the financial statements. Individual asset accounts are compared to their respective account records in the general ledger for agreement in account balances.(3) Check that the identification number given on the fixed asset tallies with the number given in the FA Register. Asset Valuation Test Proper asset valuation ultimately determines the correctness of the account balance for fixed assets. the auditor vouches recorded fixed-asset transactions to supporting documents such as vendors' invoices. Account Balance Accuracy The account balance of fixed assets in a financial statement is the accumulated value from past asset additions and deletions up to a given point in time. (4) Check that for purchases as well as sale of fixed assets proper authorization has been taken from the appropriate authorities (5) Check that the discrepancies observed on physical verification of fixed assets have been correctly adjusted in the books of account after taking approval from the appropriate authority. The auditor verifies the accuracy of the account balance for fixed assets by obtaining a detailed schedule on asset purchases and dispositions in the current period. If an asset purchase is properly authorized. the auditor may physically examine the asset at the place where it supposedly has been placed in service. designation of employees and the date of carrying out the physical verification should also be clearly mentioned in the physical verification sheets. have been received and actually exist in service. To test validity. the account transaction is valid. (6) Check the method and the procedure adopted for carrying out the physical verification of fixed assets and ensure that verification was carried out as per the generally accepted accounting practices and procedures. The name. (7) Check that the physical verification sheets in respect of fixed assets are properly prepared and duly signed by the persons responsible for carrying out the physical verification. Capital assets are valued at their historical acquisition cost plus any additional money spent on asset improvement. The auditor tests the proper asset valuation of the recorded fixed- . The auditor must first establish that the reported fixed-asset balance agrees with related account records in the general ledger. To further verify the existence of a recorded fixed asset. (8) Check that the physical verification of Fixed Assets is carried out by the Management at least once in 3 years.

and certain expenses that should be capitalized are also recorded as part of the fixed assets. To such a degree it aids to present a true and fair financial position of a firm. Asset Classification Test The asset classification test helps ensure that the recorded fixed assets are correctly classified as capital assets. Audit compliance. Results into better internal control and accountability. the auditor considers the reasonableness of an asset's estimated economic life. which reduces the carrying value of the fixed assets. For example.asset cost by examining vendors' invoices and other purchase supporting documents.know the profitability level and future prospective of a firm. To prevent potential accounting manipulation from compromising financial statement reliability. the source information on correct asset valuation. the depreciation method used and any expected salvage value. Fixed Asset Management answers all the questions : Where the firm’s assets are lying? Does these assets present the true values? Are the assets maintained properly? Why Asset Verification? Fixed asset verification involves lining up of all the assets specifying the places about where the assets are held and the ones responsible for the possession . An updated FAR. Other Auditing Tasks Audit procedures for fixed assets also cover issues of asset ownership proof and reporting-cutoff- time test. The cutoff- time test involves examining a sample of vendor invoices from a few days before and after the end of a period. while the costs of repair and maintenance normally are treated as expenses. . The auditor determines whether the fixed-asset transactions are reported in the proper period. significant amounts of money spent on asset improvement may be capitalized as an addition to the asset's value. Better and simpler decision making process. Why Asset Tagging? The places of placement of assets can be known with reduced time and efforts with the help of asset tagging. the auditor may decide to verify the ownership of the recorded fixed assets by examining and confirming property deeds or title documents as proof of ownership. The auditor may further address the asset valuation issue by assessing the appropriateness of the asset depreciation. In recognizing any depreciation expense. The auditor may examine selected repair and maintenance work to vouch it to supporting transaction documents to determine whether it would be appropriate to capitalize the repair costs. Automates the verification provides with : A true and fair statement of fixed assets.

"During automatic verification all configuration issues are corrected leading to a synchronized system of fixed asset verification which excludes the need of manual verification". A dynamic working gets into account with the use of automatic verification and thus reduces the work load and simplers the work. WHILE CARRYING OUT PHYSICAL VERIFICATION: Keeping a track of assets verified and not verified Pulling out Quantities and proper nomenclature/ model No. the detailed phases of verification & costing mannerism. "Automatic verification & fixed asset management multiply around a firm. AFTER THE PHYSICAL VERIFICATION: Resolving the issues related to missing assets Communicate and coordinate with the person responsible for the Missing. Reliable and accurate verification.Monitors asset movement.time and money whereabout automatic one curtails all these to an extent by accomodating the usage of labels and scanning of bar codes helping to deal with the security issues . Damaged and not in use assets . Individual identity of each asset. from the invoice wherever required Team training for physical verification 2." Why not to opt for physical Verification? 1.Managing the work of a single firm is easy as compared to management of work of ten firms . Manual verification stands in need of more efforts. from the invoice wherever required Team training for physical verification 3.The records can be automatically updated being handled by even a small team of members in automatic verification whch is not feasible in manual one.To an increasing extent automatic verification dictate the verification of fixed asset.same is the case with the manual and automatic verification as manual verification confines to a particular area of working. Reduced time and efforts in asset verification. PRIOR TO MANUAL PHYSICAL VERIFICATION: Preparation of FAR with all relevant Details Pulling out Quantities and proper nomenclature/ model No. Why Automatic Fixed Asset Verification? An automatic verification provides with the globalised accepted procedures.

Only normal maintenance 71-100% good required.Arrive at the write-offs /accounting adjustments required Maintain a trail of all changes made and managing the documentation Revision of FAR after attaining proper approval/ documents Satisfy the Auditors and Companies Act requirements Using photographic equipment. EUL Serves needs but minor deterioration (<5%). location and description with reference to the updated records from OpenAsset. Minor maintenance required. scanners and verification software. are seeked and collected and the asset's value appraised for inclusion into the ledger. Asset information for those assets that are not currently listed on the ledger. Conditions of assets are determined by following a standardized approach so that it can be consistently applied across the Client’s Properties to:  enable effective benchmarking. trend monitoring. and verify its existence. asset type. seek out each FAR asset. 3 Fair 26-45% EUL . OpenAsset inventory specialists go on-site. insurance purposes and replacement. well maintained. 2 Good 46-70% EUL Marginal. All vague descriptions of assets are investigated. clearly evident deterioration (10- 20%). classification.Significant maintenance required. but are of obvious material value and consequently should be accounted for. Photographs are taken of assets to assist in their identification for description. and data aggregation.  be modeled on performance criteria rather than visual inspection of condition where such is not practicable or inappropriate A simple generic five-point grading are adopted: ‘EUL’ is Expected Useful Life ‘RUL’isRemaining Useful Life Grade Description Detailed description Indicative RUL 1 Very Sound structure.  be linked to the expected failure pattern of the specific assets (wherever practicable).  be cost effective. repeatable and objective. clarified and corrected.

this includes certifying that the Fixed Asset Register holds the correct number and type of assets held in the department. and asset information standards and conventions. 4 Poor 11-25% EUL Unsound. existing business controls. we craft a concise plan that is used to govern specific asset counting methods. information.4.2 Best practice recommends that departments perform a physical verification of the assets listed at least once a year and notify the Fixed Asset Helpdesk of any changes required. However. conventions. Significant deterioration of structure and/or appearance. This list enables departments to verify the presence of assets and identify updates to ancillary information such as location and employee. failed needs reconstruction/ replacement (>50% needs replacement) 5 Very 0-10% EUL poor Our proven methods and use of state-of-the-art technologies enable our inventory specialists to complete a highly accurate physical count with little to no disruption to your normal daily business operations. if practical. Once asset details have been verified departments should return the review sheets – within the stated timetable. and project stages Physical verification of assets 5. During this time.1 At the end of each financial year the Head of Department is required to sign a year-end certificate for their department. Significant impairment of functionality (20-40%). This helps to ensure that UFS assets records and associated accounting is as accurate as possible.4. . inventory movement should be controlled and. Such amendments may be submitted at any time. Using this information. Significant renewal/upgrade required. Central and Research Accounting conducts a bi-annual review of departmental assets and records. A Project Manager is assigned to the project to assess client objectives. In February and July each year full lists of assets registered to each department are distributed to the relevant departmental contacts.with details of any amendments required to their Fixed Asset Register. receiving activities should be delayed until the physical inventory taking process is completed. to support best practice and the certification of assets in the department. 5.