Fixed Asset Verification - Meaning, Checklist, Reporting, and Fees

Fixed Assets play a significant role in business operations besides increasing the wealth of an organisation. The Company’s Auditor Report Order (CARO), 2020 makes it mandatory for businesses to verify their fixed assets regularly. This not only ensures compliance with the order but also allows the businesses to ensure the safety, maintenance, and monitoring of their asset’s current condition. The verification process involves two steps, namely the physical verification of fixed assets conducted by the organisation itself, and the examination of fixed assets records conducted by an independent auditor or audit firm. At Bizfoc, we help our clients throughout the fixed asset verification process with expert consultation and audit assistance. For more information consult us now!

What is Fixed Asset Verification?

Fixed Asset Verification is the process by which an organisation verifies the physical existence and condition of its fixed assets to ensure accurate financial reporting and adherence to accounting standards. These generally include assets such as land, immovable property, furniture, IT equipment, machinery, vehicles, and more. Besides physical verification, the process also involves a thorough examination of fixed asset records by an independent auditor or auditing firm, to confirm the organization’s rightful ownership and real-time financial valuation so that any misappropriation or unauthorized use can be prevented in the long run.

Fixed Asset Verification Applicability

Fixed Asset Verification must be conducted by all profit and non-profit organizations holding any form of physical asset. It is required for several reasons such as financial reporting, accounting, cost control, maintenance and upkeep of assets, and avoiding risks such as theft, or inappropriate use. However, the frequency of conducting the verification process may differ based on the following factors:

• Business Activity / Objective: Usually, goods or merchandise-based businesses own more assets than regular service providers, especially if they have an inter-state or pan-India presence. Analyzing the business activity and objective gives an idea about the organization’s asset structure, thereby helping its management understand how frequently a verification process might be needed. Note that the higher the number of assets, the greater the frequency.
• High-Risk Environment: If the assets are being held in a high-risk environment where theft, misuse, and misappropriation are rampant, it is ideal that verification is conducted at quick intervals to ensure safety. Further, the same is also true if the assets are quick to depreciate or suffer losses in real-time valuation.
• Size and Scale of Business: For businesses that are operating on a much larger scale and hold a significantly high number of fixed assets, verification should be conducted more frequently than others. This helps the management keep an updated record of the asset’s current condition and ensure its regular maintenance.

Fixed Asset Verification Reporting Requirement

Fixed Asset verification reports are submitted by the auditor under Clause 4(1) of the CARO Order, 2020. The auditor is required to report the following aspects:

• Whether the company is maintaining proper records of the fixed assets showing full particulars, quantitative details, and location of the assets. Note that if the location keeps on changing for fixed assets such as equipment or machinery, a record of the movement or ownership will be enough. Additionally, if the assets are located in the residential premises of member staff, the custodian must also be reported by the auditor from time to time.
• Whether the company is maintaining records of fixed assets that have fully depreciated, amortized, or impaired during the accounting period and are being held for disposal.
• Whether the company and its management have conducted the physical verification of fixed assets at regular intervals. Any discrepancies found in the physical verification must also be reported.

Note: If the company is maintaining the records in electronic form, the auditor must ensure they can be extracted in legible form, and are compliant with the Information Technology Act, 2000.

Audit Report Format Fixed Asset Verification

While there is no prescribed audit report format for fixed asset verification, the following details must be mentioned to enhance its comprehensiveness and ensure its compliance with the CARO order:

• Description of the Asset
• Asset Classification as per account books
• Asset Location
• Asset Quantity / Units
• Original and Adjusted Cost
• Date of Cost Revaluation
• Purchase Year
• Depreciation Rate
• Depreciation in the Current Year
• Accumulated Depreciation
• Details of Impairment, if applicable
• Details of Destruction or discard of assets

Note: The records should contain the above-mentioned details for all fixed assets, whether tangible or intangible, self-owned or acquired through lease.

Fixed Asset Verification Process

• Step 1: Maintain Fixed Asset Register The organisation must maintain a Fixed Asset register containing records of all the fixed assets it owns. The details of the records must include particulars for identification, quantity, original and adjusted valuation, location, custody, and ownership. These records will be thoroughly examined by the auditor while preparing the fixed asset verification audit report.
• Step 2: Identify Tangible Fixed Assets for Physical Verification The next step is to identify tangible fixed assets against the intangible ones so that a comprehensive list of assets can be prepared for physical inspection. Physical inspection of assets is an essential step of the fixed asset verification procedure.
• Step 3: Conduct Physical Verification of Fixed Assets After the list is ready, the organisation’s management can begin with the physical verification of fixed assets procedure. The verification will be conducted at the organisational level itself. However, the auditor, while preparing the report, shall ensure that the inspection was done in a proper manner, at regular intervals, and in compliance with CARO Order, 2020.
• Step 4: Reconcile and Identify Discrepancies The auditor must make sure that the assets in their physical presence and condition are reconciling with the records maintained by the organisation. These include records of the general ledger and books of accounts. This step is essential in identifying discrepancies in the records or any ghost assets the organisation holds.
• Step 5: Verification and Valuation of Fixed Assets Verification and Valuation of fixed assets is essential information to be submitted in the auditor’s report. Besides, real-time valuation also helps in cost control and regular upkeep of the assets. The auditor must assess particulars such as original cost, depreciation rate, and the depreciated cost for the purpose.
• Step 6: Evaluate Internal Control The organisation’s internal control over its fixed assets is also a significant subject of evaluation for the auditor. This includes policies related to acquiring, recording, conserving, and disposing the assets. The evaluation helps identify loopholes in these policies and suggest improvements in the same.
• Step 7: Prepare the Final Report Finally, after meeting all the above requirements and assessing the above records, the auditor prepares the final fixed asset verification report. The report includes information about the physical verification and examination of records. Besides, any discrepancies found during the verification, reconciliation, or internal control evaluation must also be reported.

Fixed Assets Verification Checklist

The checklist for Fixed Asset Verification includes all the essentials required to conduct physical verification and record examination of assets. Unless the entire checklist is met, the auditor or the organisation begins the verification process. Refer to the full checklist for physical verification of fixed assets below:

1. Name / Description of the Asset
2. Tag or Labeling on the Asset
3. Serial Number Assigned by the Organisation
4. Asset Manufacturer and Model Number / ID
5. Documented Record of the Asset’s Current Location
6. Documented Record of the Asset’s Custody and Ownership
7. Purchase Invoices of the Assets
8. Warranty Records, if available
9. Records of Asset Transfers, if available
10. Recent Photographs of the Assets for Verifying their Current Condition

Fixed Asset Verification Fees

Fixed asset verification fees typically start at ₹2,500 per man-day.The fees for Fixed Asset Verification involve auditor fees, the cost of maintaining fixed asset records, and miscellaneous charges for asset tagging and labelling, and essential for executing the verification procedure. At Bizfoc, we complete the full process for you at minimal charges.

Fixed Asset Verification Benefits

• Accurate Financial Reporting: Verifying the existence, condition, and valuation of assets can prevent discrepancies in the accounting records of companies, leading to more reliable financial reports.
• Improved Asset Utilization: Verification helps identify underutilized or idle assets, enabling better asset management and optimized usage. Maximizing the potential of existing resources helps in cost-saving measures initiated by the organisation.
• Enhanced Internal Control: Regular verification strengthens internal controls and helps address potential issues such as asset misappropriation, unauthorized usage, or theft, allowing timely corrective actions.
• Compliance with Regulatory Requirements: Fixed asset verification ensures that businesses comply with mandatory regulations under CARO, 2020. It not only mitigates the risk of legal penalties but also enhances the company’s credibility with auditors and regulators.
• Informed Decision Making: With updated and verified records of fixed assets, management can make informed decisions regarding asset acquisition, disposal, or reinvestment.

Bizfoc: Your Fixed Asset Verification Company in India

At Bizfoc, we offer comprehensive fixed asset verification services, from maintaining detailed asset registers and conducting thorough physical inspections to reconciling records and preparing accurate audit reports in compliance with CARO, 2020. Our experienced team ensures that your fixed assets are correctly valued, securely tracked, and fully accounted for, safeguarding your business from risks such as misappropriation or inaccurate reporting. We stand out by combining our deep industry expertise with a client-centric approach, offering personalized solutions and audit assistance to meet the unique requirements of businesses of all scales, ensuring cost-efficiency and regulatory compliance every step of the way.

Conclusion

Fixed asset verification is not just a regulatory necessity; it’s a vital process that ensures the accuracy and reliability of an organization’s financial records, enhances asset management, and strengthens internal controls. Regular verification can help businesses safeguard their valuable assets, prevent discrepancies, and ensure that they are fully compliant with legal standards like CARO, 2020. The frequency of fixed asset verification should be tailored to the organization’s scale, the nature of its assets, and the environment in which they are held. At a minimum, it should be conducted annually, but for companies with a larger or higher-risk asset base, more frequent inspections are recommended to maintain operational efficiency and financial integrity.

Frequently Asked Questions (FAQs)