It is a bitter fact that most organizations experience a difficult time managing fixed assets since they don’t know their exact locations and what conditions they are in. Because of this, organizations often discover that their fixed assets are somewhere else or missing when they perform physical asset verification. For this reason, periodic physical verification is required.
We will learn about the main physical verification challenges for fixed assets. So let’s get started! But first, let’s grasp the fundamental meaning of physical verification.
What is the physical verification of fixed assets?
Management must perform physical inspections of fixed assets. The assets should be put into place after each certain period to verify that they are present in good condition and have not been lost or stolen they should be. An insider (on the organization’s payroll) or an outsider, who could be a government auditor, physically verifies the assets.
This process examines records and proper validation of documents. It ensures that the assets are indeed there to validate their authentication. Calculating the worth value of an organization’s assets is made easier with the help of physical asset verification.
What are the main obstacles to the physical verification of fixed assets?
- Identification of ghost assets
Some assets are lost, stolen, or misplaced and become ghost assets. They must be identified because they might be fatal to your company. After all, you will be forced to pay taxes on something you aren’t even using. Furthermore, due to the assets’ overvaluation, external auditors may view phantom assets as fraudulent actions. Ghost assets must therefore be erased and eliminated from all data and records.
- The long, arduous process
The fixed assets verification process is stressful as there are many assets in a company. Validating assets is a tough procedure because some of them are located in different places. Additionally, every paper is reviewed and fixed.
- Lack of a systematic approach
Asset auditing and physical verification are harder to do when there is no systematic strategy. It is one of the most significant difficulties that arise during the physical verification of fixed assets, particularly when work is done manually and a planned approach is lacking. For the registration and verification of fixed assets, there is no proper method.
- Using a pen and paper
Organizations adopt the pen-and-paper method, which makes asset physical verification chaotic. If your firm relies heavily on its assets, this strategy is bad because paper records are readily lost and tend to deteriorate after a given amount of time. Documents will be useless to the auditor if such occurs. There will be a ton of documentation for each asset, such as those linked to purchases, maintenance, and so forth.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.