In India, the legal and governance practice of businesses requires them to keep proper records of their company assets. The Fixed Asset Register (FAR) is one of the most crucial tools towards this end. The company’s act, 2013, mandates companies to keep good books of their fixed assets to exercise transparency, accountability and compliance. The knowledge of such legal requirements assists organizations to avoid penalty, audit problems, and misreporting.
What Is a Fixed Asset Register?
Fixed Asset Register is a comprehensive list of all assets owned by a company (both tangible and intangible). It is a record-keeping document that follows the lifecycle of assets in terms of acquisition, location, usage, depreciation and disposal of assets. Although the Companies Act does not specify a strict procedure, it clearly mandates the maintenance of full and correct records of assets.
Relevant Provisions under the Companies Act, 2013
The main law behind keeping a Fixed Asset Register is based on section 128 of Companies Act, 2013 that stipulates that each company must maintain proper books of account. These books must record the specifications of assets and keep records on accrual basis and according to the double-entry system of accounting.
Furthermore, Section 134 places responsibility on the Board of Directors to make sure that appropriate accounting records are kept and assets are protected. Auditors, under Section 143, are also required to verify whether proper records of fixed assets are maintained and whether physical verification has been conducted at reasonable intervals.
Mandatory Details to Be Maintained
As per legal and audit expectations, a Fixed Asset Register should include:
- Description of the asset
- Unique identification or asset code
- Acquisition Date
- Original cost and capitalization details
- Asset Location
- Depreciation method and useful life
- Accumulated depreciation and netbook value
- Details of revaluation, impairment, or disposal
These details ensure traceability and support accurate financial reporting.
Physical Verification Requirement
The Companies Act, read with audit standards and CARO (Companies Auditor’s Report Order), emphasizes the physical verification of fixed assets. Firms should ensure that they verify assets at reasonable intervals and reconcile any differences that may be there. Mismatch between records and physical assets should be appropriately researched and re-adjusted in the books.
Record Retention and Accessibility
Companies are required to retain asset records for at least eight financial years, as specified under Section 128. The records can take an electronic format, so long as the records are accessible in India and are capable of being retrieved in a readable format for inspection by auditors, regulators, or authorities.
Consequences of Non-Compliance
Failure to maintain a proper Fixed Asset Register can lead to:
- Qualified or adverse reports of audit
- Scrutiny and fines
- Low internal controls and higher fraud risk
- Misstatement of financial results
Directors and responsible officers may also be held liable for non-compliance.
Best Practices for Compliance
Companies are expected to maintain the Fixed Asset Register to ensure that they comply with the requirements of the law; they are supposed to verify the Fixed Asset physically regularly and ensure that the records of the fixed assets are balanced with the financial statements. Accuracy and audit readiness can also be enhanced by use of asset management software.
Conclusion
Having a Fixed Asset Register as per the Companies Act is not only a statutory requirement but it is also a major aspect of good corporate governance. Compliance can be facilitated by having proper records of assets, checking periodically and doing good documentation to enhance internal control and facilitate transparent reporting of their financial status.
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.
Also Read:Fixed Asset Register Preparation: A Step-by-Step Guide for Businesses
