Even though the physical verification of fixed assets may take some time for high asset-based enterprises to complete for the first time, the benefits of a controlled environment and effective resource allocation could be enormous.
Fixed assets can be physically verified by a corporation either internally or by appointing a specialized outside organization. Below is the procedure for carrying out the physical verification:
The Fixed Asset Register is being updated
The entity should first update the currently fixed asset register to reflect all assets acquired up until the date of physical verification of fixed assets and remove those sold or disposed of. The Fixed Assets Register should also be updated or maintained to provide complete information about the assets, including quantity, location, color, serial number, etc.
Recognizing assets that are both verifiable and not
After the asset register has been updated, the list of assets is divided into two categories: verifiable and non-verifiable. While the majority of assets can be verified, there may be some that are practically impossible to verify, such as fixtures and fittings, captive assets, etc. Accordingly, classification should be done beforehand before beginning the physical verification.
Making an asset verification
Physical verification should begin as soon as the classification of verifiable and non-verifiable assets is finished. The “Tag to Floor” and “Floor to Tag” approaches should be used by the verifier to validate the assets.
Tags for Assets
The asset verifier can tag the assets concurrently with physical verification or after physical verification and book reconciliation. Stickers, metal plates, or barcodes can all be used for tagging.
Reporting and reconciliation
When the physical verification of fixed assets is finished, the verifier must reconcile the results with the updated Fixed Assets Register. Additionally, the following timetables may be included in his reports:
- Assets are available and physically verified but cannot be quantified or verified.
- Assets Unavailable/Not Found
- A list of different assets discovered but not listed in the FAR (if any).
Conclusion
Even today, many businesses fail to perform the necessary internal controls for the financial reporting of fixed assets, which include an inventory of their current fixed assets and a corresponding reconciliation. Fixed assets must be taken care of to ensure that the organization’s records are accurate and its controls successfully manage this area.
This content is meant for information only and should not be considered as advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.