Why Physical verification of an asset is important in an organization?September 8, 2020
Physical verification is the process conducted to ensure the exact entity of assets that actually exists in an organization. The process of audit and physical verification is very important for the business to be conducted at the end of every financial year.
All the assets are mentioned and recorded in the books but their physical presence is equally important as their records. So, the physical presence of the assets is verified in audits and physical verification process.
In large organizations, the physical verification of assets is little complex as the distribution of assets (machines and equipment) is at different floors, sites or locations. Placing of assets at different locations makes the process of physical verification difficult and complex and for the same reason it is difficult for the organization also to track their assets and equipment.
Asset tracking program and its implementation provides a significant value and ensure the profitability and growth of an organization. Asset tracking solution allows to efficient utilization of assets in the organization to provide enhancive growth as final output.
Therefore, there is a need of efficient resources for proper tracking and managing of assets to ensure the compliance in both terms financial and operational.
It is difficult and hectic job to track assets in organizations where assets are divided in multiple classes and exists in widely spread departments, offices, sites. Therefore, asset audit and their physical verification shall be conducted on time keep up the records.
It is compulsory for the organizations to conduct physical verification of their assets annually to check them physically along with their depreciation, sale value, verify the accuracy of any addition, and their disposal.
Estimation of asset utilization is equally important to evaluate the life-cycle of an asset or equipment. Keeping a track over assets and managing them is critical and regular process to be carried out in an organization. A fixed asset register makes the process simple and easy, if maintained properly, the fixed asset register keeps the following records:
- Net Value of asset
- Estimated Depreciation Value
- Current location of Asset
- Cost of Asset
- Depreciation rate
- Useful life of an asset
- Change in location of asset, if any
Objectives of Physical Verification
- The objectives of physical verification of assets are:
- To know the real, accurate, and true information of asset in the record books
- To know whether the asset is physically present or not
- To verify the validation of all the documents in the record
- To verify asset condition as mentioned in the record
- To check the ownership of asset
- To know correct evaluated value of assets and liabilities
- To manage regulatory compliance
- To look for correct information of purchased assets mentioned in the records
- To ensure the value of assets based on depreciation
Purpose of Asset Verification
- Real and Accurate information view – The purpose of physical verification of assets is to determine accurate financial statements to state the accurate business affairs.
- Certification of ownership – The purpose is to certify the ownership of the asset. The documents, agreements and other papers should be accurate to tell the asset’s ownership by the business.
- Determine the existence of asset- The purpose is to determine the existence of assets. The records, documents, and other papers shall show the existence of assets, physical verification shows the actual position of assets. To ensure the existence of assets is essential.
- Detection of fraud – The purpose is to detect fraud that the assets are not stolen or misused. The auditors verify the current and exact position of the asset so that, through physical verification of assets the detection of fraud is possible.
- Internal Evaluation – The purpose of is to evaluate the internal control of the organization over its business assets. With the presence of effective internal control, there is efficiency in business management. Or in case of internal control is not good then the assets are concluded to not in proper use.
- Depreciation Plans – The purpose is to examine the deprecation plans of business management. All the assets are not the same in nature; every asset is different based on its utilization.
- Assets evaluation – The purpose is to check the value of assets. The management evaluates the assets. The auditor examines that valuation process for its accuracy according to accounting principles.
Applications of Physical Verification
Technology has made our lives easy and automated it at a high level. So, maintaining our books, records with the same old manual method is quite complex and chances of inaccuracy are large. Therefore, considering an automated asset tracking system increases the accuracy as well as saves time and money.
Placing of goods and items in their correct place can decide on prior and recorded with an automated process assures minimum damage to the goods to be stored.
The best way to identify and verify the asset and equipment is by tagging them with an asset code (RFID, Barcode, QR code, etc.). This way the assets can be easily tracked and found whenever required. Scanning will save a lot of time and shows accurate details about:
- Asset description
- Type or category
- Purchase date
- Purchase cost, etc.
These include the basic information about any asset acquired by the organization. The tagging and scanning of assets eliminate the entry errors and helps in maintaining the accuracy of record books to track every asset effectively.
Except for the storage of assets knowledge of its exact location is very important to avoid any inaccuracy in asset count. So, after physical verification of assets every asset is marked as counted, digitally or manually.
During the progress of the physical asset verification process, the movement of assets should be limited to avoid any discrepancy and receive an accurate count. The process of physical verification can be conducted once or twice the year depending on the requirement of the management and their control over assets in stock. Or to make sure the reports and records are managed accurately or not.
It is important to conduct physical verification of asset to know the reasons indifference of asset count (if found any) and to prevent the previously made mistakes.
Benefits of Asset Verification
- Identification of un-tagged assets
- Identification of assets that are not owned by the organization but are mentioned in the records
- Identification of un-utilized assets
- Identification of assets that are disposed of (wear and tear or malfunctioned or broken)
- Identification of all the new assets that are not captured in the records.
- Identification of assets that were disposed of earlier but they are still mentioned in the records.
- Identify assets accurate location.
- Identify asset accurate movement history
- Determine the actual value of assets
Accuracy of asset audits enables an organization to know the exact location and status of their business assets. Furthermore, performing an audit procedure in an accurate manner is a difficult task. Therefore, the asset management software application solution assists the organization to conduct easy, fast and effective audits and let you know exact asset location via asset tracking technique (RFID, Barcode etc.), get you rid of ghost assets and minimize asset theft or loss.