Why Physical Asset Auditing is required?
All private and public entities are required to conduct a physical Asset Auditing at the end of every financial year. Because an auditor required to report whether the company is maintaining proper records of assets and these assets have been physically verifying by the management at reasonable intervals.
- Statutory Compliance
- Existence of Assets
- Accuracy of the accounts
- Adequate internal control over assets
- Loss Prevention
The auditor of the company has to report as per the statutory compliance to ensure,
- Whether the company is maintaining proper records which showing full particulars.
- Whether the assets have been physically verifying by the management at reasonable intervals.
- Whether the foreseeable future will affect due to the substantial disposal of fixed assets during the year.
Existence of Assets
It is the process of ensuring the existence of assets in a company. Company Management is totally responsible for this. Some common procedures were used to test the existence of assets while auditing.For example,
Two procedures were followed when auditors test the existence of cash. First procedure is collecting the company’s bank statements and bank reconciliations from the business owner. Second is collecting the third-party confirmation of the bank balance from the bank.
- Capital Assets
Buildings, equipment and other fixed assets were tested through observation only. So, record is produced by the auditor while audit.
Accuracy of the accounts
All assets, liabilities and equity interests should be included in the financial statements at appropriate amounts, resulting valuation or allocation adjustments must appropriately be recorded, related disclosures must appropriately be measured and described. Accuracy is the confirmation of the record which have full amounts of all transactions without error.
Adequate Internal Control over assets
For efficient and effective management, Internal Control is very important. Because it provides reliable and accurate data which is necessary for decision making and it protects a business from wastage.
Internal Control includes all the plans of the organization, methods and measures taken to safeguard the assets. The auditor should study and evaluate the system of internal control while auditing.
Physical asset verification identifies missed assets and whether the company is experiencing inordinate loss or not. So that, it can help to address and correct the procedural mistakes before the losses become too severe.
Verification process ensures that the assets are free from any charge or lien. It involves
- Comparing the ledger accounts on the date of the balance sheet.
- Verifying the assets on the date of the balance sheet.
- Make sure that they are free from any charge of mortgage.
- Ensure the proper value of assets.
- Assets were acquired for the business.
For any company, this is necessary to carry out the physical asset verification for preventing the over-payment of depreciation taxes and insurance, reduce the risk of regulatory non-compliance, improve planning and budgeting functions and also to reduce the losses.