What Is Physical Verification Of Fixed Asset?

Verification of assets is a process carried out to confirm the existence of assets for the purpose of recognizing, derecognizing, assessment of impairment, and making a possible valuation.

Assets verification is very necessary because an asset costs a lot and it requires some effort of planning before acquiring them, and it would not be good to just go through all those efforts spend much money to see that the asset has been stolen or damaged. Writing off an asset is very costly because it distorts the income statement figures, at the end eventually recognizing the value in a loss account.

What is Fixed Assets?
Fixed Assets are assets that can be seen, felt and touched in an organization. They are assets that can be moved from one place to another. Examples of fixed assets are; plant and machinery, land and buildings, furnitures and fittings etc.

It takes a lot of time to track down every fixed asset, which may not be a productive use of staff time. It’s not absolutely necessary to count all fixed assets. In some companies, this is a fairly informal search for just the more expensive assets.

How do you conduct fixed asset verification?

Keeping track and managing the fixed assets is critical and a mandatory periodic process that should be done in the organization. Keeping a fixed asset register helps in making the process easier.

Instead, it's good to focus on just those assets that are more likely to move around (fixed assets). Consider flagging assets that are a combination of movable and really expensive. Then search for these items thrice or twice a year to verify their locations. This reduces the total fixed asset count work by around 80%.

You could shift the counting task for pieces of equipment over to the maintenance staff since they can also provide information about the condition of the equipment. Or, have the IT staff count computer equipment.

Schedule a final verification just before the annual budgeting process, so that any fixed assets flagged for maintenance problems can be included in the capital budget for replacement.

Have a program for replacing laptops at regular intervals, and use policy of giving the old laptop to the employee as soon as a new one is purchased. That means the staff will take good care of their laptops since they will be the future owners.

Assign each fixed asset to one of the department managers. When they take over a department, they formally sign for every fixed asset in their department. From that point on, they are responsible for all of these assets. If you include the results of a fixed asset review in their performance reviews, they’ll probably take good care of their assets.

When shifting assets between departments, the department is leaving needs to file an asset transfer form with the accounting department, which should be verified by the receiving department. but, for assets that are used in multiple locations a company can adopt electronic transfer and monitoring.

A fixed asset register contains the following data:
  1. Net book value,
  2. Current and accumulated depreciation rate,
  3. Location of the asset,
  4. Custodian rate,
  5. Cost of the asset,
  6. Asset use life or depreciation rate.
These records can be kept at department, business, location and corporate level and a reconciliation at regular intervals is needed to ensure the accuracy of these records. Ideally, it is recommended to do a quarterly audit of movable fixed assets, though this can differ from industry to industry.

Dos and Don’ts in Physical asset verification

If you are planning to do a physical asset verification, please don't forget the following points.

Do’s for Physical Asset Verification:
  1. Estimate and gather what you need to track or tag,
  2. Understand the full project management life cycle,
  3. Choose software which can assist with reporting and analytics functionality,
  4. Track assets as they get added in to the company,
  5. Use a simpler barcoding system for allocating the unique identification number,
  6. Understand the difference between asset tracking and inventory tracking,
  7. Conduct a critical equipment analysis,
Don’ts in Physical Asset Verification include:
  1. Don’t forget to complete the entry for current and future value of the asset
  2. Don’t forget to check for consistency and categorization,
  3. Don’t forget to define an objective for the exercise
  4. Don’t forget to create a comprehensive  database
  5. Don’t forget to eliminate unused or ghost assets
  6. Don’t forget to track maintenance and repair schedules.
Fixed asset verification is a type of control measure, so it will not prevent assets from being stolen, it can only control it from been damaged and possibly used to reduce theft.