Asset Verification and Tagging – A Practical Guide

Fixed assets represent a substantial portion of an organization’s value. These long-term assets, including buildings, machinery, vehicles, and more, are essential for business operations. To maintain financial transparency and ensure accurate reporting, organizations must conduct regular fixed asset verification. Besides, regulations make it mandatory for companies to conduct periodic physical verification of assets.

This comprehensive guide explores the concept of fixed asset verification, its importance, the role of asset tagging, the verification process, checklists, and the creation of verification reports. Let’s get started with the basics and then dive deeper. .

What is Fixed Asset Verification?

Fixed asset verification, often referred to as asset inventory or asset audit, is a systematic process of physically inspecting and verifying the existence, location, condition, status and custodian of an organization’s assets.

Assets include machines, equipment, IT assets, furniture, vehicles, land & building and intangibles.

The primary objectives of fixed asset verification are:

1. To ensure the accuracy of asset records, including asset descriptions, locations, and financial values.
2. To confirm the physical existence of assets listed in the balance sheet or fixed asset register.
3. To validate the condition and status of assets to assess financial provisions accurately.
4. To discover and prevent misappropriation, theft, or misuse of assets.

Fixed asset verification is crucial for financial reporting, compliance with accounting standards, and safeguarding valuable organizational assets.

Why is Physical Verification of Fixed Assets Necessary?

Physical verification of fixed assets is necessary for several compelling reasons:

1. Accurate Financial Reporting: Fixed assets significantly contribute to an organization’s financial statements. Accurate verification ensures that financial records correctly reflect the value of these assets, thereby enhancing the credibility of financial reports.
2. Preventing Misappropriation: Regular verification helps detect and prevent asset misappropriation, theft, or unauthorized transfers. By implementing better processes based on the findings of physical verification, organizations can exert better internal control over assets. .
3. Maintenance and Upkeep: Verification allows organizations to assess the condition of assets accurately. This information is essential for planning maintenance and repairs, ensuring assets remain in good working order.
4. Compliance and Auditing: Many regulatory bodies and accounting standards require organizations to conduct periodic asset verification. Compliance with these regulations is essential for better corporate governance and maintaining transparency.
5. Cost Control: By identifying idle or underutilized assets, organizations can optimize their asset management strategies, reducing unnecessary costs associated with unused or surplus assets.
6. Asset Valuation: Verification helps determine the accurate value of assets for depreciation calculations and financial statement preparation, ensuring compliance with accounting standards like Generally Accepted Accounting Principles (GAAP).

Automation of Asset Verification through Tagging of Assets

Asset tagging is a crucial step in automation of the fixed asset verification process. Asset tagging involves affixing unique barcode, QR code, or RFID tags, to each asset.

As these tags are machine readable, they bring automation in asset identification and physical verification. They also serve as a bridge between the physical asset and the asset register. Here’s why asset tagging is essential:

• Quick Identification: Tags enable rapid identification of assets during the verification process. A quick scan/reading of the tag helps identify the assets efficiently.
• Error Reduction: Human errors in asset identification can lead to discrepancies. Asset tagging reduces the risk of errors, ensuring that the asset verification is accurate.
• Automated Movement Recording: Transfers can be recorded accurately and automatically when assets are moved, mitigating unrecorded transfers and further enhancing the efficiency of asset register.

Incorporating asset tagging into the verification process significantly improves efficiency, reduces errors, and enhances the overall reliability of asset data.

Fixed Asset Verification Process: How to Conduct Physical Verification of Fixed Assets

Conducting a successful fixed asset verification requires careful planning, execution, and reporting. Here is a step-by-step guide to conducting the physical verification of fixed assets:

1. Planning

• Identify the scope of the verification, including which assets will be verified, where they are located, and who will conduct the verification.
• Set verification dates and establish a timeline for completion.
• Appoint a dedicated verification team responsible for conducting the process.
• Prepare the necessary equipment, such as Mobile devices, Scanners/ RFID readers, and asset tags.

2. Preparing

• Compile a comprehensive list of assets to be verified, including asset descriptions, locations, and quantities.
• Ensure necessary approvals are available for the team visiting for verification.
• Create asset verification checklists or templates that specify the information to be verified for each asset.
• Prepare a sign-off report format
• Provide training to the verification team on the verification process, information to be captured , and report preparation..

3. Physical Verification

• The verification team should visit each location where fixed assets are located.
• For each asset, the team must verify its existence, condition, location and user.
• Identify the asset and affix asset tags if tagging is in the scope of verification. Scan tags where assets are already tagged for accurate identification.
• Ensure that each asset is physically verified and physical information is accurately captured.
• Compare the physical attributes of the asset with the information available in the Asset Register.

4. Reconciliation

• After completing the physical verification, reconcile the results with the organization’s fixed asset register or asset management system.
• Prepare a discrepancy report including information about missing assets, additional assets, damaged and non-in-use assets.
• Investigate and address the discrepancies found during the verification process.
• Make necessary adjustments to the asset register, including updates to location, user, condition and status..

5. Reporting

• Prepare a comprehensive fixed asset verification report that summarizes the findings of the entire verification process.
• Include details of assets verified, discrepancies identified, corrective actions taken, and recommendations for process improvements.
• Ensure that the report is well-documented, clear, and ready for review by internal and external stakeholders.

The fixed asset verification process should be conducted regularly, typically on an annual or biennial basis, to maintain accurate asset records and ensure compliance with accounting standards and regulations.

What Type of Audit Evidence should be available to support Physical Verification of Assets. ?

During the fixed asset verification process, it’s essential to gather audit evidence to support the accuracy and validity of the verification findings. Audit evidence serves as documentation to verify the existence, ownership, condition, and value of fixed assets.

Here are the types of audit evidence you may need:

• Photograph: Physical verification involves visually inspecting each fixed asset to confirm its existence and condition. Photographs of assets can serve as visual evidence.

• Asset Tags and Labels: Ensure that each asset is tagged or labeled with a unique identifier. Scanning these tags provides evidence of asset identification.

• Barcode or RFID Scanning Records: Records of barcode or RFID scans during the verification process serve as electronic evidence of asset verification.

• Signed Verification Reports: If asset owners or custodians sign off on verification reports for assets under their ownership/custody, it can provide authenticity to the verification findings.

• Movement Register: Asset inward and outward entries could act as an audit evidence to support missing and additional assets found during physical verification due to asset movements after cut-off date.

• Maintenance and Service Records: If an asset is found in damaged condition, its maintenance and service records could provide additional insights to the verification team to record their observations.. .

• Audit Trails: Audit trails within the asset management system document changes, updates, and activities related to assets, providing a history of asset management actions.

• Internal Confirmations: When an asset is available with an employee who is not available during physical verification, a confirmation from the employee could be a good audit evidence

• External Confirmations: In some cases, external confirmations may be obtained from third parties, such as jobworkers, to validate asset availability.

Collecting a variety of audit evidence helps ensure the completeness and accuracy of the fixed asset verification process and strengthens the reliability of asset records.

The Checklist for Physical Verification of Fixed Assets

To conduct a thorough physical verification of fixed assets, it’s essential to have a comprehensive checklist in place. This checklist should include the key information to be verified for each asset.

Here’s a sample physical verification checklist:

• Asset Name/Description: Verify that the asset’s name or description matches the record.
• Asset Tag/Label: Check that the asset has an accurate and legible tag or label.
• Serial Number: Confirm that the serial number matches the record.
• Manufacturer/Model: Verify the manufacturer’s name and model number.
• Location: Check the asset’s current location against the record.
• Condition: Assess and document the condition of the asset (e.g., good, fair, poor).
• User/Custodian: Confirm the user and/or custodian of the asset matches with the asset record
• Ownership: Confirm ownership of the asset (e.g., owned, leased).
• Purchase Documentation: Check the purchase invoices and receipts wherever sufficient information about the asset is not available in the asset register..
• Warranty/Service Records: Check for warranty or service records, wherever required.
• Asset Use and Purpose: Confirm that the asset is used for its intended purpose.
• Maintenance Records: Check for maintenance and service records.
• Asset Transfers: Verify any asset transfers or movements.
• Photographs: Take photographs of assets for visual documentation.
• Notes and Comments: Record any additional notes or comments regarding the asset’s status.

Using a detailed checklist ensures that all relevant information is reviewed during the verification process, reducing the chances of overlooking important details.

Fixed Asset Verification Report

Upon completing the physical verification of fixed assets, it is essential to generate a comprehensive verification report. The report serves as an official record of the verification process and its outcomes. Here are the key components of a fixed asset verification report:

Introduction

• Provide an introductory section that explains the purpose and objectives of the verification process.
• Mention the dates during which the verification was conducted.
• Specify the verification team members and their roles.

Asset Listing

• Present a list of all assets that were subject to verification.
• Include asset names, descriptions, asset tag numbers, locations, and quantities.

Verification Results

• Detail the results of the physical verification for each asset.
• Indicate whether the asset’s existence, location, condition, and other attributes were verified successfully.
• Highlight any discrepancies or issues encountered during the verification.

Discrepancies and Corrective Actions

• Summarize any discrepancies found during the verification process.
• Explain the nature of each discrepancy and its potential impact.
• Provide recommendations and corrective actions taken or proposed to address discrepancies.

Recommendations

• Offer recommendations for process improvements based on the verification findings.
• Suggest actions to prevent future discrepancies and enhance the accuracy of asset records.

Conclusion

Conclude the report by summarizing the overall outcomes of the verification process.

• Emphasize the importance of maintaining accurate fixed asset records.

Appendices

• Include any supporting documents, such as photographs, signed verification forms, or additional data.

Signatures

• Obtain signatures from relevant personnel, including the verification team members and management responsible for reviewing the report.

A well-structured verification report provides a clear overview of the verification process, its outcomes, and recommendations for improvement. It is a crucial document for internal record-keeping and may also be required for external auditing and compliance purposes.

AssetCues for Robust Verification & Tracking of Assets

Manual processes and outdated asset management solutions can hinder productivity, lead to errors, and create data discrepancies. This can result in a lack of trust in asset data and inefficient collaboration among teams.

To address these challenges, AssetCues offer intelligent automation tools designed to streamline the verification and tracking of assets effectively.

AssetCues leverages various automated data capture technologies to ensure the accuracy and completeness of asset data. These technologies include:

• Barcode/QR Code: Barcode and QR Codes provide automated asset identification when compared to manual physical verification. It saves time, money and effort spent on physical verification. .
• RFID: AssetCues supports RFID technology for automation of asset verification where line of sight is not required and verification can be conducted in significantly lesser time.
• Mobile phones: Field users can easily update asset information using smartphone scanning, eliminating the need for additional devices and resources for physical verification.
• Fixed Position RFID Readers: These readers automatically track asset movements without human intervention, enhancing asset visibility.

Hardware is just one aspect of AssetCues’ capabilities. The platform also focuses on user experience by providing:

• User-Friendly Interface: AssetCues features an optimized and user-friendly UI that minimizes complexity and reduces the number of clicks required to perform tasks.
• Error Correction: The system includes error correction features, ensuring that users can mitigate and rectify mistakes.
• Streamlined Processes: AssetCues has incorporated industry best practices for asset management and has become the preferred choice for finance teams across industries.
• Configurable workflows: Asset workflows can be configured according to the organization needs and processes.

AssetCues provides end-to-end asset management solutions, covering the entire asset lifecycle. This includes procurement, componentization, asset tagging, asset audits, asset assignments, asset transfer and end-of-life tracking with ERP integration.

Moreover, it offers a mobile-based verification system that allows end-users to confirm the assets they possess with minimal effort.

The ultimate goal of AssetCues is to deliver complete, current, and accurate asset data that fosters trust and collaboration among teams. By providing a streamlined user experience and robust tracking capabilities, AssetCues helps organizations realize the true value of their asset management function.

Fixed Asset Verification FAQs

How frequently should one verify their assets?

The frequency of asset verification can vary depending on the organization’s size, industry, and internal policies. However, a common practice is to conduct a full verification of fixed assets at least once a year.

This annual audit helps ensure the accuracy of asset records and financial reporting. Additionally, organizations may perform partial verifications or spot checks more frequently, especially for high-value assets or in industries with highly mobile assets.

Ultimately, the frequency of asset verification should align with an organization’s risk tolerance and the criticality of asset data accuracy.

What is the difference between W2W (wall to wall) and FTF (file to folder) verification?

The difference between Wall-to-Wall (W2W) and File-to-Folder (FTF) verification lies in their respective approaches to fixed asset verification and the specific objectives they aim to achieve:

1. Wall-to-Wall (W2W) Verification

Objective: Wall-to-Wall verification is a comprehensive and thorough approach to asset verification. Its primary objective is to establish a complete and accurate asset register from scratch or to update an existing register that may be outdated, incomplete, or nonexistent.

Process: In a Wall-to-Wall verification, every single asset within the organization is physically inspected and verified. This means conducting a comprehensive audit of all assets, regardless of whether they were previously recorded in an asset register or not. During this process, new assets are identified, and a fresh asset register is created or updated based on the verified information.

Typical Scenario: Wall-to-Wall verification is often employed when an organization lacks a reliable asset register or suspects significant discrepancies between existing records and the actual assets on hand. It is a time-consuming and resource-intensive process but is essential for establishing an accurate baseline of assets.

2. File-to-Floor (FTF) Verification

Objective: File-to-Floor verification, in contrast, focuses on validating the accuracy and completeness of an existing asset register. The primary goal is to ensure that the assets listed in the register align with the assets physically present within the organization.

Process: In File-to-Floor verification, the emphasis is placed on comparing the information contained in the asset register (the “file”) with the physical assets deployed in the organization (the “floor”). The verification team cross-references asset descriptions, quantities, values, and other relevant details in the register with the assets physically located on-site. Any discrepancies between the two are investigated and reconciled.

Typical Scenario: File-to-Floor verification is employed when an organization already has an asset register in place but needs to confirm its accuracy. It is a more focused and efficient process compared to Wall-to-Wall verification as there is no need to create the entire asset register from scratch but to validate the information available in the FAR through physical verification.

Key Differences

• Scope: Wall-to-Wall verification covers all assets, including those not previously recorded, while File-to-Folder verification focuses on assets listed in the register and finding discrepancies.
• Purpose: Wall-to-Wall aims to create or refresh the entire asset register, while File-to-Folder aims to validate and correct an existing register.
• Resource Intensity: Wall-to-Wall verification is resource-intensive due to its comprehensive nature, while File-to-Folder is more lean & efficient since it deals with a known set of assets.
• Frequency: Wall-to-Wall may be conducted less frequently to establish a baseline, while File-to-Folder can be performed more regularly (e.g., quarterly or annually) for ongoing accuracy maintenance.

How asset movement controlling can improve fixed asset verification?

Asset movement control plays a crucial role in enhancing fixed asset verification in the following ways:

• Real-time Tracking: Implementing asset movement control systems, such as RFID (Radio-Frequency Identification) or RTLS (Real-Time Location Systems), enables organizations to track asset movements in real-time. This ensures that assets are always accounted for, reducing the likelihood of discrepancies during verification.
• Automated Updates: Asset movement control systems automatically update asset locations as assets are moved within the organization. This automation reduces the manual effort required for tracking and improves the accuracy of asset records.
• Enhanced Security: Asset movement control systems help prevent unauthorized asset movements, deterring theft or misplacement. This security feature contributes to more reliable verification results.
• Quick Location Identification: During verification, asset movement control systems can quickly pinpoint the real-time location of assets, expediting the verification process and reducing downtime.
• Historical Data: These systems maintain historical data on asset movements, allowing organizations to track asset usage patterns, identify trends, and optimize asset utilization.