Physical verification of fixed assets – For those in the Consulting business, we hear this term a lot. But what exactly is Physical Verification of assets under Fixed Asset Management Systems (FAMS)?
Under FAMS, the Physical Verification of Fixed Assets is a procedure that is conducted by auditors to ensure that the assets of an entity exist in reality. It is of extreme importance for every organization to carry out the physical verification of fixed assets, at the end of every financial year.
At TRC Corporate Consulting, our FAMS approach to physical verification of fixed assets is to perform a line-by-line reconciliation of the organization’s fixed assets accounting records against the assets discovered during the process of physical verification of inventory.
Our team of experts and specialists have extensive industry knowledge and experience in serving clients with FAMS solutions, including physical verification of fixed assets, globally.
Before you venture out exploring options for physical verification of fixed assets procedure, you need to know about Standard Operating Procedure (SOP) For Fixed Assets Management (FAMS). Read Below.
Statutory compliance – as per CARO 2016
Confirms the existence of assets of an entity, as per records
Realize the condition of these fixed assets
Valuation and rectification processes for accounting discrepancies
Managing an entity’s internal compliances
Verify the location of fixed assets as mentions in the entity’s records
Essential for uninterrupted customer service
Control any unauthorized usage and misappropriation of fixed assets
Physical Verification of fixed assets must be conducted at least once in every three years.
To complete the physical verification of fixed assets, under Fixed Asset Management, you must have the following should be the team members:
Physical Store’s Staffs and Personnel
Specialists from the Technical Department
Units’ Accounts Department Personnel
User Department Personnel
Finance Department at Head Office Personnel
Under Standard FAMS procedures, all team members must fill out the Physical Verification Taking Sheet. During the physical verification process, a person with the technical know-how of the process should invariably be engaged for the identification of outdated and non-usable inventory, or fixed assets.
At the end of the FAMS’ physical verification procedure, it is the responsibility of the entity’s Finance Personnel to hand-over the signed sheets to the CFO (Chief Financial Officer) at Head Office. All these sheets are further preserved to allow the auditors to verify the final inventory sheet.
The Physical Verification Taking Sheet of an entity should be compared with the FAR as placed under the custody of the Accounts Department.
Additionally, a Reconciliation Statement must be prepared, which highlights the differences such as shortage or excess, if any, alongside their justifications as found during the Fixed Asset Management reconciliation procedure.
Besides, the assets that the Technical specialists mark as outdated and non-usable must be included in this Statement as well.
The process of Physical Verification of fixed assets could be explained as follows:
CFO’s intimation given to the Unit Heads concerning the Physical Verification of fixed assets.
The program is to be conducted at least 15 days preceding to the scheduled date, where the date, scheduling, team members, scale and procedure must be clarified.
The Unit Head’s pass on instructions forwarded to the various departments such as accounts, stores and other related user departments.
In case there is no concern regarding the date of the Physical verification of fixed assets, the procedure should be conducted on the specified date.
The team must start the process of filling the Physical Verification Taking Sheet.
Any remark from the Technical Expert should be appropriately documented.
Reconciling the Land Agreements can be deployed to verify the Land. Likewise, Intangible assets can be verified with the FAR by reconciling related supporting licences and invoices.
On completion, the sheet must be signed by all the team members and approved by the Unit Head of the entity’s physical division.
After the sheet is finalized, it will get reconciled with the FAR that has been kept in the Accounts Department’s custody.
Based on the reconciliation process, a Reconciliation Statement should be prepared, which consists those assets that have not been reconciled with the FAR. Besides, the assets that are marked as outdated or non-usable by the Technical specialists also need to be included in the FAMS reconciliation statement.
Reasons regarding shortage or excessive quantities must then be investigated following a consultation with the entity’s Accounts Head, Head of User Department, and Stores Personnel.
Later, the statement must be examined and signed by all the Team Members, Head of Departments for accounts to further get authorized by the Unit Head and following its submission to the CFO at Head Office.
After consulting the Executive Director of the entity, the CFO may either decide to sanction a write off the Shortage of Assets or document the excess of it.
At TRC Corporate Consulting, we follow the following Accounting Standards (AS) as per relevancy to the accounting needs of fixed assets, including the physical verification of fixed assets as our FAMS practices.
Our experts utilize the accounting of fixed assets strictly based on these compliance standards:
AS-6: Accounting for Depreciation
AS-10: Accounting for Fixed Assets
AS-11: Accounting of the Effects of Changes in Foreign Exchange Rates
AS-16: Accounting of Borrowing Costs of an Asset
AS-26: Accounting of Intangible Assets
AS-28: Accounting for Impairment of Assets
Our team of FAMS Specialists help you with the following:
Consolidation of the physical report for all locations and assets or inventories
Perform reconciliation procedures to match the records of physical count and book count
Calculate the difference, if any, and identify the justifications
Management or Executive Summary that will be signed off by the Technical, SCM, Finance, and AJSH
Deliver Expert Physical Verification Reports
At the closure of the physical verification of fixed assets, we also provide an audit trail formulated on a spreadsheet, alongside several other specific reconciliation reports like as:
If you have a query about physical verification of fixed assets or need further understanding about our services, contact us!