How To Use A Fixed Asset Register For Audits

Published on December 22, 2021 • 4 min read

Accurate asset auditing is one of the many benefits of a fixed asset register. But why do you need an audit of fixed assets for your business?

Well, regulatory compliance is one thing, but… But did you know fixed asset audit has some other, much more significant benefits for your business? Accurate auditing involves maintaining precise records of your fixed assets, which is highly valuable in itself.

Furthermore, a fixed asset audit can save you plenty of money by letting you avoid unexpected maintenance costs, damage incurred by using outdated assets and unnecessary taxes. And there’s more! Internal asset auditing procedures boost productivity, make you more organised, and increase accountability in the workplace. 

That said, if you want to learn how to use a fixed asset register for audits, this short guide is for you. We’ve prepared a step-by-step guide that’ll walk you through the asset auditing process.

Additionally, if you are looking for this guide that we carefully prepared for you, you may also be interested in creating an asset register to make sure that everything was done right and you comply with all regulatory requirements. Yes, this is an important matter.

But, in the first place, you want to know - What Internal Controls are Needed for Fixed Assets? Because understanding effective internal control of fixed assets can help you with accuracy, stop theft or loss, and maintain your finances under control.

Now, let's go over these necessary steps!

1. Identification and Classification: To prepare a fixed asset register, each fixed asset shall be uniquely identified and classified into a particular category based on its type, location, and usage. This enables accounting and tracking properly from the commencement of an asset's life.
2. Acquisition, Disposal, and Transfer: Proper procedures for the acquisition, disposal, and transfer of fixed assets should be laid down. Approval for such transactions can only be by authorized people to give substantial internal control of fixed assets and also prevent their unauthorized use or disposal.
3. Separation of Duties: All activities related to fixed assets should be divided amongst various employees to eliminate the tendency for fraud or error. For example, the person who records asset transactions should not be the same as the person who conducts asset verification audits.
4. Regular Reconciliation: In addition, reconcile the fixed asset inventory audit periodically with general ledger accounts in order to ensure that all existing assets are properly recorded and correctly valued. This is a crucial step to ensure accuracy in the asset management audit process.
5. Access Controls: Security measures like password-protected digital records and restricted physical access can be implemented to prevent unauthorised changes or theft. This management represents one of the internal controls of fixed assets strategies.
6. Documentation and Record-Keeping: All details related to fixed assets—from purchase invoices to maintenance records and disposal—need to be documented properly. Such documentation becomes quite important during audit procedures for fixed assets; then, each transaction will be traceable.
7. Monitoring and Review: Internal controls should be reviewed and updated from time to time with regard to the changes either in the operations of the organization or in the regulatory environment. Internal asset management audits should be frequent depending on internal policies and external legislation.

With this in mind, an audit of fixed assets would be easy to understand and comprehend. Business processes need to run as smoothly as possible, so without further ado, let us familiarise ourselves with itemit’s step-by-step guide to fixed asset audit.

Step 1: Keeping an Up-to-date Asset Register

An accurate and comprehensive asset database forms the foundation for a successful audit. A well-kept asset register is the first thing you need, and preparing it is not a one-off thing. This involves consistently recording asset details for all your fixed assets over a period of time. 

You need to record all or most of the below-mentioned details for every fixed asset: 

• Vendor: The company you purchased the assets from
• Purchase date
• Purchase cost
• Effective Lifetime
• Serial Number: important for warranty information
• Warranty expiration date
• Depreciation particulars
• Particulars regarding sale, or discarding assets
• Details of fixed assets retired from use and held for disposal

You should have all your fixed assets listed on the register and their details updated as frequently as they change. You can utilise asset tags to make the asset tracking process simpler and quicker. 

If you already have a well-developed and up-to-date fixed asset register, you’re ready to move on to the next step. You can export configurable reports directly from your fixed asset register that makes the auditing process much easier.  

Step 2: Verification of Records

When you have the asset details in front of you in a report, chances are there might be minor fallacies in the information. Although using an advanced fixed asset register reduces errors to the bare minimum, the risk of human error is still there.

This is a crucial part of the whole audit process. So, let us clarify it for you in detail. Verification processes follow these steps:

1. Planning and Preparation: This would involve studying the fixed asset inventory audit register before such asset verification audits can take place and identifying the assets that are to be verified. The verification process has to be assigned to specific personnel, and a timeline has to be set up.
2. Tagging of Assets: Each and every asset should be tagged with a unique identification number. This tagging is necessary so that all assets are easily tractable and can also be cross-referenced during the audit procedures for fixed assets.
3. Physical Inspection: Physically inspect every single asset. This will involve checking the physical condition, location, and identification tag on the asset. Check that the information corresponds to the records in the fixed asset inventory audit.
4. Reconciliation: The physical inspection results must be compared against the fixed asset inventory audit register. Missing assets or wrong classifications must be identified and documented; these discrepancies will have to be investigated further under the asset management audit.
5. Reporting: Finally, after verification has been done, prepare a report on the findings. Such a report shall provide a summary of discrepancies, recommendation of corrective actions, and a plan for follow-up procedures that will ensure that fixed assets are verified with accuracy.
6. Follow-up Actions: Research all discrepancies noted during the physical verification process. This follow-up may involve tracing an asset's movement, updating the records, or addressing the weakness of internal control that might have caused the discrepancy. This step is very important in the broader context of auditing fixed assets.
7. Regular Reviews: Verification should be carried out physically on a periodic basis, say, yearly or half-yearly, depending upon the size and complexity of the organization. The regular verification of the assets by means of audit processes will ensure that the records regarding the assets are correct and will also prevent mismanagement of the assets.

Step 3: Accounting Process

This is where the numbers game kicks in. Financial information like purchase dates, costs, tax and depreciation details should ideally harmonise between company balance sheets and the asset register. The accounting process also includes the physical verification of assets. 

Physical verification is the best part because this is where you’ll be busting ghost assets and bringing zombie assets back to life. The auditing procedure gives you the opportunity to physically verify each and every asset on your fixed asset register for its existence and the condition that it’s in. 

If a fixed asset is recorded on the register but you can’t find it anywhere in the office or worksites, that asset might be a ghost asset. In the same way, if you find an asset that does not exist on the register, it’s a zombie asset. Furthermore, you also have to evaluate each fixed asset for the condition it’s in. 

Condition evaluation enables you to identify whether or not an asset is in need of maintenance, or if it’ll be retired soon. This brings us to the next step in the auditing process: calculating depreciation.

Step 4: Calculating Depreciation

Your fixed assets lose value over time. This phenomenon is known as fixed asset depreciation. Calculating depreciation over an asset’s life cycle and reporting updated values for tax and insurance purposes is a crucial financial process.

Fixed asset depreciation can be calculated by using depreciation methods like WDV (written down value), straight-line or units of production method. Once you’ve calculated depreciated asset values, don’t forget to record them in the fixed asset register and report updated values for tax and insurance so the company can save money wherever possible.

Step 5: Valuation and Disclosure

This is the last step in the audit procedure. Once you’ve finalised the audit reports, identified ghost assets, calculated depreciation and confirmed your business assets’ valuation, you have to make sure everything falls in line with regulatory requirements. Take your time to set things straight in case there’s an anomaly.

Best Asset Audit Practices

Now we’re up to useful tips and best time-proven practices so that you will always be fully prepared for the audit of fixed assets! Let’s see what we have:

• Pre-Count Planning: Plan with specific details of the process for counting an entity's assets. Prepare a complete detailed listing of assets: responsibility should be designated for the count, and schedule the count with minimum business interruption in advance. All these are important prior to the actual count audit process that goes into the fixed asset inventory.
• Use of Technology: Use technology to leverage this; for instance, some of these could be a barcode scanner, use of RFID tags, and the use of asset management software to make the process of counting assets much easier. They can be used to make automated data collection systems, decrease some of the human errors, and become more precise in how to audit fixed assets.
• Cross-Verification: Many personnel should be involved in the asset count to cross-verify each other's results. This reduces the chances of errors and omissions and ensures a more reliable outcome—something very important in asset management audits.
• Clarity in Communication: Ensure everyone involved in the asset count understands the objective, role, and responsibility in their job. Instructions should be clear to train where necessary so the process is carried out accurately and consistently, maintaining audits of functions involved in the verification of the assets.
• Documentation: Documentation of the process of counting assets should be kept in a detailed manner, including methods of counting, personnel involved, and any discrepancies found. This documentation will be used as an asset in the audit process for fixed assets in identifying the areas that call for modification and improvements during the next counts.
• Post-count reconciliation: Reconcile the results after completion of the count with the fixed asset inventory audit register. All differences should be reconciled immediately, and the ledger be corrected to state the position as of now with respect to the assets.
• Routine Review and Update: Routine asset counts should be reviewed and updated based on lessons learned from previous counts, changes in asset management practices, or new regulatory requirements. These are part of the processes ensuring effective asset utilisation and comprehensive asset management audits.

The Right Fixed Asset Register For Robust Audits

itemit’s fixed asset register software empowers you to set up a comprehensive asset register in a few simple steps. Adding and updating asset information with itemit is as easy as it gets. 

Apart from configurable reports for easy auditing, itemit brings a great range of features, scalability and shareability. So feel free to use the system the way you want. For instance, if you need tools tracking software or equipment checkout software, itemit is your all-in-one solution.

To find out more about how itemit can help your business you can fill in the form below to start your 14-day free trial. You can also contact the team at team@itemit.com.