For asset-rich organisations, keeping track of fixed assets is no small task. With a vast array of buildings, machinery, vehicles, and equipment at their disposal, maintaining an accurate and up-to-date record of these valuable assets poses a significant challenge.
Without a proper system in place, the risk of losing track of assets or encountering discrepancies in records looms large, potentially leading to financial losses, operational inefficiencies, and regulatory non-compliance. In this dynamic business landscape, where every asset contributes to the success of the organisation, implementing reliable methods such as physical verification becomes paramount. By embracing this practice, asset-rich organisations can unlock the power to maintain control, enhance decision-making, and safeguard their valuable assets for sustained growth and prosperity.
In this article, we’ll take a closer look at performing physical verification of your assets and how it can help pave the way for business success.
Fixed assets play a crucial role in the success of any organisation. These tangible assets, such as buildings, vehicles, land, machinery, furniture, and equipment, form the backbone of operations and contribute to efficient resource allocation. Effective management of fixed assets is essential to ensure their optimal utilisation, reduce maintenance costs, and make informed decisions regarding their maintenance, depreciation, and replacement.
Fixed asset management involves various processes aimed at overseeing and controlling an organisation’s tangible assets throughout their lifecycle. It encompasses activities such as acquisition, tracking, maintenance, and disposal of assets. By implementing robust fixed asset management practices, companies can streamline operations, enhance financial records, and achieve compliance with statutory requirements.
Managing fixed assets comes with its fair share of challenges. Large organisations with numerous assets spread across multiple locations often struggle to keep track of all the assets effectively. Inaccurate asset data, including ghost assets or assets that have been lost or stolen but remain on the books, pose a significant risk to financial records. Moreover, organisations must adhere to internal controls and legal requirements, adding complexity to the asset management process.
So, what exactly is physical verification? Physical verification is an essential part of effective fixed asset management. It involves physically inspecting and verifying the existence, condition, and ownership of assets. Unlike other asset management methods, such as barcode tracking or asset registers, which rely on technology and documentation, physical verification provides tangible evidence of assets’ presence and accuracy.
Physical verification differs from other asset management methods in its direct and hands-on approach. While asset tracking systems and asset registers provide valuable information about assets, physical verification adds an extra layer of certainty by physically inspecting and verifying the assets’ existence. It complements these other methods by confirming the accuracy of the recorded data and providing evidence to support it.
One of the key and most obvious reasons physical verification is necessary is to confirm the existence of assets. By physically inspecting assets, organisations can identify any missing or misplaced items, thereby improving the accuracy of asset records. This information is vital for making informed decisions regarding maintenance, depreciation rates, and resource allocation.
Physical asset verification acts as a deterrent for asset misappropriation and reduces the risk of financial losses and fraud. By conducting regular physical verification exercises, organisations can identify any discrepancies between the recorded assets and the ones physically present. This process helps detect and prevent unauthorised disposal or misuse of assets, enhancing internal controls and safeguarding against potential losses.
Physical verification is crucial for organisations to meet regulatory requirements and maintain accurate financial reporting. Various legal and statutory requirements mandate organisations to perform regular physical verification of fixed assets. Failure to comply with these regulations can result in penalties, legal consequences, and damage to the company’s reputation. By conducting physical verification in accordance with the prescribed guidelines, organisations demonstrate their commitment to compliance and integrity.
Before initiating physical verification, proper planning and preparation are essential. This includes identifying the assets to be verified, assembling a competent team, and notifying relevant departments. Adequate resources, such as personnel, tools, and equipment, must be allocated to ensure a smooth and efficient verification process.
The core of physical verification involves physically counting and inspecting assets. This process may involve visiting different locations, identifying assets using serial numbers or other identifiers, and verifying their physical condition. The team should document any discrepancies or observations during the inspection to aid in the subsequent reconciliation process.
After completing the physical counts and inspections, the team must document the results accurately. This includes updating the fixed asset register or asset tracking system with the verified data and reconciling any discrepancies between the physical counts and the recorded data. The documentation should be comprehensive, detailing any asset additions, disposals, or changes in condition.
The frequency of physical verification depends on various factors, including the size of the company, the nature of its operations, and regulatory requirements. Generally, it is recommended to perform physical verification on a regular basis to ensure accurate asset records and effective asset management.
For smaller organisations with fewer assets, an annual or biennial physical verification may be sufficient. This allows for a comprehensive review of assets and helps identify any discrepancies or missing items.
In larger organisations with a higher volume of assets or in industries where asset turnover is frequent, more frequent physical verification may be necessary. Quarterly or semi-annual verifications can help maintain tighter control over assets and quickly identify any potential issues.
During the physical verification process, organisations may encounter various challenges. These can include logistical difficulties in reaching remote locations, inaccurate or outdated asset records, or inadequate coordination between different departments. It is crucial to anticipate these challenges and develop strategies to overcome them effectively.
To overcome the challenges faced during physical verification, organisations can adopt several best practices. These include conducting regular audits of asset data, improving communication and coordination among finance and admin teams, and leveraging technology to streamline the verification process. Implementing standardised procedures, providing training to personnel involved, and seeking professional assistance can also contribute to successful physical verification exercises.
Technology plays a vital role in optimising the physical verification process. Asset tracking systems and fixed asset management software can simplify asset identification, streamline data entry, and automate reconciliation. By integrating physical verification with these systems, organisations can achieve greater accuracy, efficiency, and consistency in managing fixed assets.
To enhance the effectiveness of physical verification, organisations can link it with asset tracking systems. By scanning asset tags or barcodes during the physical verification process, the data can be automatically updated in the asset tracking system. This integration ensures real-time accuracy and reduces the risk of errors associated with manual data entry.
Integrating physical verification into asset lifecycle management processes is essential for maintaining accurate asset data throughout an asset’s lifespan. By conducting regular physical verification at specific stages, such as acquisition, disposal, or major maintenance events, organisations can validate the asset’s condition and update its relevant data, including depreciation rates and accumulated depreciation.
By incorporating physical verification into fixed asset management practices, organisations can ensure the accuracy and consistency of asset data. This integration helps bridge the gap between recorded data and the physical existence of assets, enabling organisations to make informed decisions based on reliable information. It also enhances financial reporting, reduces the risk of errors, and promotes efficient resource management.
Physical verification of fixed assets is a necessary and vital process for effective fixed asset management. It ensures the accuracy and existence of assets, helps prevent asset misappropriation, and ensures compliance with regulatory requirements. By following best practices, overcoming challenges, and leveraging technology, organisations can conduct physical verification efficiently and integrate it seamlessly into their fixed asset management systems. Implementing regular physical verification practices brings tremendous results in terms of enhanced asset control, reduced risks, improved financial reporting accuracy, and ultimately contributes to overall organisational success.
Looking to incorporate powerful asset management software into your physical asset verification? Here at FMIS we’ve developed an industry-leading asset management system that can help you accurately track assets, automate depreciation calculations and reporting, schedule maintenance, and much, much more.
To find out more, contact us or book a demo of our software to take your management and verification of fixed assets to the next level.
For more information on how FMIS can help you effectively track and manage your assets and equipment, please get in touch with an FMIS consultant or call us on +44 (0) 1227 773003.
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