Fixed Assets Physical Verification and Audit Plan:
A Comprehensive Guide for Auditors

As an auditor, conducting a thorough fixed assets audit and physical verification is crucial to ensure the accuracy and reliability of a company financial statements. Fixed assets, such as property, plant, and equipment (PPE), often represent a significant portion of a company total assets, and their proper accounting and verification are essential for a fair representation of financial position and performance. In this blog, we will outline the steps and procedures to be followed by auditors during a fixed assets audit and physical verification.

Understanding the Objective

Pre Audit Preparation

Before commencing the audit, the auditor should:

1. Review prior year audit reports: Familiarize yourself with the company's fixed assets, accounting policies, and any prior year audit issues.

2. Obtain a detailed fixed asset register: Get a comprehensive list of all fixed assets, including descriptions, costs, accumulated depreciation, and net book values.

3. Understand the company accounting policies: Review the company policies on fixed asset acquisition, depreciation, disposal, and impairment.

Audit Procedures

The following audit procedures should be performed:

1. Verify the existence and ownership of fixed assets: Physically verify the existence of assets and confirm ownership through documentation, such as title deeds, purchase invoices, and sales invoices.

2. Test additions and disposals: Verify the accuracy of additions and disposals during the year, ensuring that they are properly authorized, recorded, and accounted for.

3. Verify the valuation of fixed assets: Ensure that fixed assets are recorded at their correct cost, including direct costs, such as purchase price, transportation, and installation.

4. Test depreciation calculations: Verify the accuracy of depreciation calculations, ensuring that they are in accordance with the company's accounting policies and relevant accounting standards.

5. Check for impairment: Identify any indications of impairment and verify that the company has properly accounted for any impairment losses.

Physical Verification Procedures

Physical verification involves inspecting the fixed assets to confirm their existence, condition, and usage. The following procedures should be performed:

1. Prepare a physical verification plan: Identify the assets to be verified, the personnel involved, and the timing of the verification.

2. Conduct physical verification: Inspect the assets, noting their condition, usage, and any signs of obsolescence or damage.

3. Verify asset identification: Ensure that assets are properly labeled and identified, and that the identification corresponds to the fixed asset register.

4. Document findings: Record any discrepancies, damage, or obsolescence, and report them to management.

Audit Documentation and Reporting

The auditor should maintain comprehensive documentation of the audit procedures performed, including:

1. Audit working papers: Document the procedures performed, the evidence obtained, and the conclusions drawn.

2. Audit report: Include a section on fixed assets in the audit report, highlighting any material issues or discrepancies.

Audit Steps:

1. Identify High Value or High Risk Assets:

      Identify assets with high value or high risk of loss or damage.

      Prioritize these assets for physical verification.

2. Select Sample Assets:

      Select a representative sample of assets for physical verification.

      Ensure that the sample includes assets from different categories and locations.

3. Verify Asset Details:

      Verify the asset description, location, and condition.

      Ensure that the asset is properly labelled and identified.

4. Reconcile Physical Verification Results:

      Reconcile the physical verification results with the fixed asset register.

      Investigate and resolve any discrepancies.

Audit Tools and Techniques:

1. Audit Software: Utilize audit software to select samples, verify calculations, and analyse data.

2. Checklists: Use checklists to ensure that all necessary procedures are performed.

3. Physical Verification Forms: Use forms to document physical verification results.

Audit Timeline:

1. Planning and Preparation: 2 days

2. Fieldwork: 5 days

3. Reporting: 3 days

Audit Team:

1. Lead Auditor: Responsible for planning, supervising, and reviewing the audit.

2. Audit Team Members: Responsible for performing audit procedures and documenting findings.

Audit Reporting:

1. Audit Report: Include a section on fixed assets, highlighting any material issues or discrepancies.

2. Audit Findings: Document all findings, including any discrepancies or issues identified during the audit.

By following this audit plan, the audit team can ensure that the fixed assets verification is thorough and effective, and that the financial statements accurately reflect the company fixed assets.

Conclusion

A thorough fixed assets audit and physical verification are essential for ensuring the accuracy and reliability of a company financial statements. By following these steps and procedures, auditors can provide assurance that the company fixed assets are properly accounted for and valued, and that the financial statements present a fair representation of the company financial position and performance.