Practically all organizations conduct a yearly fixed asset review of their financial records and statements, for example, the payment explanation, monetary record, balance sheet and income flow statement. Fixed asset auditing is the procedure for examining the fixed asset of an organization.
It is helpful in calculating the value of the organization and provides a glimpse of entire financial situation. Audit of an organization lets the government know if an organization is following policies, rules and regulations or not.
What is Asset Auditing? Why auditing is important?
Auditing of a fixed asset is done to maintain the accuracy of the assets. Basically, it is the process of physical asset verification. In this process, the company creates an official asset list then these assets are verified by the auditor. After that auditor examines, checks and confirms as per the list.
According to the Small Business Chron,
“A 2016 UK study of the problem estimated that almost one in five instances of small business fraud involve fixed assets, with an average loss of $70,000.”
In order to avoid these types of issues, auditing is crucial.
How to perform an audit of fixed assets?
For performing auditing of fixed assets there are various methods:
Physical verification – An organization creates reports of assets then auditor checks it physically to make sure that assets actually exist. Physical verification of assets is done at the financial year-end.
In order to verify the same, accounts are thoroughly checked and documents as well. They are helpful in estimating the current value of the asset. Physical verification is done to avoid fraud.
With asset auditing application – Auditing of fixed assets can be a very long procedure in order to avoid these types of issues each asset is tagged with barcode tag & RFID label.
It includes all the information about assets such as manufacturer model number, asset purchase data, asset life, asset condition, services done, ownership etc. Asset auditing application can be very helpful to the organization in maintaining assets records and history.
Who is an auditor?
In order to perform an effective audit, a highly skilled, knowledgeable and experienced auditor is required.
The auditor is an authorized person that verifies assets, review them and cross-check records of assets. It is the responsibility of the auditor to ensure that organization complies with rules and regulations & tax laws.
Auditor directly reports to the CEO or board members of the organization. When an organization does not have auditor, they approach to consultant auditor who does the same type of work for the organization.
How many types of audits are there?
An audit can be divided into two categories, external audit and internal audit that we will discuss below:
External audit – In many nations, audits are conducted by outside firms. The external audit is conducted by a government organization when a private organization is going public. Therefore, it is the duty of government to ensure that everything is in order.
On the other hand, private ventures are commonly not liable to an external audit until they want to go public. Therefore, they are not subject to external audit and safe from it.
In these types of audits, financial statements are reviewed and internal control is checked. Therefore, external reviews and audits, permit partners & stakeholder to improve. Make more informed choices can be made for the organization.
Process of external audit – The external audit process begins with appointing auditor; the auditor is selected by stakeholders. Auditors are chosen on qualities such as education qualification, skills, reputation etc. Then auditor is approached and if auditor accepts then external audit begins.
The external auditor gathers information and understands the whole procedure and activities of all departments. For each significant movement recorded in the financial summaries, external evaluators should recognize and evaluate the risk that may have affected the association’s performance or monetary position.
The auditor will likewise search for any anomalies. These may incorporate the organization controlling its own financial performance to delude stakeholders and investors. Now auditor will have to acquire proof so as to effectively fulfil the necessities of the audit program.
Internal audit – Figuring out how to play out a fundamental interior bookkeeping audit on your own private venture can furnish you with a complete understanding of your organization’s asset-related strengths and shortcomings.
So internal audit can help your organization in preparing for external audits. Internal audits are helpful in finding the flaws or issues in the financial record or asset identification. Basically, internal reviews fill in as an administrative tool to make upgrades in process and to provide better interior controls.
One of the main objectives of auditing (internal) to make sure that the organization is compliance with law and regulation.
Process of internal audit – An internal audit can be a continuous process or it might occur as per the requirement (daily, weekly, monthly, etc.). For example, a manufacturing company will audit on daily basis to maintain good quality.
On the other hand, the HR department will conduct an audit once a year. An audit can be organized so that teams can prepare documents and make papers in order and audit can be sudden act also, if any illegal activity is suspected.
The process is internal auditor selects a department then understands the work procedure and internal process. After that, identifies issues & creates official reports and reviews it with the management.
Other than this analysis is done in which physical analysis of asset and inventory is done. Some random data is analyzed or some particular data is analyzed. After which they reach a decision and that decision is implemented.
Conclusion – Audit is an extremely powerful method to keep your organization financial records clean. It is also a way to find out issues if there are any.
Audits can be a long and exhausting process but with asset management software you can conduct audit easily without wasting human resources and time. You can keep track of assets and avoid asset theft and misplacement as well. It is also helpful in depreciation management.
It permits you to monitor your assets and gives real-time data helping you in the audit process and make this procedure less complex, brisk, compelling, and easy.
