Asset Verification: Definition, Importance, and How-To

How much can neglecting asset verification cost you? The IRS can impose accuracy-related penalties of up to $10 million on corporations that substantially understate their tax obligations. Meanwhile, you could be missing out on tax deductions of 60% to 80% for certain depreciated assets.

Knowing what assets you have in order to then estimate how much they're worth is critical for regulatory compliance, accurate accounting, and operational efficiency. 

Main takeaways from this article:

• Asset verification is a systematic process that ensures the accuracy of asset information such as description, condition, location, and ownership of an organization's assets, which is crucial for informed decision-making, financial transparency, and regulatory compliance.
• A wide range of situations call for asset verification, ranging from financial audits, business valuations, loan applications to equipment repairs, business relocations, and asset disposal.
• The asset verification process involves planning and preparing, conducting an inventory check, performing physical verification of assets, reconciling data, resolving discrepancies, updating records, and reporting findings.
• Common challenges encountered during the asset verification process include inaccurate records, managing large asset volumes and dealing with assets across locations,
• Digital asset verification resolves the most common challenges faced during asset verification by leveraging asset management software.

What Is Asset Verification?

Asset verification or taking a physical inventory / cycle count is a systematic process that validates the physical presence, condition, location, and ownership of an organization's physical assets. It typically involves comparing documented asset records called the baseline with actual physical assets. 

This verification process ensures the accuracy and completeness of asset information, allowing businesses to make informed decisions about asset management, deployment, and potential upgrades or replacements.

Situations That Require Asset Verification

A varied array of scenarios calls for asset verification checks, for reasons ranging from compliance requirements to business, tax, and insurance purposes. These include:

• Financial Audits: Preparing for internal, external, or tax audits requires verifying your assets' existence and condition so you can estimate value and eliminate discrepancies in your asset ledger.
• Business Valuations: Appraising your business value accurately depends on asset verification to confirm the accuracy of items claimed on your balance sheet.
• Loan Applications: Applying for loans from financial institutions necessitates declaring your assets accurately.
• Inventory Reviews: Reviewing your inventory centers around physical asset verification.
• Asset Transactions: Buying or selling your assets depends on asset verification as a prerequisite for accurate pricing.
• Tax Reporting: Reporting taxes obligates you to verify your assets' existence so you can estimate value and calculate depreciation.
• Fraud Prevention: Asset verification detects missing goods.
• Filing insurance claims require documentation verifying assets.
• Asset verification practices helps streamline equipment maintenance.
• Business Relocations: Relocating your business without misplacing assets requires verifying them before and after moving them.
• Asset Disposal: Disposing of assets depends on verification to ensure accurate evaluation and regulatory compliance.

Key Benefits of Asset Verification

Regular and thorough asset verification offers several benefits for any organization. Let's look at the top advantages of implementing this practice in further detail.

1. Accuracy in Financial Reporting

Correct and up-to-date asset information is essential for generating reliable financial statements. Asset verification helps identify discrepancies between recorded asset values and their actual condition, ensuring that financial records reflect the true value of the company's assets which leads to improved decision-making by stakeholders and investors.

2. Fraud Prevention

Asset verification acts as a deterrent against potential asset theft or misuse. By confirming the physical existence and location of assets, companies can identify missing or misplaced equipment, reducing the risk of fraudulent activity. Regularly updated asset records also allow for faster detection and investigation of any discrepancies.

3. Improved Asset Utilization

Verifying assets helps identify underutilized or idle assets. Companies can redistribute resources effectively and optimize asset utilization by understanding the actual location and condition of assets, leading to cost savings and a reduction in unnecessary asset purchases.

4. Maintenance and Safety

Thorough asset verification helps identify assets requiring maintenance or repair before they become critical issues. This proactive approach prevents equipment failures and potential accidents, promoting a safer work environment and minimizing downtime.

5. Regulatory Compliance

Many industries, such as healthcare, finance, and manufacturing, operate under strict regulations that dictate how assets are managed and tracked. 

The Step-by-Step Asset Verification Process

1. Plan and Prepare

Define the scope and objectives of the verification process. Will it encompass all assets in all locations or focus on classes or focus on specific locations? With RedBeam, when in this phase, an Administrative User will Open a cycle count session or multiple sessions depending on the locations chosen and perhaps operational assignment to take the count. Additionally, it is important to consider the verification frequency, whether annual, bi-annual, or more frequent, depending on asset criticality.

Next, equip your team with the necessary tools for efficient verification. This may include  barcode scanners for fast asset identification, durable asset tags for clear labelling, and a reliable asset management software system for centralized data storage and analysis. RedBeam allows users to scan barcodes or read RFID tags with mobile RFID readers for even faster verification.

If doing a cycle count for the first time without labels, operational staff can barcode or RFID tag the assets while verifying the assets. If already tagged, the team is good to proceed as regular. 

2. Inventory Check

Now, create a complete list of all existing assets. RedBeam automatically completes this step when the cycle count session is opened, creating a baseline for all assets. 

Next, the team is ready to begin scanning all the physical assets. During the inventory check, when the assets are scanned into RedBeam via barcode scanner or mobile RFID reader, the RedBeam software marks each asset as “found” and allows users to update the asset details, identifying any anomalies between the physical asset count and recorded data. During this time, users can update asset status, condition, location, custom fields, etc.

While inspecting the assets, look for any discrepancies between the recorded information and the actual asset details. Discrepancies could include missing assets, inaccurate location data, or outdated condition information.

Once the asset details are updated, RedBeam automatically maintains an audit trail tracking changes made to asset records over time and providing valuable historical context for future reference. RedBeam also captures those who made the updates. 

3. Report Findings

Reports in RedBeam are automatically generated, showing “found” and “unfound” assets during each specific verification process. Administrators have full visibility of who scanned each asset, when they scanned each asset and where they scanned each asset as well as any updated information including but not limited to change in location. 

The team can survey the “unfound” assets report to go back and peruse audit information, gaining more information on where they could potentially be. 

Based on these findings, you and your team may propose recommendations for improving future asset verification cycles. This could involve streamlining data collection methods, optimizing resource allocation, or investing in  new asset-tracking technologies. Continuous improvement is key to maintaining a robust and efficient asset management system.

Asset Verification Challenges

While asset verification offers significant benefits, it's not without its challenges. Here are some common hurdles that organizations may encounter during the verification process:

• Inaccurate Records: The effectiveness of asset verification hinges on the accuracy of existing asset data. Unfortunately, discrepancies and errors often creep into asset databases over time. Missing information, outdated details, or duplicate entries can significantly complicate verification efforts. Thankfully barcodes and RFID tags help to offset inaccuracy with guaranteed capture of assets without manual input.
• Large Asset Volumes: Organizations with a vast number of assets face a logistical challenge. Managing and verifying a high volume of equipment, machinery, or inventory can be overwhelming and time-consuming. The sheer number of assets increases the risk of errors and omissions during the verification process. To combat this, companies may choose to use RFID as opposed to barcodes. Where barcodes require line of sight and scanning one asset at a time, RFID does not require line of sight and allows reading multiple tags at the same time, speeding up the process.
• Time Constraints: Limited time allocated for asset verification can lead to rushed assessments and increased oversight. Thorough verification requires careful inspection and data collection, which can be compromised if time constraints force a faster pace. 
• Resource Allocation: Conducting thorough asset verifications requires dedicated human resources and financial investment. Allocating sufficient personnel with the necessary skills and training, along with budget considerations for technology and tools, can be a challenge for some organizations. 
• Technological Barriers: A lack of modern asset management software or difficulties integrating existing systems can hinder efficient asset tracking and verification. Manual processes are not only time-consuming but also more prone to errors. Outdated technology can make it difficult to capture and analyze asset data effectively.
• Environmental Factors: For organizations with assets located in harsh or varying environmental conditions, the physical verification process itself can be challenging. Extreme weather, hazardous environments, or limited accessibility can pose safety risks and complicate the inspection of certain assets.

Boost Visibility and Compliance With Asset Management Software

RedBeam's asset-tracking solutions can empower your organization to streamline asset verification and unlock its full potential. We offer a comprehensive suite of features to:

• Simplify Data Collection: Leverage  barcode scanning, mobile app integration and radio frequency identification to capture asset data efficiently.
• Maintain a Centralized Fixed Asset Register: Ensure a single source of truth for all asset information, promoting data accuracy and accessibility.
• Create Insightful Reports: Uncover trends and gain valuable insights from asset verification data for continuous improvement.

Ready to elevate your asset verification process?  Try RedBeam's 30-day free trial, or  schedule a demo now to see how you can use RedBeam to your advantage and ensure asset visibility, efficient tracking, and compliance.

FAQs

What Are the Objectives of Asset Verification?

Asset verification confirms the existence, location, condition, and ownership of assets for more accurate accounting, better regulatory compliance, and improved operational efficiency.

Who Needs Asset Verification?

You need asset verification if you're recording assets on your balance sheet, reporting asset value on your taxes, planning maintenance, calculating depreciation, preparing asset disposals, applying for a loan, investigating theft, or filing insurance claims.

How Do You Provide Proof of Assets?

To prove assets, you'll generally need to provide financial documents such as purchase invoices, lease agreements, or maintenance records. One of the most efficient ways is to use a comprehensive asset register that can be accurately and frequently updated using asset management tools like RedBeam.

How Long Does Asset Verification Take?

The duration of asset verification varies depending on the size and complexity of your enterprise. For smaller businesses, it could take a few days. However, larger organizations with extensive fixed asset inventories may require several weeks or even months to complete a comprehensive audit.

What Is the Difference Between an Asset Audit and Asset Verification?

Asset verification confirms the existence, location, condition, and ownership of assets, forming a preliminary step in the more comprehensive asset audit process, which also involves steps such as meeting regulatory obligations, confirming asset value, and resolving bookkeeping discrepancies.

What Is the Difference Between Asset Valuation and Asset Verification?

Asset verification confirms the existence, condition, location, and ownership of assets, while asset valuation confirms their market value or book value.