The 5 Most Common Mistakes Made During Asset Audits
Each year, fixed asset audits are conducted in countless organizations across various industries. These audits may not be much fun, but many companies are legally required to perform them. They typically cover a large cross-section of hardware, equipment, and any other fixed assets belonging to an organization. The goal is to formally and comprehensively evaluate an organization’s assets on an annual basis. However, this goal is rarely achieved. All too often, asset audits turn out to be merely unstructured projects where information is haphazardly collected on “most” of the assets possessed by an organization. There are several reasons why fixed asset audits go off track. Here, we’re going to go over the five most common mistakes businesses make during an audit and share how you can avoid them.
Why are Asset Audits Important?
Failing to regularly audit your fixed assets can result in thousands of dollars in losses for your company. Without regular auditing, the chances that your assets are stolen or misplaced increase dramatically. This can mean more than just the cost of the asset. For example, if the asset was a company laptop that contained personally identifiable information (PII) of customers, your organization could be fined in certain jurisdictions for failing to protect customer privacy. These fines can cost thousands or even millions of dollars. Furthermore, because of the Second Law of Thermodynamics, tools and machines tend to break down over time. If you fail to audit the physical conditions of your equipment, safety hazards could be created that could not only impact your bottom line, but your employees’ health and your organization’s reputation.
Not only are asset audits required in order to maintain the smoothness of your day-to-day operations, but they are also frequently required by regulations. In fact, an asset audit is one of the most important components of any Regulatory Compliance Audit. It is the asset audit portion that can end up being one of the most challenging and time-consuming of the entire process. It’s important to understand what mistakes can be made so that your asset audit is successful, effective, and compliant.
The Five Most Common Fixed Asset Audit Mistakes And How To Avoid Them
The importance of conducting regular asset audits is indubitable. However, many organizations possess thousands of fixed assets spread across their organization. Assets may be in different geographical locations and come in a variety of different forms and sizes. The complexity of auditing each and every single asset can be a daunting one. However, if you are aware of the possible pitfalls and how to avoid them, you can ensure that your fixed asset audit delivers the results your organization needs.
#1 Lack Of A Solid Audit Plan
Setting out on an asset audit without a clear plan and scope is one of the most serious mistakes you can make. In certain industries, there may be legal requirements you’ll need to factor in from the beginning. Also, if you have already conducted a comprehensive audit in the recent past, you may be interested in doing a limited audit. However, this must be decided from the outset. What percentage of your total assets will you be auditing? Once you have clearly outlined your scope, you can then lay out a plan for how you are going to audit each asset. Ensure that you have locked in exactly what information you are going to record for each asset so that everyone on your team is on the same page. If you’d like to learn more about planning your fixed asset audit, we cover that in detail here.
#2 Failing To Physically Verify Assets
If you are on a tight budget, it might be tempting to merely rely on documentary evidence of the asset. Instead of having an auditor physically verify the asset’s location and condition, you might simply rely on pre-existing reports or spreadsheets. This is not a good idea. One of the most important parts of conducting a fixed asset audit is physically verifying that you actually possess the assets that are on your books. By relying exclusively on documentation, your organization could be exposed to the risks associated with the insider threat. Employees could steal assets from your organization and then continue to report their existence on your books. This is exactly the kind of threat an asset audit is supposed to address. With the right fixed asset audit system, physically verifying assets can be done simply and quickly.
#3 Insufficient Documentation of Assets
Failing to provide sufficient documentation is another common mistake many companies make when auditing their assets. According to Bloomberg Tax, it is not uncommon for more than 50% of a company’s fixed asset data to be incomplete or inaccurate. Without the right data, your audit will not be effective in providing an accurate picture of your assets. Missing data can result in incorrect depreciation calculations, and inaccurate asset locations. For example, if an asset is moved to another location and that data is not updated, your information for that asset will be incomplete.
#4 Not Utilizing An Asset Database
One of the most basic requirements of any asset audit is to have a list of all your assets with each asset having a detailed description associated with it. You will need to update this list with depreciation calculations over time as well as any changes in the asset’s data. Attempting this in a simple spreadsheet or with reports is a nearly impossible task for many organizations. That’s why a powerful software solution featuring an easy-to-use asset database is so vital.
#5 Permitting Bias To Distort Data
The final mistake we’ll cover here is bias. Because a fixed asset audit is an internal audit, it is important to be aware of the different biases that could impact the quality of your data collection efforts. Different team members and department heads may have their own motivations for manipulating reports. Controls should be strategically designed to ensure the success of your audit. By being aware of bias before you start your asset audit, you will be able to plan ahead and ensure that it does not result in a self-serving audit that fails to reflect reality.
Take Your Asset Audits To The Next Level
The best way to avoid common asset audit mistakes is to utilize asset tracking software. With an asset management system like RedBeam, you don’t have to worry about manually filling out spreadsheets. Instead, our system empowers you to utilize automation to track each and every asset, giving you peace of mind. If you would like to learn more about how RedBeam can help you take your asset audits to the next level, schedule your free demo today.