What Is an Asset Audit? Definition, Benefits, and Process

Are you struggling with outdated asset records, compliance issues, or the inefficiencies of manual tracking methods? These challenges can lead to significant financial losses and operational disruptions. But worry not – conducting a thorough asset audit can resolve these problems.

By following a structured and systematic approach to asset auditing, you can ensure accurate records, maintain compliance, and optimize asset utilization. This complete guide will provide you with the essential steps and best practices needed to perform an effective asset audit.

Main takeaways from this article:

• Asset audits systematically verify and document tangible and intangible business assets to maintain accurate records and promote regulatory compliance.
• Internal or external auditors may conduct asset audits, depending on the asset type and the organization.
• Auditing assets ensures record accuracy, verifies valuations, and supports strategic decision-making for organizations.
• Organizations can successfully audit their assets by defining objectives, applying regulations, gathering documentation, building an asset register, valuating assets, reconciling records, and establishing auditing schedules.

What Is an Asset Audit?

An asset audit is a systematic process of verifying and documenting a company's physical and intangible assets. It involves tracking fixed  inventory, assessing asset values, and ensuring records match actual assets. This audit provides an accurate overview of assets and helps businesses manage resources effectively, comply with financial regulations, and make informed decisions.

What Does It Include?

The typical asset audit process looks at the following:

• Physical asset locations (including whether the asset‌ still exists)
• Current asset conditions
• Preventative maintenance records 
• Records of details like serial numbers, purchase receipts, and values post-asset depreciation 

The primary purpose of an asset audit is to ensure that your records are correct and up to date. Your initial audit will establish a record, while subsequent audits will ensure that those records remain current.

Regular asset audits help keep maintenance logs, prevent theft and fraud, and maintain legal compliance. Keeping these records up-to-date maximizes efficiency and safeguards your assets.

Internal vs. External Asset Audits 

Asset audits can be completed by someone in your company (known as an internal asset audit) or by a third party (known as an external asset audit).

You should run internal asset audits regularly. Quarterly should suffice for most businesses, though larger organizations with thousands of assets may want to bump this up to a monthly cadence or stagger audits across departments or branches.

An external asset audit happens when a regulatory or government agency conducts the audit. The purpose of an external audit is to:

• Verify the company is following proper procedures
• Investigate potential fraud events
• Discover assets a company might not be reporting accurately

Why Are Asset Audits Important? Key Benefits

Asset audits are crucial for businesses, providing a clear picture of asset utilization and value. Let's discover why asset audits are vital for success.

Ensure Accurate Asset Records and Valuations

Asset audits ensure accurate asset information by verifying asset existence, condition, and location. Audits also confirm correct asset valuations by assessing the current market value of assets.

Enhance Financial Integrity and Compliance

Accurate records and valuations promote financial integrity and compliance by ensuring that company financial statements reflect true asset worth. Audits detect misrepresented asset values by comparing recorded values with actual conditions and market prices. Correcting inaccurate valuations brings financial records and statements in accord with accounting standards and regulations and provides stakeholders with transparency that builds trust.

Improve Safety and Risk Management

Asset audits identify safety hazards by inspecting assets' physical condition and operational status. Detecting and addressing these hazards early helps prevent accidents and ensures a safer working environment. This proactive approach reduces the risk of injury, liability, and associated costs, enhancing overall workplace safety. Additionally, asset audits reduce the risk of loss from fraudulent asset purchases, theft, and penalties for inaccurate reporting.

Optimize Asset Utilization and Maintenance

Asset audits enhance management efficiency by providing detailed insights into asset utilization and condition. These insights help optimize asset performance, reduce downtime, and improve resource allocation. Additionally, audits help document maintenance and schedule preventive maintenance by identifying assets that require servicing or repairs. Timely maintenance extends asset lifespan, reduces unexpected breakdowns, and ensures continuous operation, maximizing the return on investment for each asset.

Strengthen Operational Efficiency and Decision-making

Optimizing asset utilization and promoting proactive maintenance increases operational efficiency by promoting maximum performance from assets. At the same time, accurate asset tracking and valuation provide better business intelligence to support strategic decision-making for achieving operational excellence.

How To Audit Your Fixed Assets Step-By-Step

Learn how to audit your  fixed assets with this step-by-step guide. We'll cover everything from rules and regulations to creating inventory lists, ensuring a thorough and accurate audit process for your business.

1. Define Audit Objectives and Scope

Defining audit objectives and scope is a crucial first step in the asset audit process. Audit objectives outline what the audit aims to achieve and enable auditors to create checklists to mark progress on task completion. Typical audit objectives can include:

• Verifying asset existence
• Improving accuracy
• Estimating depreciation
• Removing ghost assets
• Achieving compliance with financial regulations
• Mitigating risks of shrinkage or theft
• Improving asset management

To define a customized list of objectives for your organization, review your accounting, compliance, and business needs. For example, if your industry has specific auditing requirements, use those to help you define your objectives.

Defining your objectives positions you to determine your audit scope. Your scope defines the boundaries of your audit, including which assets will be audited, the period under review, and specific procedures to be followed. To establish the scope of your audit:

1. Review your objectives
2. Determine which area of your asset management you will audit (such as financial statements, regulatory compliance, or internal controls)
3. Identify key stakeholders
4. Identify audit resources and constraints, such as time and budget
5. Conduct a risk assessment
6. Collect feedback from your audit team and management
7. Review the scope with key stakeholders
8. Communicate the scope to auditing team members, management, stakeholders, and any other relevant parties
9. Update the scope as the audit uncovers new information

Clearly defining objectives and scope ensures a systematic approach, preventing overlooked areas and ensuring thorough coverage.

2. Consider Rules and Regulations

Your organization may already have internal procedures that restrict and require certain methods of performing fixed asset audits. 

If so, you must follow these requirements before starting the audit. Furthermore, there may also be state or federal regulations that could impact your auditing process. 

Identify relevant regulations and ensure compliance as you plan and execute your audit.

3. Gather Documentation and Assign Responsibilities

To start an asset audit, gather all relevant documentation. Depending on your purpose, scope, and regulatory requirements, this can include:

• Inventory records
• Asset tags
• Purchase records
• Invoices
• Receipts
• Warranties
• Maintenance logs
• Condition reports
• Depreciation schedules
• Disposal records
• Previous audit reports

Next, assign responsibilities to team members, ensuring each person understands their role in the audit process. Responsibility for internal audits normally falls to a chief audit executive (CAE), who reports to an auditing committee and supervises internal audit team members. External asset audits get outsourced to independent accounting firms.

By organizing documentation and delegating tasks, you set a strong foundation for a successful asset audit, minimizing errors and ensuring accuracy throughout the process.

4. Create an Asset Register

A comprehensive asset register is a critical component of fixed asset audit procedures, ensuring accurate tracking, valuation, and compliance throughout the auditing process. Start by compiling a comprehensive list of all assets, including physical items like equipment, machinery, and furniture, as well as intangible assets like patents and trademarks. Use  asset tags or serial numbers for easy identification.

Your asset register should include details such as:

• Asset identification
• Description
• Location
• Responsible department
• Responsible personnel
• Purchase date
• Original cost
• Current value
• Condition
• Maintenance history
• Depreciation method
• Lifecycle status

Utilizing asset management software can streamline this process, ensuring accuracy and efficiency. Regularly update the inventory list to reflect changes, additions, or disposals.

5. Establish the Value of Your Assets

Establishing the value of your assets is a crucial step in the audit process. Accurate asset valuation aids in financial reporting and compliance and helps make informed decisions about asset management, insurance, and potential sales.

Use current market values, purchase prices, and depreciation rates to determine their worth. Consult professional appraisers for high-value or complex assets to ensure accuracy. Regularly update these valuations to reflect any changes in condition or market trends. 

6. Reconcile Records

Every fixed asset audit concludes with asset reconciliation. 

Here, the collected data from the audit is compared against inventory reports to identify the ledgers' accuracy. It is also at this stage that irregularities and fraud can be uncovered. 

If an inaccuracy or inconsistency is found, your auditing team must investigate it thoroughly to determine whether negligence or fraud caused the root cause.

7. Schedule Future Audits

Establishing a regular audit schedule is vital for maintaining ongoing accuracy and compliance. Regular audits ensure that asset data gets consistently updated, reflecting ownership, condition, or value changes. This practice helps prevent discrepancies and fraud, providing a reliable foundation for financial reporting and decision-making. 

Additionally, routine audits ensure compliance with regulatory requirements, reducing the risk of penalties and legal issues. Businesses can proactively identify and address issues by scheduling future audits and enhancing operational efficiency and asset management.

Generally, most organizations conduct these kinds of inventories on a 3-to-5-year cycle. If your business holds many volatile fixed assets, you may also decide to hold limited asset management audits annually.

Create an Efficient Asset Audit Process with RedBeam

Regular asset audits are essential for efficiently maintaining accurate records, ensuring compliance, and optimizing resource utilization. Implementing an asset management system streamlines the audit process, enhances data accuracy, and provides comprehensive tracking and reporting capabilities.

With  RedBeam's asset tracking software, you can automatically track all of the vital details about your assets, including depreciation, current value, location, and use history. 

Instead of wasting time tracking down paper reports and filling out spreadsheets, you can quickly get the data and information you need. RedBeam enables you to decrease the time spent on auditing and inventories by up to 70%.

Ready to revolutionize your asset management strategy? Opt for RedBeam!  Try it now, or  schedule a demo to see the benefits for yourself.

FAQs

What Are the 3 Main Types of Asset Audits?

Asset audits can be distinguished based on who conducts them into external, internal, and government audits (such as IRS audits). Alternately, audits can be divided based on their objectives into financial, operational, and compliance audits.

How Do You Verify Assets in An Audit?

Auditors verify the existence, condition, and location of assets by comparing physical inspection results with asset registers. To verify asset value, auditors compare asset condition with fair market value or book value, informed by appraisals when needed.

How Do You Track Fixed Assets?

You can track fixed assets manually, using spreadsheets, or most efficiently, by using cloud-based fixed asset tracking software that integrates with barcode or RFID scanning.

What Does an Asset Audit Tell You?

An asset audit tells you how accurate your records are with respect to asset existence, location, condition, value, or other qualities defined by the objectives of your audit.