Whether you are a small business or a large corporation, one aspect remains common: assets. Regardless of your business size, you must ensure that your assets are well-accounted for and entered into the books. This is vital to achieving accountability and staying updated with changes in your asset landscape.
Regular asset audits are one way to establish transparency in your financial records. Asset auditing is a strategic tool that provides valuable insights into your resources to detect and flag discrepancies.
This article provides a breakdown of the basics of asset auditing and how it helps develop efficacy in your daily operations – enhancing asset utilization.
What is an asset audit?
An asset audit is a comprehensive process undertaken by businesses to ensure the right quality and quantity of assets. It helps objectively verify your assets, i.e., checking if the physical assets align with their digital records. The process can be performed internally by your employees or externally trained professionals who follow strict procedures to ensure an accurate assessment of your assets.
Well-maintained and long-lived assets equate to more significant revenues for your business. Businesses that conduct regular and thorough audits can make greater profits, stay more compliant, and reduce wasteful spending.
Types of asset audits
There are typically two major types of audits that can be broken down into sub-categories:
Internal audits
Internal audits are verification checks conducted by a business’s internal employees or trusted staff members to evaluate the effectiveness of its processes. These audits are reported to significant stakeholders to justify how the resources and funds are being utilized. They help identify areas for improvement and develop strategies for better asset management.
Purpose: Risk mitigation and compliance management to develop a higher asset control.
External audits
Entities outside of a business, usually audit firms or government agencies, conduct external audits. These audits help fulfill legal regulations by providing accurate records of your business’s finances.
Purpose: Accurate financial reporting to help stakeholders, like the board of directors and managers, make informed operational decisions.
Benefits of fixed asset auditing
Asset auditing helps strategically manage assets and achieve high operational efficiency. Frequent internal auditing by following proper procedures and protocols, yields several benefits for a business, including:
Improved financial reporting
Conducting audits makes it convenient for your managers to outline how well you have been performing. These asset audits help analyze and reflect how the resources have been utilized, which helps analyze the allocation of finances and reporting. With improved financial reporting, businesses can enhance transparency and clearly outline all asset-related expenses.
Fixed asset audits conducted by experts can improve future planning, decision-making, and budgeting. This also includes an improved allocation of resources depending on your business’s needs, helping in strategic asset management. Audits enable you to formulate and compare any reports necessary for this analysis, leading to smarter future decisions.
Many businesses understand the need to replace a crucial asset only once its lifespan has ended, hindering business growth. To make smarter replacement and retirement decisions, you can generate audit reports and see how to utilize your finances better to handle such assets. These reports are vital for understanding your finances and making the most of them.
Compliance with regulations
Your profits depend greatly on optimizing your operational costs by cutting back on unnecessary expenses. Fixed asset auditing ensures a monitoring mechanism enabling you to derive maximum utility from your assets and optimize spending.
To achieve this utility, you can conduct a thorough comparative analysis of audits at intervals to keep asset spending in check. You can also occasionally check if you are spending on resources within the allocated budget.
Firms operating in the government sector are mainly responsible for keeping assets in great shape due to annual external audits. Following the regulatory standards is the key to excelling in these audits and, in turn, ensuring compliance. Audits motivate businesses to handle their assets well and maintain good working order. It enables them to achieve asset management compliance and reduce the risk of penalties.
Enhanced risk management
Audits help flag missing, stolen, or ghost assets not currently used by your businesses. You can uncover anomalies, like underperforming assets, by conducting a physical audit. Early detection of these errors allows businesses to respond to issues promptly and avoid operational risks.
Also, audits make businesses more aware of their internal processes; they can quickly analyze the workings and feasibility of different asset management techniques. By understanding the aspects that need to be fixed in your favor, you can even improve how you organize the inventory. For instance, you can stay updated about the most recent inventory count and analyze future needs based on forecasts and demand.
Filter out ghost assets
Ghost assets are assets that do not exist but are accounted for in your official statements. They exist on asset registers but might be stolen or unusable in reality. Ghost assets can be highly misleading to your business since they may overestimate your net assets, leading to higher tax rates.
Asset auditing provides you with an accurate count of your fixed assets. If an audit is performed with the help of an asset management system, the results are more accurate since no ghost assets would count in the evaluation. Doing so would save your business hefty amounts in taxes.
Fixed asset auditing is essential for businesses seeking to maximize their revenue while cutting unnecessary costs. However, you should always ensure that you conduct audits following an effective asset management plan (including asset-related protocols) that helps capture the basic information of your asset, its movement, and depreciation. Such audits will likely be more successful and provide a more detailed overview of your assets.
Best practices for conducting an effective asset management audit
All businesses undergo audits at some point to check either internal operations or fulfill a legal requirement. In either case, it’s wise to follow some best practices to standardize the asset audit process:
Step 1: Decide on the audit objectives
Assessing the requirements of your audit and, most importantly, the reason for conducting it are the foundations of a successful audit. These factors are necessary to achieve the actual aim of the audit, i.e., identifying items that need attention. It is advisable to define an audit’s underlying aim so the auditors run the scrutiny check following the most suitable protocols.
Whether the aim is to assess an asset’s compliance with regulations, flag the non-functional assets, or identify available items, you should set that as the foundation of your audit. Finalizing these aims helps guide the planning, execution, and reporting of the audit.
Step 2: Allocate resources
Once you finalize why you are running an audit, you can decide what assets to audit. For instance, you may need to audit all assets or assets in particular groups/ departments. This way, you can make those assets unavailable during the audit to avoid conflicts in asset availability.
You can determine what and how many auditors you require based on your goals and asset count. If you are conducting the audit using an asset management system, you can allocate relevant personnel to do the job for safety reasons.
Step 3: Conduct physical checks
Physically verifying the assets is an integral part of the audit process, as the checks help assess the assets’ condition in real time. After conducting a physical verification, higher authorities can flag, verify, or deny assets for use in the system. This stage helps identify ‘ghost’ assets and eliminate them from the system, allowing accurate record-keeping.
During the physical checks, you can cross-check each asset’s actual information with the recorded data to correct any discrepancies. You can also check the location of your assets to ensure they are where they should be. For instance, while conducting a school audit, you can run a check to assess if all departments and school divisions have the relevant educational assets available.
Verifying assets’ locations helps detect unauthorized movements and avoid costly misplacements. It is essential for fixed asset tracking to ensure they are always working in the best possible shape.
Step 4: Compliance check
One of the significant purposes of audits is to assess whether your business is complying with governmental and financial regulations. These checks help avoid hefty fines and legal actions against your business by identifying assets that need special care in advance. Once you identify these assets, you can send them for maintenance/repair or replace them according to your budget and needs.
Auditors can find gaps in the implementation of the asset management process vis-a-vis asset compliance, allowing corrective steps to be taken. If some practices need to help achieve the long-term compliance goals, your auditors can highlight that during the audit process.
If you are maintaining compliance logs or asset history, you can refer to them to assess how frequently the asset has been used and maintained. This information helps address the significant aspects of compliance, as the logs can be cross-checked anytime to verify the actual state of an asset.
Step 5: Create reports for analysis
Once you have completed an audit, the final step is to generate a detailed report highlighting its findings. These findings can be presented to stakeholders, including managers, to comprehensively summarize how well your business is handling the assets.
You can even generate graphs and charts to represent the audit results for better understanding. Well-documented reports can help boost stakeholders’ confidence in the business; they help show that the business is complying with regulations and is doing well financially.
Making the best use of asset audits
Asset auditing is a valuable tool for verifying the state and number of assets. It helps achieve transparency in business operations and makes it easy to solve multiple compliance-related issues. Using an asset management system for auditing simplifies the entire process by enabling businesses to choose the assets they wish to audit – based on groups and location. Audits help businesses achieve higher operational efficiency and excellence in daily activities.
