Assets in the form of houses are essential to development and sustainability of an organization. These assets constitute the core of the machinery and buildings, and office equipment and vehicles are the core of the long-term planning and operations. However, with the growth in size of business, it becomes even more difficult to track, value, and maintain these assets. Herein lays the importance of the concept of fixed asset audit in India. It helps in maintaining the accuracy, compliance and consistency of the records of assets of a company and keeps them in line with financial and operation objectives.
Understanding Fixed Asset Audit
The audit of a fixed asset in India refers to the diligent audit of assets of an organization that are in place to ensure that they exist, are in a good condition, their value, and ownership. The procedure assists in making sure that every form of fixed assets has been duly registered in books and the depreciation and valuation of the same has been made in accordance with accounting regulations. This audit is not about the figures, but it is about ensuring that the assets being utilized are being utilized effectively and are properly being guarded against abuse or obsolescence.
Objectives of a Fixed Asset Audit
A fixed asset audit in India largely involves the following objectives:
- Checking the existence of assets: This is to ensure that all assets mentioned in the books are real and in use.
- Accuracy in valuation: Ensuring that the assets are valued in an accurate manner according to the accounting standards and the prevailing market value.
- Depreciation evaluation: Evaluating the accuracy of depreciation used on the assets in every category.
- Detection of idle or obsolete assets: Determining which assets are not being used or have become obsolete.
- Compliance and accountability: Ensuring that it complies with the regulatory and statutory requirements to the Indian accounting standards.
Importance of Fixed Asset Audit in India
Due to the growing questioning of businesses by regulatory bodies and other investors, transparency in asset management has been a prerequisite. A fixed asset audit in India largely facilitates this by:
- Improving lifecycle tracking: The audit process will make sure that the lifecycle of an asset, such as acquisition through disposal, is duly recorded. This assists the companies to control maintenance schedules and replacement planning as well as capital budgeting.
- Adequate valuation: Fixed assets are usually massive capital investment. An accurate valuation will ensure integrity of the financial statements; overstatement of profits should be avoided and sound decision making.
- Better management of depreciation: The use of the appropriate depreciation rate and method would make it compliant with the Indian accounting standards and tax policies. It also provides a realistic picture of the asset performance and lifespan.
- Deterrence: Misappropriation of assets: It is against assets misuse, misreporting or theft by regular audits. This increases internal controls and operational integrity.
- Enabling compliance and reporting: Fixed asset audit in India ensures that business records are segregated with the companies act and accounting standards to ensure business compliance with regulatory standards.
How Fixed Asset Audit Supports Effective Asset Management
The efficiency in managing assets in an organization is subject to the accuracy with which the organization is tracking the usage, maintenance of the assets and financial impact of the assets. Fixed asset audit will give a clear understanding of the management regarding:
- What are the assets that are being given returns, and which are not being utilized.
- Do costs of maintenance match asset productivity?
- The effect of depreciation on cash flow and profitability.
- In cases where there are assets that require replacement or disposal to enhance efficiency.
With this information, companies can plan investments, make resources prudent and enhance financial forecasting. Essentially, a fixed asset audit in India will make asset management a strategic activity rather than a record-keeping activity to facilitate growth and cost-effectiveness.
Also Read: Physical Verification of Fixed Assets: The Essential Checklist