The potential risks of not conducting regular physical audits

Whether assets are maintained on a spreadsheet or on a professional asset management system, the credibility of an organization’s data (the existence of assets and their Net Book Values) will be in question if it cannot verify them.  As a result, an organization can be over or under reporting the values and over or under paying income and property tax as well as insurance premiums.  Potential risks of not conducting a physical audit include:

• Inaccurate physical verification of assets can render the asset register unreliable
• Depreciation could be allocated to the wrong company/cost center/department/division
• Depreciation could be misstated resulting in over or under payment of taxes
• Missing assets (potential theft problem) could go undetected
• The audit trail of transferred assets can be lost
• Assets could be under or over covered by insurance
• Exposure to accounting audit write-up

Verifying what an organization owns and the whereabouts is essential for complying with US GAAP and SOX.  In addition to  compliance, effective asset management can also help to ensure assets are insured at the correct level, to budget for maintenance and help to avoid unexpected ‘write-offs’.  In order to properly manage assets, it is essential to perform thorough, routine physical audits.