Many controllers and auditors are reluctant to take physical inventory as they know they will need to face numerous unreconciled items. The fact is that about 10-15% of the assets on the books are not there (ghost assets) and a significant amount of assets physically there cannot be identified on the books (zombie assets).
Reconciling what’s on the books with what’s physically there raises a problem for companies as it’s a time-consuming effort but more importantly, at the end of the process, it’s likely there will be a list of items that are not there and cannot be offset therefore P&L will take a charge to write off the nonexistent assets. What’s worse is that writing off a substantial amount of fixed assets is a red flag to auditors in terms of Sarbanes-Oxley internal controls requirements, calling the integrity of your internal fixed asset control system into question.
The only solution is to move forward. At some point you will have to start with a good fixed asset record that you know is there, and periodically you will have to take physical inventory and go through the reconciliation.