Fixed Assets Audit & Physical Verification Services — FAR Reconciliation, Asset Tagging & Capitalisation Review

Fixed Assets Audit & Physical Verification Services

Fixed assets are the backbone of most businesses — the land, buildings, plant, machinery, vehicles, computers, and equipment that a company uses to generate revenue year after year. Yet in most organisations, the fixed assets register (FAR) — the document that tracks every asset from the day it is purchased to the day it is disposed of — is one of the least-maintained records in the finance department.

Ghost assets (assets that exist in the books but not physically), unrecorded assets (assets physically present but missing from the FAR), wrong capitalisation, and missing or incorrect depreciation are among the most common issues that surface during statutory audits — and they are almost always traceable to a fixed assets register that has not been independently verified in years.

N D Savla & Associates conducts fixed assets audits for manufacturing companies, IT firms, real estate developers, educational institutions, hospitals, and corporates across Mumbai and India. Our fixed assets verification teams physically locate, identify, tag, and reconcile every asset against the FAR — and deliver a report that your statutory auditors, board, and lenders can rely on.

What Is a Fixed Assets Audit?

A fixed assets audit is an independent physical verification of all assets appearing in a company's fixed assets register — or that should appear in it. It is not simply a visual inspection. A professionally conducted fixed assets audit covers:

• Physical location and existence verification — Every asset in the FAR is physically located, inspected, and confirmed to exist at the recorded location. Assets that cannot be found are flagged as ghost assets.
• Asset identification and tagging — Each asset is assigned a unique asset tag (barcode, QR code, or metal plate) for future tracking. Where assets already have tags, we verify that the tag matches the FAR record.
• Condition assessment — The physical condition of each asset — working, idle, under repair, or scrapped — is documented. Assets that are physically scrapped but still in the FAR are identified for write-off.
• FAR reconciliation — The physical count is matched against the FAR line by line. Assets present physically but missing from the FAR (unrecorded assets) are listed. Assets in the FAR but not physically present (ghost assets) are separately reported.
• Capitalisation review — We review recent additions to the FAR to verify that items have been correctly capitalised — that revenue expenditure has not been incorrectly capitalised, and that capital items have not been expensed.
• Depreciation verification — We verify that depreciation rates and methods applied are consistent with Schedule II of the Companies Act 2013 (or Ind AS 16 / AS 10 as applicable), and that useful lives have been correctly assessed.
• Ownership and encumbrance check — For key assets — particularly land, buildings, and major plant — we verify that title documents are available and that encumbrances (mortgages, hypothecations) are correctly disclosed.
• Location-wise FAR update — The updated FAR reflecting physical verification findings is prepared location by location — by department, floor, plant, branch, or site — and handed over to the company as an updated, auditor-verified asset register.

Types of Fixed Assets Audit — Which Scope Does Your Business Need?

Who Needs a Fixed Assets Audit in India?

Fixed assets physical verification is relevant for virtually every company with a non-trivial asset base. Here are the most common situations:

• Manufacturing and Industrial Companies — Plant, machinery, equipment, tooling, and dies across one or multiple factory locations. Ghost assets and incorrect capitalisation are extremely common in manufacturing environments where project-stage assets are transferred to the FAR without proper verification.
• IT and Technology Companies — Laptops, servers, networking equipment, and leasehold improvements — high-turnover assets that are frequently lost, scrapped, or transferred between employees without FAR update. Work-from-home arrangements have made physical verification of IT assets even more critical.
• Real Estate Developers and Construction Companies — Site-level assets — heavy equipment, vehicles, shuttering, scaffolding — that are frequently moved between project sites and often not tracked in the FAR.
• Hospitals and Healthcare Institutions — Medical equipment — CT scanners, MRI machines, surgical instruments, lab equipment — that is expensive, regulated, and often subject to maintenance contracts that must be distinguished from capitalisation.
• Educational Institutions and Trusts — Furniture, fixtures, library books, laboratory equipment, and IT assets across multiple campuses. Trusts and Section 8 companies also need fixed assets verification to support their 12A/80G compliance.
• Retail Chains and FMCG Companies — Store fit-outs, shop equipment, refrigeration units, and vehicles across multiple outlets. Leasehold improvements — which must now be treated as right-of-use assets under Ind AS 116 — require careful identification and classification.
• Companies Undergoing NCLT / Insolvency Proceedings — Resolution professionals and liquidators require an independent fixed assets audit to establish the physical asset base available for resolution or liquidation.

For companies also needing their inventory independently verified alongside fixed assets, our Inventory Stock Audit services cover the complete current assets side of the balance sheet.

How We Conduct a Fixed Assets Audit — Our 9-Step Process

1. Pre-Audit Planning and FAR Receipt — We receive the current fixed assets register from your finance team — in Excel or extracted from your ERP (SAP, Oracle, Tally, or equivalent). We review the FAR structure, confirm the scope — which asset categories, which locations, which entity — and agree the audit timeline.
2. Location Mapping and Audit Team Deployment — We map every location where assets are present — factory floors, offices, warehouses, sites, branches, employee homes (for WFH assets), and vehicles. We deploy appropriately sized audit teams to each location with minimum disruption to your operations.
3. Physical Verification Location by Location — Our team physically locates each asset, records its description, serial number, physical condition, and current location. For machinery, we note whether the asset is operational, idle, under repair, or scrapped. Everything is captured on structured verification sheets.
4. Asset Tagging — Every asset without a unique identification tag receives one — a barcode label, QR code, or engraved metal plate, depending on the asset type. Assets already tagged are cross-checked to verify the tag matches the FAR record. A master tag register is maintained throughout the exercise.
5. FAR Reconciliation — Line by Line — We reconcile the physical verification findings against the FAR line by line. Three categories of differences emerge: assets physically present but missing from FAR (unrecorded assets); assets in FAR but not physically found (ghost assets); and assets present but with incorrect FAR attributes.
6. Ghost Asset and Unrecorded Asset Investigation — For every ghost asset, we conduct a brief investigation — has the asset been disposed of, transferred, or stolen? For unrecorded assets, we identify the source — purchased but not recorded, or revenue expenditure that should have been capitalised. This documentation is critical for audit purposes.
7. Capitalisation and Depreciation Review — We review capital additions for correct capitalisation — ensuring that costs like freight, installation, and testing have been correctly included, while repairs and maintenance have been correctly expensed. We also verify that depreciation rates comply with Schedule II / Ind AS 16 / AS 10.
8. Ind AS 116 Lease Identification (where applicable) — For companies reporting under Ind AS, we flag all operating lease arrangements — office premises, equipment, vehicles — that must be recognised as right-of-use (ROU) assets under Ind AS 116. We prepare a lease schedule for your finance team's Ind AS 116 accounting entries.
9. Fixed Assets Audit Report and Updated FAR Delivery — We prepare the fixed assets audit report covering: physical verification summary; ghost asset list with investigation findings; unrecorded asset list with recommended accounting treatment; capitalisation review; depreciation compliance check; and Ind AS 116 lease schedule. The updated, verified FAR is delivered in Excel and/or your ERP format.

For companies where fixed assets audit findings reveal broader internal control gaps around procurement, capitalisation, and disposal approvals, our Internal Audit services provide a comprehensive risk-based review of these process controls.

Common Issues Found During Fixed Assets Audit

Capitalisation Review — A Critical Part of Fixed Assets Audit

One of the most valuable outputs of a fixed assets audit is the capitalisation review — an examination of whether items have been correctly classified as capital expenditure or revenue expenditure. This matters for three reasons:

• Financial reporting accuracy — Incorrectly capitalised items inflate the gross block and understate expenses, overstating profit. Incorrectly expensed capital items do the opposite.
• Income tax implications — Under the Income Tax Act, depreciation can only be claimed on capital assets. Incorrectly expensing a capital item denies the depreciation benefit; incorrectly capitalising a revenue item creates an inflated depreciation claim that may be disallowed during assessment.
• GST input tax credit — ITC on capital goods is claimed over time under GST rules (5 years for capital goods under Section 16 of the CGST Act). Incorrect classification affects both the timing and quantum of ITC available.

Common capitalisation errors we find and correct during fixed assets audits:

• Annual maintenance contracts (AMC) booked as additions — Should be expensed in the period incurred.
• Repairs and renovation of leased premises capitalised as building improvements — Must be assessed as leasehold improvements / ROU asset under Ind AS 116.
• Software subscription fees capitalised as intangible assets — SaaS subscriptions are typically revenue; only perpetual licences qualify as intangible assets under AS 26 / Ind AS 38.
• Borrowing costs incorrectly included / excluded from asset cost — AS 16 / Ind AS 23 requires capitalisation of borrowing costs on qualifying assets during the construction period only.
• Pre-operative expenses not properly allocated to assets — Pre-operative expenses must be allocated to the specific assets to which they relate, not carried as a separate deferred asset.

What Our Fixed Assets Audit Report Delivers

Why N D Savla & Associates for Fixed Assets Audit & Physical Verification

• Structured field methodology. Our fixed assets audit teams follow a documented methodology — not a walk-through inspection. Every asset is physically located, condition-assessed, and matched to the FAR record. No sampling of the fixed assets register without client agreement.
• Asset tagging capability. We supply and apply barcode labels, QR code tags, and engraved metal tags for all asset categories — from office furniture to heavy plant. The tagging exercise is integrated into the verification, not a separate engagement.
• Ind AS and IFC expertise. Our team understands the Ind AS 16, Ind AS 116, and Ind AS 105 implications of physical verification findings — not just the accounting mechanics, but the audit and disclosure requirements that flow from them.
• Multi-location deployment. We deploy concurrent teams for companies with multiple factories, offices, or sites — covering all locations within the agreed audit window without extending the timeline.
• Statutory auditor interface. Our fixed assets audit reports are prepared to be directly usable by statutory auditors — in format, in coverage, and in the documentation of judgement areas like ghost assets, capitalisation, and depreciation.
• Partner-supervised engagement. Every fixed assets audit is supervised by a qualified Chartered Accountant partner. The physical verification certificate and audit report carry professional sign-off.

For companies seeking a comprehensive internal controls review covering fixed assets management alongside procurement, payments, and financial reporting, our Risk Control Matrix advisory maps fixed assets process risks to controls and tests their effectiveness.

Frequently Asked Questions — Fixed Assets Audit & Physical Verification