Physical inventory and control of fixed assets

The fixed asset base no one can audit

At a good share of companies, the fixed asset ledger is a layer of accounting sediment: thirty-year-old entries, assets grouped into a single record, equipment sold long ago still active in the books, entire plants purchased as a "lot" with no itemization. The account balances on the balance sheet, but no one can point, on the factory floor, to which machine corresponds to which balance.

The physical inventory solves exactly that. It rebuilds the link between the asset that exists and the number that is recorded — and it is that tie-out that supports correct depreciation, a reliable impairment test, adequate insurance coverage and an audit free of qualifications.

When the inventory is required

• An audit qualification or recommendation concerning the existence, measurement or control of fixed assets.
• First-time IFRS adoption or a change in accounting policy — the need for a reliable analytical base before applying deemed cost.
• Corporate transactions — due diligence, mergers, spin-offs and purchase price allocation require an itemized inventory.
• ERP implementation or migration — loading the fixed asset base into SAP, Oracle, TOTVS and similar systems.
• Insurance — correct determination of the value at risk and elimination of under- or over-insurance.
• Governance and compliance — asset control at regulated companies, in the public sector and in concessions.

What we do

• Physical survey and asset tagging — identification of each asset in the field with a durable label (barcode, QR or RFID), capturing manufacturer, model, serial number, year, location, cost center and custodian.
• Physical-to-book reconciliation — matching the surveyed base against the ledger, handling the four classic situations: asset with a record, asset without a record, record without an asset, and grouped records that need to be broken out.
• Breakout of composite records — opening lots and lump-sum entries into individualized assets, with a substantiated allocation.
• Definition of useful life and depreciation rate per asset, integrated with our useful life review service.
• Impairment testing — support in identifying cash-generating units and applying CPC 01 / IAS 36.
• Structuring of permanent control — asset management policy, routines for movement, retirement and transfer, and loading of the base into the ERP.
• Support for external audits, including Big Four, with working papers and a complete audit trail.

Methodology

1. Initial diagnosis — analysis of the ledger, the current accounting policy and the cost center structure; definition of the level of detail (control unit) and the schedule.
2. Preparation — definition of the coding standard and the tag, design of the data collection form, team training and alignment with the operating areas.
3. Field data collection — location-by-location sweep with electronic data collectors, photographs of each material asset and a record of its state of repair and usage status.
4. Reconciliation — automated matching plus manual handling of exceptions, with a discrepancy report by nature and by value.
5. Measurement — where contracted, appraisal at fair value or deemed cost and definition of useful life and residual value per asset.
6. Delivery and loading — final base in ERP import format, an asset control policy and a presentation meeting with accounting and the auditors.

Deliverables