What is the Reconciliation and Audit of Fixed Assets?

Name Author
Francisco Xavier Garcia Nava

Mechanical Engineer / Appraiser

what is a fixed asset reconciliation

For companies it is important that they have a proper control of fixed assets and that it is carried out constantly, approximately once a year, however, there are times when problems must be identified within the inventory that is carried out, it is in This is the point where the reconciliation of assets enters to verify that there is good control.

This reconciliation activity, taken into practice by many organizations in recent years, certifies and verifies assets and goods and matches the results obtained from the physical inventory against accounting information or detailed operational valuation, detecting inconsistencies and making the required adjustments to reflect a controlled and precise situation.

The objective of the reconciliation of fixed assets is to purify the accounting base and keep the records and values within it updated., this is useful to reflect the reality of fixed assets within the company, improve its operations and make decisions on solid foundations, which allow strong planning of growth or expansion objectives.

Analysts specialized in fixed asset, occasionally supported by the responsible areas within the client's company, to analyze the background of the fixed asset survey records.

fixed asset reconciliation

Why is fixed asset reconciliation important?

The reconciliation process shows a summary of the book value, credits and debits linked to fixed asset accounts and accumulated depreciation, which is vital for reconciling accounting balances with fixed asset records.

The reconciliation of fixed assets is widely linked to the following concepts:

  • Whether the depreciation has been applied correctly.
  • Whether adding new assets to a particular account is warranted.
  • Whether the disposition of assets has been correctly registered.
  • If the fixed assets have the correct value at the closing date or if it is after several adjustments.
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Reconciliation aims to systematically verify and identify inconsistencies between the physical inventory and the accounting record of fixed assets, these differences could arise in the process of capitalization of assets or investments, the adjustment and correct definition of the differences and anomalies will be expressed in the accounting adjustment.

What are the benefits of reconciling fixed assets?

  1. Determine the fixed assets that generate value.
  2. Identify obsolete fixed assets.
  3. Clearly define surpluses and shortages between the physical inventory and the accounting record.
  4. Establish the depreciation of assets.
  5. Comply with IAS 16: Property, plant and equipment.
  6. Reflect with certainty the existence of the assets.
  7. Obtain reliable information in decision making.

How is the reconciliation of fixed assets done?

The steps to prepare a reconciliation report of fixed assets against accounting information are:

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What is physical verification of assets and records?

The internal procedure demands a physical check of the fixed assets, this is to verify how they have been maintained since their original acquisition.

The asset records are used to know how many hours of operation the fixed assets have.

After the verification of balances and accounts, the closing balances are arrived at, which are reconciled with the closing balances as they appear in books, an asset reconciliation is, in short, a double check of the closing balances of fixed assets.

Upon completion of the physical-accounting reconciliation, the updated and reconciled records are delivered; in this way, the information found in the company's inventory corresponds exactly to what was reported in the aforementioned records.

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