Christian Fusion Business Solutions

1. Objective:

   • The main goal of an assets and inventory audit is to verify the accuracy and completeness of the company's asset records, ensuring that the reported value of assets and inventory aligns with physical assets.

   • Additionally, the audit identifies any potential issues such as inventory shrinkage, obsolete stock, theft or underutilized assets, and recommends ways to improve management and control.

2. Scope:
   The scope of assets and inventory audits can cover a wide range of items, such as:

   • Physical assets (e.g., machinery, equipment, buildings, vehicles).

   • Inventory (e.g., raw materials, work-in-progress, finished goods).

   • Intangible assets (e.g., intellectual property, trademarks, patents).

   • Financial assets (e.g., investments, cash equivalents).

   • Fixed assets management (e.g., depreciation schedules, usage patterns, completeness, accountability).

3. Approach:

   • The audit generally involves comparing physical counts of inventory and assets with the accounting records.

   • It may include physical inspections, reconciliation of records, and assessments of asset usage, obsolescence, and security controls.

   • The audit also looks at how assets are tracked, recorded, and depreciated over time to ensure proper financial reporting.

Steps Involved in an Assets & Inventory Audit:

1. Planning & Preparation:

   • Define the scope: Identify which assets and inventory will be included in the audit. The audit scope might cover specific departments, all company assets, or certain inventory categories.

   • Review documentation: Examine prior asset and inventory records, including inventory counts, purchase records, and asset registration details.

2. Physical Verification of Assets and Inventory:

   • Conduct physical counts: Verify the physical existence of assets and inventory by performing counts, inspections, or walkthroughs. This can involve:

     • Counting physical inventory items (raw materials, finished goods, etc.).

     • Checking physical assets like machinery, equipment, or vehicles.

   • Use of barcode scanners or RFID technology: Advanced technology tools may be used for efficient and accurate tracking during physical counts.

3. Reconciliation with Accounting Records:

   • Match physical inventory with accounting records: Ensure that the number of items counted matches what is recorded in the system or ledgers.

   • Verify asset valuation: For fixed assets, ensure that the recorded value (including depreciation) matches the actual value of the assets.

   • Identify discrepancies: Any differences between the physical count and accounting records must be investigated. Possible causes include theft, damage, misreporting, or errors in the inventory management system.

4. Assessment of Inventory Management Systems:

   • Review the inventory management system for accuracy and reliability. This may include looking at:

     • Inventory turnover ratios (how quickly goods are sold or used).

     • Inventory aging reports (how long goods have been in stock).

     • Inventory shrinkage (lost, stolen, or damaged goods).

   • Evaluate security controls related to asset management, such as:

     • Access controls to physical assets.

     • Inventory storage conditions.

     • Regular checks and reconciliations.

5. Valuation and Depreciation:

   • For fixed assets, verify that the assets are being depreciated correctly according to accounting policies and tax regulations. The auditor will check:

     • Depreciation methods (e.g., straight-line or declining balance).

     • Useful life estimates for assets.

     • Residual values (salvage value of assets after useful life).

   • The auditor will also ensure that impairments (loss in value of assets) are recorded appropriately.

6. Identifying Issues and Anomalies:

   • During the audit, the auditor looks for issues such as:

     • Inventory shrinkage (losses due to theft, damage, or spoilage).

     • Obsolete or slow-moving inventory that may need to be written down or sold at a loss.

     • Underutilized assets or idle equipment that is not contributing to the business.

     • Overvaluation of assets due to outdated depreciation schedules or incorrect valuations.

7. Reporting Findings and Recommendations:

   • After completing the audit, the auditor prepares a report that includes:

     • A summary of asset and inventory findings.

     • Discrepancies identified during physical counts and reconciliations.

     • Recommendations for improving inventory management, asset tracking, and security measures.

     • A cost-benefit analysis for suggested improvements, such as adopting new tracking technologies or upgrading the inventory management system.

8. Follow-Up and Corrective Actions:

   • Based on the findings, management should take corrective actions to resolve discrepancies, improve controls, and address inefficiencies.

   • The auditor may conduct follow-up audits or reviews to ensure that recommendations have been implemented and the processes have improved.

Types of Assets & Inventory Audits:

1. Physical Inventory Audit:

   • A straightforward audit that focuses on counting and verifying physical inventory. This is often done at year-end to ensure the accuracy of the inventory records.

2. Cycle Counting:

   • A method where a portion of the inventory is counted at regular intervals (e.g., weekly or monthly) instead of doing a full physical inventory count all at once. This helps reduce disruption and ensures that inventory is consistently monitored.

3. Fixed Asset Audit:

   • Focuses specifically on physical assets, such as machinery, vehicles, and office equipment. This audit ensures that fixed assets are properly recorded, valued, and depreciated.

4. Inventory Reconciliation Audit:

   • Involves reconciling inventory records with physical counts to identify discrepancies. This audit helps address issues such as inventory shrinkage or overstocking.

5. Asset Impairment Audit:

   • Focuses on identifying whether any assets have lost value and need to be written down or impaired. This is particularly important for fixed assets in industries where asset value can fluctuate due to market conditions.

When Should an Assets & Inventory Audit Be Conducted?

1. At Year-End or Fiscal Year-End:

   • A comprehensive audit is often conducted at the end of the fiscal year to ensure that all assets and inventory are accurately recorded and valued for financial reporting.

2. Before Major Purchases or Investment:

   • When a company plans to make significant capital investments or acquire new assets, an audit can help ensure that existing assets are being utilized optimally and that there is enough available capacity.

3. When Inventory Discrepancies Are Suspected:

   • If there are concerns about inventory shrinkage, theft, or errors in inventory management, an audit can help identify and resolve these issues.

4. During Mergers or Acquisitions:

   • Assets and inventory audits are essential when a company is being acquired or merging with another business to ensure the accuracy of the asset valuation and inventory holdings.

5. To Improve Operational Efficiency:

   • Regular audits help improve inventory and asset management over time by identifying inefficiencies or unnecessary expenses that could be reduced.

6. Regularly to Safeguard Stores' Assets & Inventory​

   • To ensure safeguard of assets & inventory of stores specially those operating store chains​.

   • To prevent and detect losses, theft or fraud committed in stores specially on inventory and cash.

Summary:

Overall, an Asset & Inventory Audit ensures that a company's assets and inventory are accurately reported, safeguarded, and optimally managed, thereby reducing risks and improving operational performance.