Fixed Asset Audit & Verification Services —
PPE Audit, Depreciation Review, Impairment Assessment & CARO 2020 Compliance
Every company with significant Property, Plant and Equipment faces accounting and compliance questions that go beyond a physical count. Is capitalisation policy correctly applied? Is depreciation computed correctly under Schedule II and the Income Tax Rules? Have impairment indicators been assessed? Are title deeds in the company's name? A fixed asset audit and verification answers all of these — systematically and independently.
Overview
Audit-Depth Examination of PPE — Not Just a Physical Count
N D Savla & Associates provides fixed asset audit and verification services for companies across India — covering the full financial and accounting dimension of PPE, not just physical verification. Our work combines physical confirmation of asset existence with a thorough review of capitalisation accounting, depreciation under Companies Act and Income Tax frameworks, impairment assessments, disposal accounting, and FAR-to-GL reconciliation.
The output supports the statutory auditor's CARO 2020 Clause 3(i) reporting, strengthens the internal audit's PPE procedures, and gives management an independent opinion on the reliability of its fixed asset accounting. For the physical tagging component — barcode, QR, or RFID tagging with ghost asset identification — see our dedicated Fixed Asset Tagging and Verification page.
The Distinction
Physical Tagging vs Audit-Depth Verification
A fixed asset audit and verification is the audit-depth examination of PPE — going from the balance sheet line to the source documents, physical assets, and accounting computations that underlie it. It is complementary to — but distinct from — physical tagging and verification.
Tagging & Verification
Physical tagging and verification establishes whether assets exist, where they are, and whether they are tagged correctly. It produces a clean fixed asset register through barcode, QR, or RFID tagging and ghost asset identification.
Fixed Asset Audit & Verification
The fixed asset audit and verification asks the deeper question: even where an asset physically exists, is it correctly recorded, valued, depreciated, and classified in the financial statements? It audits the register against accounting standards, the Companies Act, and the Income Tax Act.
Audit Assertions
Procedures by Financial Statement Assertion
A structured fixed asset audit and verification addresses each of the standard financial statement assertions for PPE. The table below maps each assertion to the specific procedures performed, the common errors addressed, and the governing standard.
| Assertion | Audit Procedures | Common Errors Found | Relevant Standard |
|---|---|---|---|
| A1 Existence | Physical verification of recorded assets at their stated location. Cross-reference with FAR tag numbers. Confirm physical presence of material additions made during the period. | Ghost assets — disposed or scrapped items still on the register. Assets relocated or transferred without register update. | CARO 2020 Cl. 3(i)(b) |
| A2 Completeness | Floor-to-book check — identifying assets physically present but not in the register. Review capital work-in-progress (CWIP) for items that should have been capitalised but have not been. | Unrecorded assets acquired informally. CWIP items sitting in the holding account beyond their commissioning date — delaying depreciation. | AS 10 / Ind AS 16 |
| A3 Valuation — Capitalisation | Review of additions to the FAR during the period against source documents. Test that each addition includes all directly attributable costs — installation, freight, duties, testing. Verify capital vs revenue boundary against company policy and AS 10 / Ind AS 16. | Repairs and maintenance expensed as capital. Installation and commissioning costs excluded from asset cost. CWIP cleared to wrong asset category. | AS 10 / Ind AS 16. IT Rules — cost includes all costs to bring asset to working condition. |
| A4 Valuation — Depreciation (Companies Act) | Verify useful life assignment per Schedule II for each asset category. Recalculate depreciation using SLM or WDV as per policy. Check residual value — cannot exceed 5% under Schedule II unless separately justified. Identify fully depreciated assets still in use. | Wrong useful life applied — particularly for computer equipment (3 years Schedule II, frequently given longer). Residual value set at zero or above 5% without justification. Fully depreciated assets not written off. | Companies Act 2013, Schedule II |
| A5 Valuation — Depreciation (Income Tax) | Verify block asset groupings. Confirm rate applied for each block (5% buildings, 15% plant, 30% certain plant, 60% computers, etc.). Check half-year rate for additions after 3 October. Verify newly acquired assets in the correct block. | Assets grouped in wrong block — lower rate applied where higher rate should apply. Half-year rule not applied to mid-year additions. Goodwill or software in wrong block. | Income Tax Rules, 1962 — Appendix I |
| A6 Impairment | Identify impairment indicators per Ind AS 36 / AS 28 — market decline, obsolescence, physical damage, adverse regulatory change, performance below internal budgets. Where indicators exist, test whether impairment has been recognised. Review CGU allocation for goodwill impairment. | Impairment indicators present but impairment not assessed. CGU allocation not documented. Value-in-use calculation using unrealistic cash flow projections. Reversal of impairment losses without meeting criteria. | Ind AS 36 (listed / Ind AS) or AS 28 (non-Ind AS) |
| A7 Disposal & Write-Off | Verify that disposal transactions are authorised. Confirm that sale proceeds are fully accounted for. Check that the asset and accumulated depreciation accounts are correctly derecognised. Verify gain or loss on disposal is correctly computed and disclosed. | Ghost assets from disposals not recorded. Sale proceeds received but not matched to asset derecognition. Loss on disposal not recognised. Disposal without proper authorisation. | AS 10 / Ind AS 16. CARO 2020 Cl. 3(i)(b) |
| A8 Ownership & Title | Verify title documents for immovable property — title deeds, registration, mutation records. Check whether title deeds are held in the company's name or in promoter, director, or related-party name. Confirm hypothecation to lenders matches FAR entries and charge registration. | Immovable property in promoter or director name — specific CARO 2020 Clause 3(i)(c) reporting requirement. Unregistered property transactions. Assets hypothecated to a different lender than recorded. | CARO 2020 Cl. 3(i)(c) |
Key Areas
Three Areas Where Misstatement Is Most Common
Several areas in a fixed asset audit and verification require particular depth because they are frequently misstated and have significant financial statement impact.
Capital vs Revenue Expenditure
The most frequently misstated area in PPE accounting. Under AS 10 and Ind AS 16, expenditure is capitalised only if future economic benefits will flow and cost can be reliably measured. Routine repairs must be expensed; improvements that extend useful life or capacity can be capitalised.
We review every addition to the FAR during the period against these criteria. We also check whether revenue expenditure has been capitalised to inflate profit — a misrepresentation statutory auditors must detect.
Schedule II Depreciation
Schedule II specifies the useful life for each asset category — not the rate. The company computes the rate from the useful life. Residual value cannot exceed 5% of original cost unless technically justified.
We verify correct useful life assignment, that residual value does not exceed 5% without justification, and that the depreciation method (SLM or WDV) is applied consistently. Fully depreciated assets still in use may also need impairment assessment.
Impairment Assessment
One of the most commonly overlooked aspects of fixed asset accounting in India. Under Ind AS 36, companies must assess impairment indicators at each reporting date. Indicators include market value decline, obsolescence, physical damage, and adverse regulatory change.
If indicators exist, the company must estimate recoverable amount and recognise impairment if carrying value exceeds it. We identify indicators, assess management's testing, and verify that the impairment loss — or its reversal — is correctly measured.
CARO 2020 Clause 3(i)
What the Statutory Auditor Must Report on Fixed Assets
CARO 2020 requires statutory auditors to report specifically on fixed assets under Clause 3(i). Understanding what the clause requires helps management prepare adequately — and helps the fixed asset audit and verification target the specific areas where compliance must be demonstrated.
Proper Records
The auditor must report whether the company maintains proper records showing full particulars including quantitative details and location of fixed assets.
We test whether the FAR contains all required fields — asset ID, description, category, location, acquisition date, original cost, accumulated depreciation, net book value, useful life, and condition. Incomplete records produce an adverse observation.
Physical Verification & Discrepancies
The auditor must report whether physical verification was conducted at reasonable intervals and whether material discrepancies were properly dealt with in the books.
The fixed asset audit and verification produces the physical verification evidence — and the discrepancy reconciliation — that the statutory auditor needs to report favourably. Without documented verification, the auditor must report adversely.
Title Deeds in Promoter Name
Introduced in CARO 2020 — the auditor must specifically report whether title deeds of immovable property are held in the company's name or in promoter / director name.
Property in a promoter's name creates governance risk — it can be mortgaged or disposed of without board approval. Our Corporate Governance advisory addresses the framework for property held outside the company.
FAR-to-GL Reconciliation
Reconciliation With the General Ledger
The fixed asset audit and verification includes a reconciliation of the fixed asset register with the general ledger at the asset category level. Differences between the FAR and the general ledger indicate that additions, disposals, or depreciation charges have been posted to one record but not the other — or have been posted at different amounts. These differences distort the financial statements.
Common FAR-to-GL Differences Found
Assets capitalised directly in the general ledger without a corresponding FAR entry. CWIP items transferred to the GL fixed asset account but not individually entered in the FAR. Disposals reflected in the FAR but proceeds and derecognition entries not yet posted in the GL.
Depreciation calculated in the FAR at a different amount from what is posted in the GL — due to a system or manual entry error.
Our Reconciliation Output
Each difference is investigated, quantified, and reported with a correcting journal entry recommendation. The reconciliation file is structured to support the statutory auditor's review.
Where differences point to systemic process gaps rather than isolated errors, our Business Process Reengineering service can redesign the capitalisation, disposal, and depreciation posting flow end-to-end.
Applicability
Who Needs a Fixed Asset Audit & Verification?
A fixed asset audit and verification is relevant for any company where PPE represents a material balance sheet line — which covers most manufacturing, infrastructure, hospitality, and healthcare businesses.
Produces the documentation — physical verification evidence, depreciation computation, impairment assessment, title confirmation — that the statutory auditor needs for CARO 2020 Clause 3(i) reporting.
Where plant and machinery represent the majority of the balance sheet, PPE audit depth is critical — depreciation errors and impairment failures can significantly misstate reported profit.
Where assets are spread across multiple sites, the audit confirms that assets in the FAR are at the locations stated and that inter-location transfers are correctly recorded.
Where large additions have been made during the year, the audit tests that capitalisation is complete and correctly classified — and that CWIP has cleared on time.
Transitioning from AS to Ind AS involves reassessing useful lives, residual values, and impairment — the audit provides the independent assessment management needs.
Where PPE is a key component of deal value, buyers commission a fixed asset audit and verification to independently verify carrying values and depreciation policies before finalising the transaction price.
Related Audit Services
Related Audit & Compliance Services
Our fixed asset audit and verification connects to a complete set of related audit, compliance, and advisory services. Combined engagements deliver efficiency and broader visibility across the PPE lifecycle.
Fixed Asset Tagging & Verification
Physical tagging using barcodes, QR codes, or RFID, with ghost asset identification and FAR creation — the physical counterpart to the fixed asset audit and verification.
Inventory Stock Audit
Inventory physical count, ABC analysis, and ERP reconciliation — often conducted alongside the fixed asset audit in a combined site visit.
Internal Audit
Ongoing independent review — uses fixed asset audit findings to audit PPE process controls including capitalisation approval, disposal authorisation, and depreciation computation.
Statutory Audit (Under Companies Act)
Companies Act audit — CARO 2020 Clause 3(i) reporting requires the physical verification and accounting accuracy evidence the fixed asset audit produces.
Income Tax Audit
Form 3CD requires disclosure of depreciation computation and capital expenditure — the fixed asset audit directly supports the tax audit's PPE procedures.
Corporate Governance
Governance advisory for companies where CARO 2020 reveals title deed issues — property held in promoter or director name requires a governance framework separating ownership from company assets.
Scrap Validation Services
Validates scrap from fixed assets — directly relevant for fully depreciated or damaged assets that have been scrapped and need to be removed from the FAR.
Business Process Reengineering
Redesigns the fixed asset management process when audit findings reveal systemic failures in capitalisation approval, CWIP monitoring, or disposal authorisation.
Frequently Asked Questions
Fixed Asset Audit & Verification — FAQs
Is Your PPE Correctly Capitalised, Depreciated, Impaired — and Reported in CARO 2020?
Capitalisation policy review · Schedule II depreciation · IT block rate verification · Impairment assessment · Disposal accounting · FAR–GL reconciliation · CARO 2020 Cl. 3(i) · Title deed verification · Capital vs revenue expenditure testing.
Eight assertions. Two depreciation regimes. One independent audit.
End-to-end fixed asset audit and verification — existence and completeness testing · capitalisation policy review · Schedule II and IT block rate depreciation · Ind AS 36 / AS 28 impairment assessment · disposal accounting · FAR-to-GL reconciliation · CARO 2020 Cl. 3(i) compliance · title deed verification. Trusted by manufacturers, capital-intensive businesses, and Ind AS adopters across India.
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