What Is a Physical Verification of Assets?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 May 2020
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A physical verification of assets is a process that is used to determine that the assets claimed in company records are in fact in the possession of the company. The same general approach is used to verify the assets claimed by an investor as part of a portfolio. With both approaches, the goal is confirm the physical existence of the assets and ensure that they are accounted for properly in terms of maintaining an accurate inventory and in paying taxes on that inventory.

As it relates to inventories maintained as part of the operation of manufacturing facilities, a physical verification of assets is a common component in making sure items that are part of an inventory are actually present. Supply clerks will often conduct physical inventories of supplies several times each year, physically counting each unit of items that are supposed to be in stock according to inventory records. The data from this physical verification of assets can then be used to adjust the records. This is important, since accurate records make it easier to order additional items based on usage and current inventory totals. At the same time, making sure the inventory count is accurate allows the business to calculate any taxes that must be paid on the inventory, avoiding paying more in taxes than necessary.

The same general approach to a verification of assets can be conducted with an investment portfolio. Here the focus is on determining if the investor does have ownership of the assets included in the portfolio, with attention paid to the number of shares, and the market price as of a specific date. In the case of real estate that is included in the portfolio, the site of the holding is visited and the existence of any buildings or other features that impact the vale of the property are also verified. As with inventories in a manufacturing plant, the results of the physical inspection can be used to adjust the accounting records, resulting in reliable information that can be used to confirm the current wealth of the investor and assure that the tax obligation is properly assessed.

With any effort to conduct a physical verification of assets, care must be taken to inspect the assets in question closely, verify they are legitimate, and confirm the count if multiple units are involved. While somewhat time-consuming, this type of effort can aid in identifying discrepancies that, if not corrected, could create serious issues later on. For example, if a physical verification of assets in a manufacturing plant determined that a major machine component that is supposedly in the supply inventory is not physically present, it is possible to adjust the records and order one or more units of that component before key equipment breaks down and costs the company production time and delays that could be several days or even weeks.

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