Asset physical verification for CARO 2020: a practical method your auditor will accept
Asset physical verification for CARO 2020 clause 3(i)(b): what the auditor reports, how often to count, and a step-by-step method with QR tags and a gap list.
Last checked 6 min read
Every year the statutory auditor writes a line about your fixed assets, and every year someone in accounts scrambles to find the evidence for it. Asset physical verification for CARO 2020 does not need to be a scramble. It needs a register you trust, a plan you wrote down, and a list of what you found. Here is a method that works for plants and offices alike.
What CARO 2020 asks about asset physical verification
The Companies (Auditor's Report) Order, 2020 applies to audits of financial years starting on or after 1 April 2021. Paragraph 3(i) is about property, plant and equipment. Two parts matter:
- 3(i)(a): whether the company keeps proper records "showing full particulars, including quantitative details and situation" of its property, plant and equipment.
- 3(i)(b): "whether these Property, Plant and Equipment have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account".
Note who verifies: management. The auditor reports on whether you did it, how, and what you did about the gaps. If the answer is unfavourable, the report has to say why.
Does CARO apply to you?
Not every company is covered. The Order exempts banks, insurance companies, Section 8 companies, one person companies and small companies. A private company is also exempt if it meets all of the Order's conditions on paid-up capital and reserves, borrowings and revenue, and is not a holding or subsidiary of a public company. The small company limits have been revised over the years, so check this year's figures with your auditor. If you are exempt, physical verification is still good practice; it simply is not reported under CARO.
Verified at reasonable intervals: how often is enough
CARO does not define "reasonable intervals". ICAI's guidance note on CARO is the reference auditors use. In practice, companies pick one of two patterns:
- Annual full count: everything is counted once a year, usually near the year end.
- Rolling cycle: locations or asset classes are counted in turns through the year, so that everything is covered within a period agreed with the auditor. Portable and high-value items, such as laptops, phones and measuring instruments, are checked more often.
Whichever you choose, write it down: the cycle, who counts, and what gets counted when. A documented plan, followed consistently, is what the auditor needs to see.
Fixed asset verification process: seven steps
1. Fix the register first. Your fixed asset register should agree with the books: asset ID, description, class, location, custodian, cost, date put to use. If the register does not reconcile to the ledger, counting will only prove that.
2. Tag everything. A durable label with a unique ID on each asset. Asset tagging with QR codes lets anyone with a phone scan and record, and stops "the Dell near the window" arguments.
3. Plan the count. Assign locations to teams, fix dates, and freeze movements during the count where you can.
4. Count by scanning, not by ticking. At each location, scan what is physically there. The system compares the scans with what the register says should be there.
5. Sort the results into four lists.
| Result | Meaning |
|---|---|
| Found in place | Register and reality agree |
| Found elsewhere | Exists, but in another location or with another custodian |
| Missing | In the register, not found |
| Not in register | Found, but never recorded |
6. Investigate and decide. For each item off the "found in place" list, find out what happened. Transfers get recorded, missing items are searched for, then written off with approval if they cannot be traced, and unrecorded assets are capitalised or recorded as appropriate.
7. Sign off and book. The person responsible signs a short report: scope, dates, coverage, discrepancies and actions. Accounts passes the entries. Keep the scans and the report for the audit file.
A worked example from a Pune plant
A 300-person auto-parts plant in Pune has 1,200 tagged assets across three shop-floor bays and an office. It counts over two weekends in February.
- 1,162 found in place.
- 21 found elsewhere: tools moved between bays, two laptops reissued without updating custodians.
- 9 missing: 2 laptops and 7 hand tools.
- 8 items not in the register: a donated water cooler and test equipment bought on a project budget.
After investigation, one laptop turns up with a former employee and is recovered. The rest of the missing items, about ₹3.4 lakh at book value, are written off with the CFO's approval. The 21 transfers are recorded, the 8 items are added to the register, and the report goes to the auditor in March.
The laptop that walked out with a leaver is a common story. Linking the asset register to the exit checklist, so unreturned assets show up before the final settlement, prevents most of these. Shared admin passwords stored on such devices raise a separate risk, covered in shared password management for IT teams.
Keyboards, chairs and other bulk items
Not everything deserves a serial number. Keyboards, mice, headsets, chairs and cables are better tracked as quantity per location: "40 keyboards in IT store, 12 issued in Bay 2". Count them like stock, not like assets. Capitalised items still need individual tags; low-value consumables usually do not.
Common audit comments, and how to avoid them
- "No documented verification programme." Write the plan, even one page.
- "Register not updated for transfers." Make transfers a two-click step for whoever moves an asset.
- "Discrepancies not dealt with in the books." Close every item on the four lists before year end.
- "Verification done by the custodian of the assets." Have someone independent count, or at least review.
If you are choosing software for a factory, asset tracking is one of the questions in our HRMS for manufacturing checklist; visitor and gate records are covered in visitor management and DPDP.
Vatsin Asset Manager runs physical verification as a scheduled audit: scan QR tags by location on a phone, get the found, missing and wrong-place lists, record actions, and sign off, with bulk items tracked by quantity. The method above works with a spreadsheet too; it just takes longer.