The Importance of Regular Asset Audits for Your Business

Every business, from startups to enterprises, has assets in its inventory that require regular tracking. These assets may be machinery, equipment, or a piece of technology. Skipping these audits would be like driving a car without changing the oil. Eventually, it’ll break down.

Asset audit is a great way to identify hidden inefficiencies, prevent costly breakdowns, and ensure that every part of your business runs at peak performance. In this post, we’ll learn why these audits are important and how they can save your business time, money, and a lot of headaches.

What Is an Asset Audit?

An asset audit is a systematic approach to ensuring the existence and evaluating the condition and value of an asset. It lets you determine what assets you own and tally the worth on your balance sheet or financial reporting. 

More specifically, when performing an asset audit, four key activities are performed:

• Physical Verification: Determine where the asset is physically located and ensure it’s indeed present there.
• Data Tally: Sync the asset records with the physical assets found during the verification phase. Ideally, they should match up.
• Inspection: Evaluate the condition of the assets and determine whether or not they’re working.
• Valuation: Determine the current market value or book value of your assets.

It’s easy to confuse an asset audit with an asset management audit, but they’re two different concepts. Since they often create confusion, and understandably so because they both deal with a company’s assets, it’s important to know the difference.

Hypothetically, let’s say there’s a toy company called ToyZ. When performing an asset audit, the aim would be to see if the number of toys in the shop matches the number listed in the list. On the other hand, an asset management audit will evaluate how well the shop stores the toys and whether the toys are actually making money. 

Why Regular Asset Audits Are Important

Regular asset audits aren’t just a formality required to balance your finance sheet. They are a strategic tool for organizations of all sizes, as they greatly impact a business’s overall health and performance. 

Financial Accuracy and Transparency

Regular asset audits are necessary for your financial statements to be accurate and reliable, and financial statements should be mistake-free for several key reasons, such as:

• It reflects a company’s financial position, which is of utmost importance to investors, lenders, and stakeholders who rely on them for decision-making.
• A company can secure loans and credits only by providing accurate information about its assets and their value.
• It assists in identifying weaknesses in asset management processes, which can be improved from there and reduce the risk of error or potential fraud.

Compliance

A business must comply with industry-specific regulations and legal requirements, especially if it is in the healthcare, finance, or manufacturing industry. However, it’s necessary for any business.

By maintaining accurate records, your business can calculate its taxes and report to regulatory obligations, avoiding penalties and fines. It can also comply with accounting standards and principles, leading to financial transparency and credibility. 

Business Efficiency

Regular audits can provide your business with a clear picture of its asset inventory, allowing you to optimize resources and their utilization, which can have the following benefits:

• Identifying duplicate and defective assets
• Preventing unnecessary expenses
• Saving maintenance costs
• Addressing defects to reduce downtime
• Allocating resources towards areas with the highest output and requirement 

If you are interested in learning more, check out our blog on maintenance inventory management best practices to enhance your business efficiency.

Reduction of Risks

Asset audits help identify and tackle risks associated with them. In fact, a thorough review of your assets will help you reduce risks of theft, damage, or loss via effective tracking and security measures. In addition, you’d also be able to identify underutilized or obsolete assets and the required actions that can be taken from there.

Overall, it helps create an organized hologram in your mind that allows you to pinpoint areas that could potentially harm your business operations – making it a very useful reason to perform regular asset audits.

Types of Asset Audits

Here are some common types of asset audits that’ll help you figure out which one your company requires at the moment:

1. Internal Asset Audit

When an audit is performed by an organization’s internal team, usually as part of an annual audit, it is referred to as an internal asset audit. The purpose is to verify an organization’s assets properly and ensure there are no discrepancies between the physical assets and the financial records.

2. External Asset Audit

Organizations may hire an independent third-party auditor to provide an objective assessment of their assets and ensure that the financial statements are reliable and accurate. Typically, independent auditors perform a more detailed audit of the company’s assets as they don’t have the incentive for biases or malpractice that an internal team MIGHT have.

3. IT Asset Audit

IT asset audits focus specifically on an organization’s, as the name might suggest, IT assets like hardware, software, and data.  The aim is to ensure these assets are protected and properly managed efficiently.

4. Fixed Asset Audit

This kind of audit examines an organization’s long-term tangible assets, such as land, property, machinery, and vehicles. It confirms their existence, condition, and value. While there are many different assets that can be examined in each of these audit types, here’s a table that mentions some of the common ones:

Type of Audit	Common Assets Audited
Internal Asset Audit	Office equipment, furniture, tools, inventory, company vehicles, safety equipment
External Asset Audit	Delivery vehicles, leased property, third-party equipment, outsourced services, external IT systems
IT Asset Audit	Servers, computers, software applications, network devices, data storage, IT security systems
Fixed Asset Audit	Plant machinery, buildings, heavy equipment, infrastructure, land, long-term leases, production facilities

How to Perform an Effective Asset Audit

An effective asset audit requires careful planning and execution while maintaining proper documentation. 

1. Preparation Stage

This is the first stage, where you clearly define the scope and objectives of your audit, such as asset condition, verifying their location, and syncing with the sheets. You also need to categorize your asset subjects like IT and fixed assets and assemble an internal or external team for them.

The team will decide upon a schedule and gather all documents, such as balance sheets, asset registries, and equipment. The audit team should then be assigned rules and briefed about all the regulations and compliance factors.

2. Data Collection and Verification

The next step is to collect and verify data. All asset information, such as purchase orders, invoices, and maintenance records, must be collected. Whether virtual or on-premises, they must be tracked using asset-tracking software, barcode scanners, RFID tags, or manual documentation. Also, it’s best to sync every little piece of information with the balance sheets and financial records.

3. Asset Register Update

All information gathered about assets must be filled in before evaluating their physical condition via testing and visual inspection. This includes accounting for damage, deterioration, obsolescence, and maintenance costs – current or to be incurred. A report summarizing the information along with acquisition cost, depreciation, and current market value of the assets must be generated, and the records must be updated.

4. Utilization of Asset Management Tools

Using asset management tools is a great practice to make the entire process less tedious. These tools help track assets, generate reports, optimize utilization, and track performance. Our asset management tool, LLumin CMMS+, is a solution we wholeheartedly recommend. It gives you a centralized database and various effective productivity tools that’ll help your organization track an infinite number of asset types, asset entities, and facilities. Not to mention, it also improves workforce effectiveness and productivity. 

5. Continuous Monitoring

Schedule updates periodically to update the register for changes in asset condition, value, and risk. Continuously monitoring your assets can make data-driven decisions easier, as the financial information is accurate. Also, it’s best to review and refine your asset auditing process to make it more efficient and ensure it evolves according to business requirements. 

Tips for Better Asset Audit Management

Managing your asset audits has evolved over time, so what used to be efficient back in the day isn’t anymore. There are better techniques and ways to go about it. 

Here are a few tips to keep in mind for better asset audit management:

• Train Your Team: Introduce training programs for your audit team that will teach them the skills and knowledge required to perform asset audits thoroughly, such as using audit management tools. Emphasize the importance of asset audits, the procedures to follow, and the tools to use. You could also host mock audits that will offer them the practical experience of performing real audits without errors.
• Leverage Technology: To simplify the process, invest in asset management software and other technological tools, like barcode scanners and RFID tags. 
• Standardize the Procedure: Develop a checklist and template for the audit team to follow to maintain consistency. Key information such as asset type, location, condition, and maintenance history can all be included in the checklist. Establish Key Performance Indicators (KPIs) for assets and team performance to track how efficiently the process moves along. For a more in-depth understanding, check out our blog on how to create an asset management policy.
• Continuous Improvement: It cannot be a one-and-done asset audit – the company evolves constantly, and so do the audit procedures. Finds areas of improvement, listen to team recommendations and experiences, and implement changes as and when required.

How Can Llumin Help You Manage Asset Audits?

The manual process of asset auditing takes up quite a lot of time and is prone to error. Embracing tech and utilizing a tool like LLumin CMMS+ can drastically improve the efficiency of your asset audits. Our software is cloud-based and designed to make the process of tracking and managing all your assets, from physical assets to intellectual property, easy. 

Here’s how LLumin can help your business:

• Asset Tracking and Management: Tracks asset costs, usage, and history.
• Predictive and Preventive Maintenance: Uses AI and data to predict failures and schedule maintenance, reducing downtime.
• Operational Efficiency: Improves workflow and labor management.
• Compliance and Safety: Ensures compliance with regulations and safety standards.
• Real-time Reporting & Analysis: Provides customizable dashboards and reports for better decisions.
• Mobile Accessibility: Browser-independent and mobile-friendly for field operations.

One of our clients, Red Cedar Gathering, is an amazing example of our tool yielding desirable results. It’s a midstream energy company that “gathers” gas from more than 1,200 wells and delivers them to various interstate transportation pipelines. 

They struggled with machine uptime, lengthy diagnosis and repair cycles, and data exchange between operations and maintenance. After using our CMMS+ software, they were able to dramatically improve operations uptime by 99%, reduce labor hours and MTTR cycles, and have predictive and proactive maintenance processes in place.

Interested in achieving similar efficiency? Businesses worldwide use LLumin CMMS+ to manage their asset audits better, and you can, too. Schedule your free software demo today to get started.

Closing Thoughts

An asset audit is important for every business to maintain accurate records. If your records are up-to-date, the process of identifying outdated assets, spotting risks beforehand, minimizing downtime, and ensuring compliance with regulations becomes easier. Also, using an asset management tool like LLumin CMMS+ can effectively improve your asset audits and operational efficiency to ensure your company’s boat keeps sailing without any bumps.

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