This is a composite, illustrative scenario, not an account of a named client. The year's physical verification of fixed assets, performed by an internal team and reviewed as part of the audit's reliance assessment, had marked three specific machine tag numbers as physically present, in working condition, and matched to the fixed asset register — the same three tag numbers that a scrap dealer's gate pass, obtained independently while testing an unrelated scrap sale transaction, showed had left the factory premises roughly four months before the verification date, sold for scrap value.
Why the verification sheet said 'present' for assets that were gone
The internal verification team worked from the fixed asset register's tag list and walked the shop floor checking off what they physically saw matching tag plates. For these three machines, a replacement had been installed in roughly the same spot on the floor, and the team appears to have checked off the old tag numbers against the new machines present at that location without actually confirming the tag plates matched — a shortcut that produces a verification sheet showing everything present even when specific assets have actually been disposed of and replaced.
What tracing the gate pass led to
- 01Matched the scrap dealer's gate pass tag numbers against the fixed asset registerAll three matched specific, individually tagged assets still carrying a non-zero net book value in the register.
- 02Checked whether any disposal entry had been recorded in the books for those three assetsNone — the assets remained on the fixed asset register at their original cost less accumulated depreciation, with no retirement or scrap-sale entry processed.
- 03Checked whether the scrap sale proceeds had been recorded anywhereA small scrap income entry existed in the general ledger around the same date as the gate pass, but it was not linked to these specific asset tag numbers in any register or working paper.
- 04Widened the check to the rest of that year's verification sheet against all scrap gate passes for the yearNo further matches were found — this appeared isolated to the three machines rather than a wider pattern across the register.
| Fixed asset register / verification sheet | Scrap dealer gate pass | |
|---|---|---|
| Asset status | Present, verified, in working condition | Sold for scrap roughly four months earlier |
| Net book value | Non-zero, still being depreciated | Should have been written off on disposal |
| Disposal entry in the books | None recorded | Scrap sale evidently occurred |
What went into the file
- The scrap gate pass and its cross-reference to the three asset tag numbers in the register.
- The absence of any disposal entry, and the proposed write-off of the remaining net book value for the three assets.
- A reliance conclusion on the internal physical verification process itself, noting the specific weakness found — ticking off assets by shop-floor location rather than confirming the actual tag plate.
- A recommendation that the verification team be required to photograph or record the tag plate itself for each asset checked, not just confirm something is physically present at the expected location.
How we think about this
A physical verification that checks whether something is present at a location is a different, weaker test than one that checks whether the specific tagged asset on the register is present. Reliance on an internal verification exercise should test which of the two was actually done, because a sheet marked complete for every line can still have missed exactly this kind of substitution.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexPhysical verification of fixed assets: how to plan itA rotational verification policy, reconciling the count to the register, handling assets at customer or third-party sites, and the link to CARO 3(i).
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
- CARO & Companies ActThe fixed asset register CARO reporting couldn't rely onThe register had a location column. Nobody had updated it in three years, across two office moves and a warehouse relocation.
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