Who Can Do Fixed Asset Physical Verification as Required by CARO?
Last updated: 5 October 2026
Quick Answer: Management must arrange fixed asset physical verification under CARO 2020, through its own employees or an outside firm such as Astral Business Consulting LLP. The statutory auditor does not do the count; under paragraph 3(i)(b), it reports whether management verified the assets at reasonable intervals and dealt with material discrepancies in the books.
The question usually surfaces in the last quarter of the financial year. The statutory auditor asks for the latest physical verification report on property, plant and equipment, and the finance team finds that the last full count is three years old or was never reconciled to the fixed asset register.
Handing the exercise to the auditor is not the answer. The verification belongs to management, and ICAI guidance expects every asset to be covered at least once in three years.
Is physical verification management's job or the auditor's?
Management does it with the help of either its own personnel or an outside agency it appoints. The ICAI Guidance Note on the Companies (Auditor's Report) Order, 2020 (June 2020 edition; ICAI has since issued a revised 2022 edition) states that physical verification is the responsibility of management and has to be carried out by management, not by the auditor. It adds that outside expert agencies engaged by management may also do the work.
The company's own team
An internal team usually draws on three functions:
- Finance or accounts, which holds the fixed asset register
- Stores, maintenance or the named custodian at each location
- Engineering staff, who can identify machines, sub-assemblies and process units
The verifier needs technical knowledge where the asset demands it. An accounts executive can confirm a tagged laptop; confirming that a ring frame is the machine capitalised years ago, not a later replacement, needs an engineer.
An outside firm engaged by management
Management may instead engage an internal audit practice, a stock and asset verification firm, or a technical expert for specialised plant. The firm works under management's written instructions and reports to management. Responsibility does not move with the work.
What does the statutory auditor do under clause 3(i)(b)?
The statutory auditor reports on the verification; it does not perform it. Paragraph 3(i)(b) of the Order requires the auditor's report to state:
- Whether property, plant and equipment have been physically verified by management at reasonable intervals.
- Whether any material discrepancies were noticed on that verification.
- If so, whether they have been properly dealt with in the books of account.
It is fundamental for the auditor to be satisfied that the verification has taken place and that there exists adequate evidence to support it. The auditor may observe the count, particularly when it is completed on one day. Where verification is continuous, or the auditor was absent, the auditor examines management's written instructions and the staff's working papers, including the name and competence of each verifier. Write the instructions before the count starts.
How often must fixed assets be physically verified?
The Order says only "at reasonable intervals" and leaves the periodicity to management. The Guidance Note treats annual verification as reasonable and, where that is impracticable, expects a programme that covers all assets at least once in every three years. The interval should reflect the number, nature and value of the assets, the difficulty of verifying them and the spread of locations. An illustrative programme for a multi-plant manufacturing company will look as follows:
| Asset class | Suggested cycle | Reason |
|---|---|---|
| Laptops, tools and other portable assets | Every year | High movement and loss risk |
| Production machinery and utilities | Plant by plant within three years | Replaced and relocated over time |
| Dies, moulds and patterns at job workers | Every year, with the job worker's written confirmation | Outside the company's custody |
| Buildings | Inspection for alteration or demolition | Measurement not needed unless altered |
| Open land | Periodic survey | Risk of encroachment |
Where not every asset is verified in the year, the auditor reports that fact.
Which assets fall inside the verification?
The clause covers property, plant and equipment. The Guidance Note adds right-of-use assets under Ind AS 116, investment property under Ind AS 40 and non-current assets held for sale under Ind AS 105. Intangible assets fall under the record-keeping requirement in paragraph 3(i)(a) instead.
Process plant in continuous use, or equipment concealed inside a larger unit, may be verified through indirect evidence, such as the plant producing at normal efficiency. Management need not stop manufacturing merely to count.
What evidence should the verification leave behind?
The file should let the auditor test the verification without having attended it:
- Written instructions: scope, locations, dates, teams, cut-off and how exceptions are recorded.
- A tag-wise count sheet for each location, signed by the verifier and the custodian.
- An exceptions list: assets not in the register, register entries not found, and assets idle, damaged or elsewhere.
- A reconciliation of the count to the fixed asset register, with approval for every adjustment.
- The book entries passed for each discrepancy.
The register is a separate requirement: paragraph 3(i)(a) asks whether the company keeps proper records showing full particulars, including quantitative details and situation, of property, plant and equipment. Without a location field, the verifier has nothing to count against, so many companies prepare the register and tag assets first.
How does the auditor judge whether a discrepancy is material?
There is no fixed percentage for fixed assets. The auditor uses professional judgement, weighing the cost of the asset or class against the total, its operational criticality, the size and complexity of the business, and whether omitting it would distort a true and fair view. Inventory follows a different test.
| Point | Fixed assets: paragraph 3(i)(b) | Inventory: paragraph 3(ii)(a) |
|---|---|---|
| Who verifies | Management | Management |
| Interval | Reasonable intervals (ICAI guidance: all assets within three years) | Reasonable intervals |
| Discrepancy test | Material, by the auditor's judgement | 10% or more in the aggregate for each class |
| Auditor also reports | Treatment in the books | Coverage and procedure, and treatment in the books |
Where a material discrepancy has been properly dealt with, the auditor need not give its details, but states that it was noticed and properly dealt with.
Which companies does clause 3(i)(b) apply to?
CARO 2020 applies to every company, including a foreign company, for financial years commencing on or after 1 April 2021, the date set by the Ministry of Corporate Affairs amendment order of 17 December 2020. It does not apply to:
- banking and insurance companies
- companies licensed under section 8
- One Person Companies and small companies
- a private company, not a holding or subsidiary of a public company, with paid-up capital and reserves and surplus of ₹1 crore or less, bank or financial institution borrowings of ₹1 crore or less throughout the year, and total revenue of ₹10 crore or less
A private manufacturer that is not a small company and crosses any one of these limits is covered.
How should a company choose who runs the verification?
Choose competent verifiers, independent of the custodians, who leave papers the auditor can rely on.
| Option | Suits | Watch for |
|---|---|---|
| In-house team from finance, stores and engineering | Single-site companies with a current, tagged register | Custodians counting their own assets |
| Internal auditor | Companies already running a fixed asset cycle in internal audit | Year-end capacity |
| Specialist verification firm | Multi-location companies, first-time tagging, or unreconciled years | A written scope, the reconciliation and the exceptions report as deliverables |
Astral Business Consulting LLP, a Coimbatore-based management consulting and audit firm, is one example of the specialist type. Its Cycle Count division covers fixed asset verification and reconciliation, register preparation, and coding and tagging with barcode or RFID labels. Either way, the verifier acts for management and the statutory auditor reviews the result.
What goes wrong in practice at a manufacturing plant?
Most failures start in the register, not the count. Illustrative patterns from the sectors of the Western Tamil Nadu industrial belt:
- Foundry: patterns sent to a job worker stay recorded at the main plant, unconfirmed.
- Spinning mill: a machine replaced during modernisation is sold as scrap, but the register carries both.
- Auto dealership: workshop tools move between branches without transfer entries.
- Engineering company: furniture and testing equipment across several plants sit in one register line that no count can match.
Planning a fixed asset verification before the year-end audit?
If the auditor has asked for a verification report, or the register has not been reconciled for years, talk to the team about scope, tagging and a three-year programme for your locations.
