Many companies or organizations audit their fixed assets every year to optimize resources, detect inefficiencies, and to achieve many other objectives. Some organizations use their team of in house auditors to audit their fixed assets while others hire third-party auditors to do the job. Every organization will choose the option that works best for them.
Both options come with their own advantages and disadvantages. In this article, we’ll look at in house fixed assets audits and third-party asset audits in detail and their pros and cons.
What are fixed asset audits?
Fixed asset audits refer to the objective evaluation of a business’s fixed assets (assets that are expected to last more than one year such as property, land, buildings, equipment, vehicles, furniture, etc.) to ensure they are represented accurately. Businesses conduct fixed asset audits to detect risks, ensure compliance with regulatory requirements, and to provide better internal control.
What are in house fixed asset audits?
In house fixed asset audits refer to audits done by internal employees of a company or organization to assess the effectiveness of an organization's control over assets management. Also known as internal fixed asset audits, these audits help to identify fixed asset inefficiencies within an organization, and they help the management to improve decision making.
What are third-party asset audits?
Third-party fixed asset audits refer to audits performed by external and independent organizations to provide an unbiased opinion that in house auditors might not be able to give. Third-party fixed asset audit organizations do not have any conflict of interest in an organization. The key difference between in house and third-party fixed asset audits is that the latter are independent. Typically, third-party auditors represent a more honest opinion rather than in-house auditors who may have a conflict of interest.
Advantages of in house fixed asset audits
Ongoing assessment of fixed assets
Having a team of in-house auditors allows an organization to assess and evaluate its fixed assets on an ongoing basis. Unlike hiring third-party audit agencies which is done once or twice a year, internal auditing allows an organization to review its fixed assets continuously. They do not have to wait for a specific time of the year to conduct audits. Therefore, in-house auditing enables an organization to detect inefficiencies and change course immediately.
Helps an organization to optimize the use of resources
As we’ve already mentioned, in house fixed asset audits can be conducted on an ongoing basis. That means a company can easily pinpoint the fixed assets that are being underutilized or wasted and make the necessary adjustments. Therefore, companies can use internal fixed asset audits as a tool to control costs and promote the optimization of resources.
Third-party fixed asset auditors are typically twice as expensive as in house fixed asset auditors on a per hour basis. Depending on the competency of an organization’s internal audit team, internal auditing can be cost-saving in the long run.
Organizations are required to comply with certain laws, regulations, and industry standards regarding the management of fixed assets. In house fixed asset audits enable businesses to detect non-compliance early enough before they hurt their performance.
Disadvantages of in house fixed asset audits
Shortage of qualified and experienced fixed asset auditors
Most organizations experience challenges with hiring and retaining competent fixed asset auditors. A study conducted by MIS Training Institute shows that most internal audit departments struggle to retain qualified and experienced auditors. Therefore, a lack of competent auditors can restrict an organization from conducting an accurate assessment of its fixed assets. Inexperienced auditors may not be able to represent the correct position of an organization’s fixed assets.
Possible conflict of interest
Being employees of the organization, internal fixed asset auditors can possibly have a conflict of interest and they may fail to disclose the correct information. The top management of an organization can work in cahoots with internal auditors to manipulate audit reports to conceal inefficiencies. Cases of internal auditors in big firms failing to disclose accurate information is nothing new. A good example of a company that’s being investigated for auditing malpractices is travel firm, Thomas Cook.
Advantages of third-party fixed asset audits
Eliminates the possibility of a conflict of interest
A third-party fixed asset audit agency is an independent entity and has no relations with the organization whatsoever. Unlike internal auditors who might conduct an audit with fear of repercussions in the workplace, third-party auditors tend to be more impartial. Therefore, they are more likely to be unbiased towards the organization.
Third-party audits provide more credibility
Having your fixed assets verified by a third-party auditor can give you more credibility in the business marketplace. In case you want to sell your business or you are seeking to raise finances, showing that your fixed assets have been audited by a third-party audit organization can be an added advantage.
A different perspective
Third-party fixed asset auditors bring in a different perspective based on their experience in the industry. They’ve audited a wide range of fixed assets in countless organizations; hence they can detect issues that internal auditors may have missed. Furthermore, external auditors work with a single-minded purpose that is free of conflict of interest. So they are more likely to present their reports and corresponding views in an unbiased manner.
Limitations of third-party audits
- Confidentiality can be a concern because it's quite difficult to control the dissemination of confidential information when a third-party auditing agency is involved.
- Hiring a third-party fixed asset auditor is typically more expensive than using an internal audit team. This can be a challenge for small organizations with a limited budget.
- When you hire external auditors to audit your fixed assets, you’ll have to educate them about your company and this can be complex and time-consuming.
The question as to which is the better option between in house fixed asset audits and third-party fixed asset audits depends on the option that works best for every organization and the goals they want to achieve. Assertive Industries has conducted fixed asset audits for some of the world's largest corporations. All of our employees are held to the strictest confidentiality rules to ensure the security of our client's data.
Our auditors have performed fixed asset audits in a variety of industries giving us the tools and knowledge we need to work within any company. To find out more about how we can work with your company, call us for a free consultation at 678-447-0028.