Every asset audit ends the same way: a list of things that should be there but are not, and a list of things that are there but should not be. What you do with those two lists is asset reconciliation — and it is where audits either earn their keep or quietly get filed away.
This article explains the three-way reconciliation between the physical count, the asset register and the general ledger, how to investigate missing and unregistered assets, and how to close variances in a way an auditor will accept.
What reconciliation actually reconciles
There are really two reconciliations, and they are often confused.
1. Physical to register. Does every record in the asset register correspond to a real item, and does every real item have a record? This is what a physical audit tests.
2. Register to ledger. Does the total cost and accumulated depreciation of capitalized assets in the register agree with the fixed-asset accounts in the general ledger? This is a finance control, usually done monthly or at period end.
Errors flow between them. An asset scrapped on the shop floor but never disposed of in the register is a physical-to-register variance and an overstatement in the ledger, because its net book value is still on the balance sheet.
The variance categories
After a count, each asset falls into one of these buckets:
| Category | Meaning | Typical causes |
|---|---|---|
| Found, correct location | Matches the register | — |
| Found, wrong location | Exists, but somewhere else | Unrecorded transfers, shared equipment |
| Missing | In the register, not found | Lost, stolen, scrapped without a record, on loan, in repair, counted in the wrong area |
| Unregistered | Found, not in the register | Purchases never capitalized, items below threshold, leased or third-party property, personal items, duplicates of a lost tag |
| Condition exception | Found but damaged, idle or obsolete | Candidates for repair, redeployment or disposal |
Investigating missing assets
Do not jump to a write-off. Work through a standard checklist, in roughly this order of likelihood:
- Open check-outs and loans. Is the item signed out to someone or to a project?
- Maintenance and repair. Is it at a vendor for repair or calibration?
- Recent transfers. Was it moved to another site, and the transfer never recorded?
- Adjacent areas. Items near a boundary are often counted — or missed — in the neighbouring area.
- Disposals. Was it scrapped, sold or donated without the register being updated? Check disposal logs, e-waste certificates and sales records.
- Duplicate records. Is the "missing" record actually a duplicate of another asset that was found?
- Tag problems. Was the item present but its label damaged or replaced, so it was counted as unregistered?
Step 7 is worth emphasizing: a surprising share of "missing" and "unregistered" variances cancel each other out. Before investigating separately, match the unregistered list against the missing list by description, serial number and location.
Handling unregistered assets
For each unregistered item, decide which of these it is:
- Your asset, never registered. Add it with the best available cost and date. If the original cost cannot be found, follow your accounting policy — often a documented estimate, reviewed by finance.
- Below the capitalization threshold. Register it for tracking only, flagged as non-capitalized, if it is portable or attractive enough to track.
- Leased or third-party. Record it separately or exclude it; do not capitalize it as your own.
- Personal property. Exclude it and note it.
- A re-tagged existing asset. Link it to the original record and retire the old tag.
A worked example
Illustrative example, not real data.
A site's register lists 1,200 assets with a total cost of $2,450,000. The audit finds:
- 1,138 assets found (1,090 in the correct location, 48 in a different location).
- 62 assets missing.
- 21 assets unregistered.
Check: 1,138 found + 62 missing = 1,200 register records. ✓
After matching serial numbers, 9 of the unregistered items turn out to be missing assets with replaced labels. The lists become 53 missing and 12 unregistered.
Investigation then finds 17 of the 53 on open loans or at repair vendors, and 14 that were scrapped last year without a disposal entry. That leaves 22 genuinely unexplained. Those 22 go to management for approval as a write-off at their net book value, and the 14 unrecorded disposals are processed with their gain or loss. The 12 remaining unregistered items are reviewed individually.
The point of the example is the funnel: 62 apparent losses became 22 real ones once reconciliation was done properly.
Closing variances properly
For an auditor, how you closed a variance matters as much as the result. For each adjustment, keep:
- What the variance was and when it was found.
- What investigation was done, and by whom.
- The decision (update location, dispose, write off, add to register) and who approved it.
- The accounting entry, if any.
Write-offs should require approval from someone independent of the asset's custodian. Keep the evidence with the asset record so it can be found at the next audit.
Register-to-ledger reconciliation
Once physical variances are resolved, reconcile the register to the general ledger:
- Total the cost of capitalized assets in the register by asset class.
- Total accumulated depreciation by class.
- Compare each to the corresponding GL accounts.
- Explain every difference: timing of additions and disposals, depreciation runs posted in one system but not the other, manual journals.
Doing this monthly keeps the year-end reconciliation small. It also depends on the register being able to produce a clean valuation report by class — see straight-line vs declining-balance depreciation for how the numbers are built.
Preventing variances next time
Reconciliation is a symptom treatment. The cure is recording movements when they happen:
- A check-in/check-out process for shared equipment.
- A disposal process that cannot be completed without updating the register.
- Transfers recorded by scanning at the destination.
- Regular cycle counts so variances are found while they are still fresh.
Reconciliation in Asetavo
Asetavo's audit sessions sort every asset into found, missing and unregistered as you count, and the variance report lets you resolve each item into the register — with a full audit trail of who did what. Disposals record gain or loss and are blocked while an asset is still checked out, and depreciation and valuation reports export to CSV or PDF for your ledger reconciliation. Role-based permissions control who can reconcile and approve.