Since FY 2021–22, the Companies (Auditor's Report) Order, 2020 has changed what the statutory auditor must say about your fixed assets. Clause 3(i) is no longer a one-line "records maintained, verified at reasonable intervals". It asks specific questions, and "we don't have that" becomes a qualification in the audit report that your board, lenders and investors read.

What clause 3(i) actually asks

The auditor has to report on five things:

  • (a) Records. Whether the company maintains proper records showing full particulars, including quantitative details and situation, of property, plant and equipment — and, separately, of intangible assets.
  • (b) Physical verification. Whether PPE was physically verified by management at reasonable intervals, whether any material discrepancies were noticed, and whether they were properly dealt with in the books.
  • (c) Title deeds. Whether title deeds of immovable property are held in the company's name; if not, a table of the exceptions.
  • (d) Revaluation. Whether PPE or intangibles were revalued during the year and, if the change is 10% or more of the net carrying value, whether it was based on a registered valuer's report.
  • (e) Benami proceedings. Whether any proceedings have been initiated or are pending under the Benami Transactions (Prohibition) Act, 1988.

Items (c), (d) and (e) are documentary. Items (a) and (b) are where most Indian companies get qualified, because they depend on work that has to be done on the floor, not in the finance office.

"Full particulars, quantitative details and situation"

This is the register requirement. In practice the auditor is looking for, per asset: a unique identifier, description, date of capitalisation, cost, location (the "situation"), and quantity where assets are counted in units. A Tally ledger with "Computers — ₹42,18,500" does not meet the test. A spreadsheet with 6,000 rows that nobody has reconciled to the floor is better, but the auditor will ask how you know it is complete.

What satisfies it: a register where every line has a tag number that exists on a physical asset, a location that can be walked to, and a custodian who signed for it.

"Reasonable intervals"

The Order does not define the interval. The Guidance Note from ICAI suggests the auditor consider the size of the company, the nature of its assets and their value. The working convention most auditors apply is: every asset verified at least once in three years, with high-value or mobile assets (vehicles, laptops, medical equipment, tools) verified annually. If you have never verified, or verified "a sample" with no method, expect the auditor to say so.

"Material discrepancies … properly dealt with"

This is the part companies underestimate. Finding that 140 items on the register cannot be located is not the failure; failing to do anything about it is. "Properly dealt with" means: investigated, classified (scrapped, stolen, transferred without paperwork, never delivered, wrongly capitalised), approved by the right authority, and written off or corrected in the books with a trail. The auditor wants to see that process, not just the number.

What being ready looks like

  1. A register that reconciles to the general ledger — same gross block, same accumulated depreciation, by class.
  2. Every asset physically tagged with a unique identifier; the tag number is what links floor to register.
  3. A verification cycle with a method (who, where, when, what evidence), completed within the last 12 months for high-value assets and 36 months for everything else.
  4. A variance register: each discrepancy, its cause, who approved the resolution, and the journal entry that closed it.
  5. A report the auditor can rely on without redoing the work: scope, locations covered, count verified, discrepancies found, discrepancies resolved, discrepancies open.

If you are starting from a spreadsheet and no tags, the realistic path is a one-time tagging and verification exercise before the next year-end, followed by an annual cycle you run yourselves with phone-based scanning. That is exactly what SBC FIX-TAG's field team and platform are built for — but the principle holds whatever tool you use: the auditor is asking whether your register and your floor agree, and whether you can prove it.