What Is an Asset Review and How Does It Work?

An asset review is a systematic examination of the resources owned by a company or individual. The purpose of this process is to verify the existence, ownership, condition, and valuation of these assets. It provides an accurate overview that helps businesses manage resources, comply with financial regulations, and make informed decisions. This review ensures that financial records are a fair representation of an organization’s activities.

Common Triggers for an Asset Review

One of the most frequent triggers is a merger or acquisition (M&A). During an M&A transaction, the acquiring company performs due diligence to validate the target company’s assets and identify potential liabilities. This confirms the business’s overall financial health before committing to the deal.

Securing financing is another common reason for an asset review. When a business seeks a loan, lenders often require a detailed assessment of the assets being offered as collateral. This review helps the lender determine the assets’ market value and condition, which directly impacts the loan amount and terms.

Regulatory compliance mandates asset reviews in certain industries, such as banking and insurance. Government bodies require these institutions to periodically verify their asset holdings to ensure they meet solvency and capital adequacy requirements. An internal review can also be part of strategic planning, allowing management to identify underperforming or obsolete assets, sometimes called “ghost assets,” to improve efficiency.

A review is also a standard procedure during bankruptcy and restructuring proceedings. A court-appointed trustee or administrator will conduct a thorough review to create an accurate inventory and valuation of all assets. This information is used to determine the funds available to repay creditors and facilitate the reorganization of the business.

Preparing for an Asset Review

Thorough preparation is important for an effective asset review. The first step involves gathering all relevant documentation, which includes:

• The most recent balance sheet and a comprehensive fixed asset register. The register should contain specific information for each item, such as a unique asset identification number, a clear description, its physical location, acquisition date, original cost, and accumulated depreciation.
• All legal and ownership documents that serve as proof of ownership. Examples include real estate deeds, vehicle titles, and purchase agreements or invoices for significant machinery. For any leased assets, the corresponding lease agreements should be provided.
• Documentation for intangible assets, which are non-physical assets that hold value. This includes registration certificates for patents, trademarks, and copyrights, as well as any agreements related to the licensing of this intellectual property.
• Any recent, third-party valuation or appraisal reports. These are particularly important for high-value or specialized assets, as an independent appraisal provides an objective assessment of an asset’s current market value.

The Asset Review Process

The formal asset review process begins with a scoping and planning meeting between the entity being reviewed and the reviewer. In this meeting, the objectives are clearly defined, such as for a merger or loan application. The scope, which dictates which assets or locations will be examined, and a timeline for completion are agreed upon.

Following the initial planning, the reviewer proceeds with a detailed document examination. They will analyze the financial records, including the fixed asset register and balance sheet, and cross-reference them with legal ownership documents like deeds and titles. This step verifies the accuracy of the financial data and confirms the company’s legal claim to each asset.

The next step is the physical verification of tangible assets. The reviewer will visit the company’s locations to inspect assets like machinery, equipment, and buildings. The purpose is to confirm that the assets listed in the register exist, are in the specified location, and are in the reported condition. The reviewer will often use the fixed asset register as a checklist during this phase.

After the physical inspection, the reviewer performs a reconciliation and analysis. This involves comparing the findings from the document examination with the results of the physical verification. Any discrepancies, such as missing assets or assets in poor condition, are noted. The reviewer also assesses assets for potential impairment, which occurs when an asset’s market value is less than the value on the company’s books.

The asset review concludes with the issuance of a formal report. This document summarizes the entire process and its findings. It includes a detailed list of the assets that were verified, their assessed values, and a description of any discrepancies or issues uncovered. This final report provides a substantiated picture of the company’s asset position.