observation, listing, counting, and measuring of the assets of a company, such as inventory, fixed assets, cash on hand, stocks, or bonds. It also includes other items such as insurance policies and contracts. The auditor typically substantiates the figure as per the financial records by physically determining the existence of the item and examining it. For example, the fixed asset account can be physically verified by inspecting the individual machines, buildings, or other fixed assets. The methods used for verification will depend on the scope of work required and type of asset being verified. With some types of items, the auditor will require the assistance of other professionals familiar with the item-for example, with precious metals, minerals, construction projects, and some manufacturing activities. Standards of auditing require some form of physical verification when inventory is present in the financial statements of a company. The timing of the verification depends upon such factors as method of accounting used for the item, auditor's satisfaction with internal controls associated with the item, size of the item in dollars and physical bulk (gold vs. widgets), and other matters relating to the audit.
procedure by which an auditor actually inspects the assets of a firm, particularly inventory, to confirm their existence and value, rather than relying on written records. The auditor may use statistical sampling in the verification process.
