Your ERP knows what you bought. It has no idea what you still have.

Kroll Advisory estimates 10–30% of fixed assets on corporate balance sheets are ghost assets. They appear in the ledger. They don’t exist in the physical world. Fixed asset verification, confirming that what the record says matches what physically exists, is the missing step in most finance and accounting operations.

That distinction sounds minor. It isn't. It's the reason auditors flag asset accounts more than almost any other balance sheet item, the reason property tax bills routinely include assets that were scrapped years ago, and the reason organizations carry depreciation charges on equipment that no longer exists. The problem has a name: the V&V gap.

What V&V Actually Means

Engineers have used the terms validation and verification precisely for decades. IEC 61508, the international standard for functional safety, defines them this way: verification confirms that a system was built correctly, while validation confirms that the correct system was built.

Put it in plain English. Verification asks: does this match the spec? Validation asks: is this the right spec?

Fixed asset management has a parallel version of this gap, and it runs in the opposite direction from what most finance leaders expect.

ERP systems validate. They confirm that processes were followed. A purchase order was issued, a payment was made, an asset was capitalized, depreciation was calculated according to the policy. SAP FI-AA, Oracle Fixed Assets, Microsoft Dynamics. These are transaction engines. They are exceptionally good at recording what happened in a financial process.

What they cannot do is verify. They have no mechanism to confirm that the physical asset described in the record actually exists, is in the location listed, is in the condition assumed, or matches any attribute in the subledger beyond what a human typed in at some point in the past.

That is not a flaw in ERP design. It is a design boundary. ERP was built to handle financial transactions, not physical inventory. The problem is that most organizations treat the ERP as a physical inventory system. They expect it to do something it was never designed to do.

The Gap Compounds Over Time

A fixed asset register is accurate the day it is built. From that day forward, physical reality and the financial record begin to diverge.

Assets move between facilities. Equipment gets cannibalized for parts. Fleet vehicles get retired informally. A printer gets thrown out. A server gets decommissioned. Nobody files the journal entry. Nobody updates the subledger. The asset record stays current in the ERP because the ERP has no way to know otherwise.

This is not a discipline problem. It is a systems problem. The humans who move, scrap, and repurpose assets are not the same humans who manage the fixed asset register. The feedback loop between physical reality and financial record is broken by design.

The numbers from Kroll Advisory make the scale concrete. Their December 2025 analysis, led by managing director Masha Lewis, found that 10 to 30 percent of assets on an average register are ghost assets, assets the record says exist but that cannot be physically located or verified. Up to 65 percent of asset records contain errors of some kind: wrong location, wrong condition, wrong depreciation basis, wrong useful life.

These aren't organizations that stopped caring. They are organizations using tools designed for a different problem.

The Consequences Are Not Theoretical

Ghost assets depreciate. If an asset with a $50,000 net book value no longer exists, the depreciation charges it generates are pure phantom expense, a tax and earnings impact with no corresponding economic reality. Multiply that across a large register and the exposure becomes material.

Property tax is a direct cash cost. Most jurisdictions assess property taxes on assets listed in the fixed asset register. If the register includes equipment that was scrapped five years ago, the organization pays tax on it. Kroll Advisory has documented cases where organizations recovered six and seven figures in property tax refunds after a physical reconciliation revealed the gap between their register and reality.

Audit exposure has increased. PCAOB's 2024 Staff Update found that specific deficiency types related to long-lived assets doubled, even as overall audit deficiency rates improved. Auditors are looking harder at this area. A register that has not been physically reconciled recently is an easy target.

Impairment accounting creates additional risk. Under ASC 360 and IAS 36, organizations must test long-lived assets for impairment when indicators suggest the carrying value may not be recoverable. That test requires knowing what assets exist and what condition they're in. Without verification, an organization cannot confidently support its impairment conclusions.

CSRD compliance is emerging as a new pressure point. The European Sustainability Reporting Standards, specifically ESRS E1, require companies to report on physical assets in ways that ERP systems are not built to support, including GPS-level location data for assets in climate-exposed areas. For companies with European operations or EU customers, this is not a future problem. It is a present one.

The Manufacturers Alliance put a cost figure on audit remediation in 2024: $1.17 million to $6.74 million per incident for mid-to-large manufacturers. That range covers audit committee investigation, external review, remediation work, and the controls uplift required to prevent recurrence. The cost of prevention is orders of magnitude lower.

The Wrong Solution and the Right One

The instinct is to fix this with better process. More frequent physical counts. Stricter change management. Better training for department managers. These interventions help at the margin. They don't close the V&V gap structurally, because the gap is architectural, not behavioral.

Manual physical counts are expensive, disruptive, and inherently periodic. You can do one every year. You cannot do one continuously. And every day between counts, the gap reopens.

What closes the gap structurally is a new layer between the physical world and the financial record. That layer needs to do what ERP cannot: continuously capture physical reality through IoT sensors, mobile inspection apps, and intelligent document processing, then verify that reality against the financial record and resolve discrepancies in near real time.

This is what SoloTruth ARM (Asset Relationship Management) does. ARM doesn't replace ERP. It fills the V&V gap. IoT devices and mobile tools capture the physical state of assets on a continuous basis. Workflow orchestration routes discrepancies to the right people for resolution. Verified data flows back to the subledger automatically, keeping the financial record synchronized with physical reality.

The result is not a better process. It is a different architecture, one where the financial record is grounded in verified physical data, not in the accuracy of historical data entry.

The Record Is Only as Good as the Last Verification

ERP systems will continue to be the system of record for fixed asset accounting. That's appropriate. They are excellent at the financial transaction layer.

But a record that has never been physically verified is not a record. It's an assumption. And assumptions about assets that may or may not exist carry real financial, tax, audit, and regulatory consequences.

The V&V gap is not a new problem. The tools to close it structurally are.

If you’re not verifying your fixed assets against physical reality, your ERP is telling a story, not reporting a fact. SoloTruth ARM closes that gap. Book a 30-minute strategy call at https://calendly.com/tim-harris-solotruth/30min