Best practices for controlling fixed assets

Fixed Assets are sometimes referred to as Property, Plant and Equipment (PP&E) and the terms are used interchangeably. There are three crucial aspects of internal control in relation to fixed assets that top-level management should focus on. The next few blog posts will discuss the three key elements to accurate fixed asset management and offer solutions and recommendations to maintaining accuracy on the asset register.

The first imperative of internal control is Sarbanes-Oxley, which requires all publicly traded firms and firms that may go public or be acquired by a public company to have a system of internal controls. Emphasis to date has been on revenue recognition and valuation of financial instruments. It appears that accounting firms, the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are starting to focus on evaluating company controls over PP&E.

Second, a good system of controls over fixed assets, real estate, IT assets and machinery and equipment will help companies reduce both property taxes, and avoid unnecessary insurance expense.

Finally, a good property record, with periodic inventories of assets, assists companies in optimizing the acquisition of new assets by being able to transfer unused or infrequently used assets to areas of greater need. Maintenance records associated with the property record can aid in determining when it is cost effective to replace an asset.