Life-cycle of best practices for controlling fixed assets

Assign responsibility for maintaining both the assets and the system. In many organizations, responsibility for assets and internal control over those assets is dispersed. Specific responsibilities, with adequate controls, should be a priority in every company.

Procedure to track changes and retirements. Perhaps the main reason that fixed asset systems fail to reflect actual physical assets is that changes (including transfers) and retirements of assets (including trade-ins) are never reported and therefore never captured.

Physical inventory taken periodically and books adjusted. This is going to be the single hardest thing to do, because it is labor-intensive, and may result in accounting write-downs. By the same token, without such periodic inventories, which are aided by barcodes, it is impossible to certify for SOX compliance that fixed asset controls are working.

Fully depreciated assets are a fact of life. Many companies have assigned accounting lives that are less than the real economic utility of the assets. Consequently, many assets that have zero book value (fully depreciated) are still in use. Memo entries into a fixed asset system should be prepared both for internal control purposes and for proper insurance values.

Disposals are recorded promptly and accurately. The one true generalization about fixed assets is that they seldom are ‘fixed’. Disposals should be recorded, but if they have not, the only way to determine what should be taken off the record is to take the physical inventory mentioned above.