Archive for General News

The fixed asset challenge

There is now a greater understanding across organizations of the value of accurate asset registers – and the potential business cost of today’s endemic inaccuracy. With upwards of 50% of assets on most registers no longer in use, organizations recognize they are in danger of over-paying insurance premiums, creating mismatched disaster recovery plans and even creating inaccurate company valuations.

Furthermore, compliance to International Financial Reporting Standards (IFRS) demands fixed asset management accountability and the provision of a full audit trail. With IFRS becoming increasingly prevalent within the public sector, the spotlight is now on the widespread poor asset management processes that have resulted in these highly inaccurate asset registers.

From highly mobile items such as laptops that cannot be accurately located, to heavy machinery composed of multiple component parts that are frequently changed by maintenance without being recorded, organizations simply have no idea what happens to assets once in use.

But how many businesses can afford to periodically interrupt production to undertake a manual audit? Taking manufacturing processes offline or disrupting operations is just not a viable option for most businesses. Furthermore, manual audits can be notoriously inaccurate; horror stories abound of organizations that have embarked upon manual audits only to discover that many months into the exercise only 60% of assets have been checked.

Indeed, even those organizations that have adopted barcodes in a bid to impose greater control and visibility over their asset base still struggle to gain access to certain parts of the infrastructure – from production lines to clean environments, such as hospital operating theatres.

The ability to use RFID technology to scan hundreds of assets at once, from a single point, while ensuring business continuity has the potential to transform the entire asset management process.

New ways to use RFID

RFID, or Radio Frequency Identification technology, is generally used for tracking inventory. But in a recent article appearing in the Wall Street Journal, New Ways to Use RFID , it seems consumers are going beyond the initial intentions of RFID and finding new and creative ways to use the technology.

The WSJ article states: “Getting less attention are a host of businesses that are finding innovative ways to use RFID internally, to keep track of high-value items like computer equipment, for instance, or of things that get used over and over, like legal files—or sushi plates.”

RFID asset tracking may just now be picking up speed in the commercial environment, but with growing pressure in the corporate world for improved asset management and accountability, RFID has an important role to play. As its popularity increases, it’s easy to see that RFID’s possibilities are limitless.

Making Waves
RFID has been making waves for over a decade as organizations throughout the supply chain look to leverage unprecedented ease and accuracy of goods tracking to drive down costs and improve product availability. But, as yet, the technology has not achieved optimal results. This is particularly relevant within the retail environment where RFID tag costs make it impractical to take the technology beyond pallet level, undermining the vision of individual product tracking from the manufacturer to the store shelf.

However, the technology has gained significant traction in other areas here in the U.S. and abroad; most notably, new passports now include RFID tags and other transportation payment systems are utilizing the tags as well. Indeed, the technology has also been embraced by libraries, museums and higher ed institutions to track valuable assets. The result of this diversification of RFID application is a significant reduction in unit cost over the last few years.

With increased focus on organizations across both public and private sectors to improve asset accountability and traceability, isn’t it time more organizations considered the benefits of RFID?

Real Asset Management opens west coast office

San Francisco Location is 3rd in U.S. for Financial Software Developer

Real Asset Management International (RAMI) has announced that on May 25 it will open an office in San Francisco to support current customers and future business development. This will be the first office on the West Coast and the third U.S. location for the global company, which also maintains offices in Boston, Des Moines, Iowa, and London, England. RAMI develops commercial and public sector software for managing assets, including tracking, inventory, depreciation, transport and logistics.

The company has experienced considerable growth in the West, according to Marcus Scholes, Vice President of U.S. Operations for RAMI. “With a growing number of important customers in the region, the new office will strengthen our ability to provide local support for existing clients, as well as to respond to an increase in interest from companies along the West Coast.”

To accommodate the international nature of many West Coast organizations, the San Francisco office will provide extended helpdesk and service hours to support the Pacific Rim market. The new office is located on California Street in San Francisco’s financial district, which Scholes says is ideally suited to serving the company’s diverse client base.

“In this period of economic challenge, the move to more accurate and effective asset management can be invigorating to a business,” according to Scholes. “RAMI’s solutions can help strengthen an organization’s finances by providing essential short-term cashflow benefits, as well as positive longer term advantages with regards to workflow processes, security and disaster management preparation.”

Asset value

The commercial sector is facing up to the forthcoming shift to IFRS with mixed emotions about what the business benefits will be. The implications across the board are significant, but for the management of the asset base, the changes will have a fundamental impact on operational processes and the administrative overhead.

But the most significant issue is that the process will create far more individual asset records and far more complex registers. This will create audit challenges and constrain the desire to improve operational performance through effective utilization of assets and budget. It takes visibility of the bigger picture to really appreciate the long-term benefits that specialized asset accounting and IFRS will bring.

The fixed asset register is key to business value in many ways. Disaster recovery strategies, business continuity plans, insurance claims and due diligence during a merger or acquisition all begin with the information recorded in the asset register. Those businesses that recognize the need for a tailored asset management solution rather than a massive spreadsheet will not only enable maximum asset utilization and achieve a reduction in administrative cost but will be in a very strong position when the economy swings around again.

Asset registers impose excellent control over management of assets

With a good asset register in place, organizations can not only impose excellent control over the management of assets but also streamline processes to reduce the administrative overhead – hence saving costs. Rather than relying on complex spreadsheets – and associated expertise – to manage new depreciation calculations, and changes to the treatment of leased assets and impairments, organizations can leverage an automated solution to dramatically reduce the month and year-end processes.

This not only drives down administrative time but also reduces the reliance upon one or two experts responsible for the creation of highly complex spreadsheets that are impenetrable to anyone else in the finance team. By leveraging simplicity and automation, organizations can deskill the asset management role to gain further cost benefits. This strategy also supports the growing trend towards centralizing the finance role for organizations with multiple locations or operating companies. A centralized asset register supports the move to a shared service center across the entire organization, delivering significant financial savings.

In addition, automated generation of reporting combined with a full audit trail significantly reduces the time taken to undertake the year end audit and confirm the asset value – resulting in a reduction in auditor fees.

Can spreadsheets effectively manage your fixed asset register?

Spreadsheet Quandary

The problem for most organizations is that despite going through the process of moving to IFRS and adapting to the new requirements for asset accounting and revaluations, the majority of organizations are still reliant upon spreadsheets to manage the asset register.

The process is cumbersome, prone to errors and provides the finance team with no insight into an asset’s location or its current operational role within the business. Those organizations that have moved to component accounting as part of the shift to IFRS may have achieved a greater insight into the overall asset register but still have no proactive way of imposing control over this base. The result is a massive, highly valuable corporate investment that is, to all extents and purposes, visible only on the balance sheet.

Yet organizations that can impose control and rigor over the asset register will be in a far better position to maximize the existing, deceptively valuable, asset base. They will have a complete picture of asset location and current use; they will be able to keep track of assets – a key issue with the growth in portable IT equipment. And they will be able to ensure that new employees are not automatically purchasing brand new equipment but that existing, serviceable assets are reused where appropriate.

In a recession, this degree of prudence and operational control are essential. Businesses that take care of the pennies on the asset register will soon start to see the dollars appearing on the balance sheet.

Managing fixed assets in relation to IFRS

A recent article on CFO.com, US Will Be The Outlier Without IFRS, cites an international accounting rule maker stating that the United States will pay a high price if not able to embrace International Financial Reporting Standards within the next five years.

Many organizations are currently still debating the merits and costs associated with switching to IFRS requirements. While the expense of switching to IFRS seems to outweigh the benefits associated with the migration, there are some keen qualities to take note, for example the management of fixed assets in relation to IFRS requirements. The change to IFRS could be an opportunity for asset utilization.

Good Housekeeping
With many companies now reporting a capital expenditure freeze, the ability to reuse and reinvigorate existing asset value will become increasingly important as the recession bites. Organizations across the country are imposing far tighter financial controls – and capital expenditure is being reduced to the bare minimum. Coming so close on the heels of the significant expenditure and resource required to manage the transition from to US GAAP to to IFRS, it is tempting for the finance department to batten down the hatches and dig in for the long haul.

What happened to the assets that were replaced by the shiny, new equipment? Are they being used across the business – or simply left unused in a cupboard or warehouse? With no budget forthcoming for new purchases, now is the time to get an accurate handle on corporate assets to ensure maximum utilization and value.

Up next:  The Spreadhseet Quandary

Dedicated fixed asset management systems integral to financial management

Fortunately, businesses are increasingly implementing dedicated fixed asset management systems that are automatically updated to help them keep up with the latest depreciation treatments. These systems also provide enhanced location tracking, compliance reporting and other features that streamline many asset life processes.

As a part of a broader fiscal strategy, the move to more accurate and effective asset management can be invigorating to a business, providing essential short-term cashflow benefits as well as positive longer term advantages with regards to workflow processes, security and disaster management preparation.

One of the most tangible ROI realizations for businesses that implement such a system can be a dramatic lowering of insurance premiums and more successful insurance claims, as well as decreased property taxes. These result from having a more accurate knowledge of assets that are no longer on the books.

Automated fixed asset management systems are integral to responsible financial management, providing more accurate financial statements, streamlining workflow processes and helping businesses take full advantage of available tax benefits.

The 2009 Stimulus Act and tax cuts

The stimulus act also extends temporary provisions enacted in 2008, allowing business expense deductions of up to $250,000.

Highlights of the Business Tax Cuts:
* 50% Bonus Depreciation
* No cap on total amount of assets
* Applies to all capital assets with IRS life of 20 years or less
* Assets must be purchased in calendar year 2009
* Discretionary, can opt out

Section 179 Expense Deduction:
* Can expense up to $250,000
* Total asset purchases must be capped at $800,000 or lose dollar for dollar benefit up to $1,050,000
* Assets must be purchased in fiscal year beginning in 2009

An organization’s fixed assets are often one of the largest line items on their financial statements, but because of the complexities of depreciation and the logistics of keeping up with potentially thousands of items, large investments are often managed poorly.

For businesses that still rely on antiquated methods for tracking their fixed assets and managing depreciation, frequent changes to tax law, such as the 2008 and 2009 stimulus acts, can be a time-consuming burden.

Organizations benefit from 2009 Stimulus Act

A recent CFO.com article, Bonus Depreciation Boosts Cash Flows, cites a study conducted by the RiskMetrics Group which shows how some companies are benefiting financially by taking advantage of the American Recovery and Reinvestment Act of 2009 in relation to fixed assets.

The aim of the 2009 Stimulus Act, in regards to fixed assets, is to encourage companies to increase spending on major pieces of equipment by allowing them to quicken the depreciation of long-lived or capital assets. Companies currently taking advantage of the bonus depreciation are experiencing an increase in cash flow.

The American Recovery and Reinvestment Act of 2009, an extension and improvement, on the Economic Stimulus Act of 2008, includes; federal tax cuts, increases in unemployment and welfare benefits, subsidized healthcare insurance for the unemployed, and investments in infrastructure, education, energy efficient programs, and homeland security.

With about 35% of the 2009 bill dedicated to tax cuts, it contains measures specifically designed to help businesses retain and reinvest their capital through infrastructure improvements and expanded deductions for other business expenses. Most notably, the stimulus package includes a 50% Bonus Depreciation that allows companies to take more depreciation sooner on their fixed assets.

The additional depreciation that is taken effectively reduces the taxable profit that a company makes. Because its taxable profit is lower, the amount of tax a company has to pay on its profit is lower. The stimulus act doesn’t change the total amount of depreciation that is taken over the life of the asset depreciation.