Archive for Thought Leadership

Fixed asset management advantages are more than accurate depreciation

As the economic recession continues, executive management teams and the boards of many private and public entities are exploring ways to proactively strengthen their financial positions in order to ride out the economic downturn. Among the strategies many of these organizations are taking is a move to more accurate and effective fixed asset management.

From a purely operational standpoint, having an accurate asset register that shows location, condition and the responsible contact can help ensure that assets are available and usable when needed. But how a business manages its assets also has multiple effects on the entity’s finances, through the very tangible costs of heightened insurance premiums, property taxes and neglected depreciation. These areas cannot be effectively addressed without a specialist fixed asset management solution.

Organizations that are using cumbersome spreadsheets to manage an ever-growing asset register constantly struggle to address a variety of issues surrounding the accountability and traceability of their asset base.

A recent article in The CPA Technology Advisor, Asset Management Means Much More Than Just Depreciation, emphasizes the importance of accurate asset depreciation, since assets are often one of the largest line items on a financial statement. With effective strategic management of depreciation a business can gain a more exact knowledge of its overall fiscal strength. Poor depreciation management can lead to missed tax benefits and return on investments.

RFID in practice

Can RFID actually deliver on this promise? How do the ID tags work, are they reliable and what is the possible maximum range between each asset tag and the RFID reader?

The first decision a district needs to make is whether to opt for Active or Passive RFID. Passive tags are significantly cheaper

RFID can transform asset management

The Asset Challenge

The next generation of accounting principles for entities in the U.S. is the International Financial Reporting Standards (IFRS). These standards will soon replace the existing GAAP and other traditional rules at commercial institutions, and similar requirements for public entities such as school districts will undoubtedly follow. IFRS requires greater fixed asset management accountability and the provision of a full audit trail. Unfortunately, many school districts currently use antiquated and inefficient methods, like spreadsheets, resulting in poor fixed asset management processes that result in highly inaccurate asset registers.

From highly mobile items such as laptops that cannot be accurately located, to district buses and vehicles, and even IT infrastructure that may contain multiple component parts that are frequently changed by staff without being recorded, some school districts simply have no idea what happens to many assets once they are in use.

But how can a district afford to periodically devote valuable staff time to undertake a manual audit? With staffing shortages and continuing IT and accounting needs across the organization, most simply cannot afford to spend an inordinate amount of time performing laborious asset audits. Furthermore, manual audits can be notoriously inaccurate.

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

2009 Stimulus bill brings major changes and challenges for fixed asset management

Congress has reached a tentative agreement on a $789.5 billion plan to stimulate the U.S. economy. On February 16th, President Obama is expected to sign The American Recovery and Reinvestment Act of 2009. The bill, which is 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.

Approximately 35% of the bill is dedicated to tax cuts. The tax cuts are split 50/50 between personal tax cuts and business tax cuts.

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

Example:
Because of the economic downturn resulting in an operating loss in 2008, Company ABC originally decided to postpone purchasing a new, more efficient label making machine. The cost of the purchasing machine is $780,000. Upon hearing of the 2009 ESA, Company ABC reevaluated their decision to postpone the purchase.

• Purchase Price $780,000
• 5 Year Life using Half Year Convention

Under Section 179 Company ABC expenses $250,000 right away to leave a new depreciable basis of $530,000. Applying the ESA 2009 bonus depreciation, Company ABC can additionally deduct $265,000 (50%), leaving a new basis of $265,000 which they can then apply the normal depreciation of $53,000 to for the first year.

After further analysis, Company ABC decides to take advantage of the tax savings and purchase the equipment in 2009, rather than take the chance that the stimulus package will be extended to 2010. They will reap tax advantages as well as the benefit of the new machine’s efficiencies in 2009. Because Company ABC is a small business with revenue under $5 million, they have an additional safety net of being able to use current losses to reduce taxes paid over the past 5 years, should they need to.

NOTE: While this reduces the taxable obligation in 2009, later years will be comparatively higher due to less depreciation expense. Also, states are not required to follow suit with Federal guidelines, therefore, depending on which states the assets are located, bonus depreciation may be required to be added back in to calculate your state taxable income.

Summary: Reducing tax obligations in the near future allows companies to invest in capital assets today, ideally allowing companies to save jobs, make money, and ultimately stimulate the economy as a whole.

RFID in school administration

Since the adaptation of more stringent reporting requirements such as GASB 34, one of the more time-consuming tasks for school and district administrators has been maintaining accurate asset registers. Unfortunately, studies have shown that as much as 50 percent of an organization

Managing assets with RFID

For most people, RFID is most readily recognizable as the tiny tags placed in or on an item that helps determine its location. Examples of widespread RFID usage include automated toll road payment systems, ID cards, passports and retail functions. The technology evolved out of retail store security methods and from technologies such as barcoding, which was initially geared toward inventory management. Over the past several years, the popularity of RFID has grown immensely, enabling real-time tracking, which enhances accountability and reduces asset loss.

RFID has been making waves for over a decade as corporate organizations sought to leverage unprecedented ease and accuracy of goods tracking to drive down costs and improve product availability. The technology is still advancing in this arena, especially with the continued decrease in pricing for the individual RFID tags, which now is as low as a few cents each. The technology has been strongly embraced by other entities, as well, including libraries, museums and higher education institutions to track valuable assets ranging from computers, to vehicles and infrastructure.

With increased focus on organizations across both public and private sectors to improve asset accountability and traceability, the time is optimal for school districts and other public entities to also consider the benefits of RFID.

RFID for the K-12 education market

Times are tough all over, including for public school districts. Over the past decade, these entities have faced dual challenges of tightening budgets and increasing fiscal responsibility and oversight.

But through the implementation of unified fixed asset management programs and accompanying asset tracking technologies, such as radio frequency identification (RFID), school districts and other public entities have found a proven method of managing their assets, while also reducing staff requirements, increasing accountability to school boards and government oversight, and saving money on insurance premiums by not insuring ghost assets.

Fixed asset register is key to business value

It seems extraordinary that so many organizations have made the painful transition to IFRS, with its associated implications for asset valuation, without recognizing the administrative overhead and inaccuracy created by reliance upon spreadsheets.

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.

Streamline processes with fixed asset management software

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

Controled asset registers best choice for IFRS compliance

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