Manual fixed asset management methods can be labor intensive and add considerably to the total cost of asset ownership. A good fixed asset management system that also incorporates barcode technologies will speed up your physical audits, making them both fast and efficient leaving your finance team with more time to focus on other tasks at hand. It will also establish asset values and produce accurate depreciation and amortization calculations in accordance with relevant tax and accounting rules.

But why should an organization trade in its spreadsheets for a dedicated fixed asset management system?

The accurate management of fixed assets can lead to significant tax savings in depreciation deductions, while poor fixed asset management can negatively affect the accuracy of financial reports, causing re-reporting and ultimately impacting the bottom line.

The PCAOB, and independent auditors, have already started the process of reviewing internal controls on fixed assets. The best property record system in the world does not represent true internal control. The only way to assure that the property record is correct, and that the record truly reflects actual conditions, is to take a physical inventory of PP&E and then reconcile the results.

If you are looking to justify the implementation of a fixed asset management system, take some time to detail the deficiencies in your current processes. Then set up a working schedule, a timeline, with specific tasks assigned to individuals. This will involve all the participants discussed above, plus IT management to assure that all new software is fully compatible with existing company systems.

The best practices we recommend can be handled as follows:

Determine the current condition of you property record system, including both the capabilities of existing software and the underlying accuracy of the information contained in today’s system.

Make sure your existing software has full flexibility and capability to handle the wide variety of uses to which a good property record system can be put.

Review capitalization policy to avoid putting small dollar items into the system.

Start entering new acquisitions into the updated property record system using a barcode tag on each asset.

To the extent resources are available start to clean up the existing file representing past acquisitions by identifying ghost assets, and reconciling what we refer to as zombie assets.

Review insurable values, which can be input into a new system.

Review property tax assessments against current financial information.

Optimize tax depreciation by taking maximum advantage of Federal Tax requirements.

Sample reconciliation should be reviewed to determine the nature of the problem. Just how accurate or inaccurate is the present fixed asset management system? A sample physical inventory will indicate the degree of accuracy.

Set minimum capitalization level as a policy decision. This should be set high enough so that inexpensive items are not set up in the system, thus reducing costs.

Start a new system with new acquisitions from today forward. Going back and fixing everything may appear unrealistic, but at a minimum an organization should start a new control system and use it from here forward.

Get current records in line with reality. This involves making sure current accounting records reflect actual assets on hand. Three approaches are possible:

1. Take existing printout and try and find the items.

2. Take a physical inventory and identify corresponding items on existing property ledger.

3. Use a professionally developed and supported asset tracking tool such as Track4000.

Review Property Tax issues. Eliminate ghost assets from records to reduce taxes. It is not always necessary to have the same value for property taxes as is used elsewhere in the system. For example, so-called ‘soft construction costs’ probably should be removed from asset values reported to local assessors.

Review Insurable values. Assets should be neither over-insured nor under-insured. A good property record system can be updated to current replacement cost using indexes.

The owner of an asset is the individual or department that has physical custody of the asset and should have overall responsibility for the asset. In many organizations, however, this sense of responsibility is missing. Thus there appears to be no incentive for asset sales, retirements or transfers to be recorded in a timely basis. What the property accountant does not know simply cannot be recorded.

Therefore it is the responsibility of the asset owner to communicate properly. The Internal Auditors should treat property records, and the internal control of fixed assets, as a high priority. Most internal audit departments have very limited resources, and the audit committee and top management will usually indicate areas of concern. With other aspects of internal control pretty much taken care of, one of the largest areas still needing scrutiny deals with PP&E.

Finally, the External Auditor allocations of resources are governed by a number of factors, including perceptions of SEC and PCAOB areas of interest. It would not be surprising to see these regulatory organizations start to scrutinize internal controls on fixed assets; in turn this will force independent auditors to increase their focus on this specific area in future annual audits.

Fixed asset management is often a group effort in an organization, as many different positions share responsibilities. From the CFO to the Internal Auditor, each position plays a role in maintaining and reporting on the asset register and assuring the record system is accurate.

The CFO and Controller have primary overall responsibility for internal control and fixed asset acquisition, management and disposition. Usually, one or more individuals are given direct responsibility for maintaining the software system and input from others in the organization is imperative. This can sometime cause a breach in communication, as in many organizations, the property accountant has difficulty obtaining cooperation from higher level managers in other departments.

The Property Accountant is at the heart of every successful fixed asset system and the related internal controls. This is an important job. The individual(s) have far-reaching responsibilities in virtually every aspect of the organization’s operations, including tax, insurance, IT, strategic planning and budgeting.

The Tax Manager has perhaps the single biggest role in utilizing the property record to optimize the organization’s cash flow. Federal and state taxes on income are directly affected by depreciation and amortization charges. Property tax assessments are usually based on information supplied by the tax manger from the property record. The choice of lives, depreciation methods and individual asset basis for tax purposes can significantly affect cash and reported income. We do not recommend, however, that tax departments have the primary responsibility for the property record system.

Up next:  More roles and responsibilities

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.

A comprehensive system of internal control of fixed assets encompasses a number of steps. Here are the critical stages: Capital expenditure approval controls are assumed to be in place. In most organizations, amounts above a structured threshold must be approved at senior management or executive level officials in an organization.

Set up property record (software) and barcode. Today’s fixed asset software systems have substantial capacity and features. Conversion to a professionally developed and supported system, such as Asset4000, is quick and efficient. Barcode identification is recommended to be used on most assets controlled by the fixed asset software system.

Determine life and depreciation method. While many companies use the same lives for corporate book and tax book, there is no requirement that this be done. Many companies would gain from ‘uncoupling’ the two systems. Similarly, different depreciation methods can be used for corporate book and not tax.

Typically, when performing an initial inventory it is common to find that up to 15% of assets on the books may not be there. These assets are sometimes referred to as ghost assets. Additionally, it is possible to offset discrepancies, assets present but not on the books. These assets are referred to as zombie assets. The existence of ghost and zombie assets is the first evidence of poor internal control.

Based on recent events in the global marketplace, it appears that in the future, internal control of fixed assets is going to receive a lot of attention from auditors, the SEC and the PCAOB. With tighter restrictions coming down the pipeline, stringent control over fixed assets and their physical locations will remain a necessary business practice.

However, many organizations are still relying on spreadsheets or other antiquated systems that are time-consuming and require the active involvement of management personnel. Acquiring and utilizing a good fixed asset management system that incorporates barcode technologies will speed up physical audits, making them both fast and efficient.

Up next:  Life-cycle of best practices

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.

The PCAOB, and independent auditors, have already started the process of reviewing Internal Controls on Fixed Assets. The best property record system in the world does not represent true Internal Control. The only way to assure that the property record is correct, and that the record truly reflects actual conditions, is to take a physical inventory of PP&E and then reconcile the results.

It is highly likely that there will be some significant discrepancies, due to a multitude of causes. Correcting these discrepancies, in turn, may involve material accounting entries. Whether it is possible to offset discrepancies, assets present but not on the books (zombie assets), with assets on the books that cannot be found (ghost assets) is a matter for each company and its auditors.

In many cases these can be considered corrections of prior accounting errors. In other cases, a charge to expense may be required. Once such an inventory is taken and reconciled, then management can sign the Section 404 assertions with confidence. Right now, it is safe to say, many such 404 assertions are made but without underlying support, at least in the case of fixed asset management.

The only way of assuring that the property record system is correct and accurate is to reconcile the records with the actual fixed assets physically present. In short, one has to take and reconcile a fixed asset inventory, just as is done annually with finished goods inventory.

Using spreadsheets and antiquated systems is time-consuming and requires the active involvement of management personnel. A good fixed asset management system that utilizes barcode technologies will speed up physical audits, making them both fast and efficient.

The procedure is a simple one that involves downloading information from the asset register onto an inexpensive, handheld device. The operator then scans the barcode labels for all assets, automatically recording where they are located and, by exception, noting assets that are not found. The data is then uploaded into the fixed asset system and management is presented with a change report for final authorization before the data is processed against the asset register.

There is one unique aspect of property accounting that may be the cause of inattention to verifying or validating the records. The very nature of depreciation expense, calculated periodically for financial statements, is that sooner or later the net book value of every asset will be written down to salvage value or to zero.

Assume for a minute that a particular fixed asset is missing, perhaps it was traded in for a piece of new equipment and that information was never entered into the property record. As soon as this is discovered, the company should write the asset down to zero and take a charge to earnings, to correct the inaccuracy of the records.

But what if no entry is made? Then each year a depreciation charge will be taken to expense for the missing asset. After a certain number of years, the book value will automatically have been written down to zero. While this has little impact for a single, low value asset, it can seriously affect profit statements when a larger number of more costly items are involved. In the past, management as well as some auditors, were guilty of looking at one year’s expense total and comparing it to the previous year’s. Under the scenario where an asset should be written off, but isn’t, the reported operating expenses year to year will be comparable (assuming the company is using straight-line depreciation).

This thought process, analyzing the Internal Control of Fixed Assets by comparing one year’s depreciation expense to the next, provides a false sense of assurance. As long as the PCAOB is not reviewing audit firm work on PP&E and audit firms are not reviewing PP&E reconciliations of their clients, then the simplistic analysis that the two years depreciation totals are the same obviates challenge.

Independent audit firms have driven the SOX implementation in most organizations. For many companies, compliance with SOX began with their auditors or consultants initially suggesting what had to be done. Outside consultants were probably brought in to help establish and test the controls. Then the company’s independent auditors tested the controls that were put in place so the audit firm could affirm management’s assertions as stated in Section 404. The missing link was that the audit firm overlooked the physical inventory and reconciliation function for fixed assets. In effect, they told management that as long as they had a functioning fixed asset software system, had controls on the acquisition and capitalization of assets and properly calculated depreciation, they were OK.

Further, the Public Company Accounting Oversight Board (PCAOB), while stating that controls over PP&E were necessary, actually did not put emphasis on fixed assets in their reviews of auditor work papers. However, it has been reported that the PCAOB is planning to start a crackdown on what is effectively malpractice.

In the past, where the PCAOB did not follow this up, then the independent auditors, with limited time budgets, did not check that the assets shown on their clients’ property records were actually there. This lack of emphasis on the physical reconciliation of company property records is about to change as the PCAOB puts PP&E higher on its priority list. The PCAOB inspectors will find that some independent audit firms have done little work on asset reconciliation and, if firms are written up for this ‘deficiency’, they will very quickly start scrutinizing their clients’ practices in physical reconciliation of PP&E. When gaps are identified they will have to be plugged, inevitably delaying publication of the final accounts and adding considerable internal and external cost to the audit process.

With inventory (raw material, work in process and finished goods), for the past 70 years companies have been required to perform a physical count and valuation at least once a year. Further, auditors are required to monitor closely the inventory taking and pricing. In the case of perpetual inventory systems, periodic sample testing is required, again with external auditor input. After the reconciliation of receivables and inventory, adjusting entries must be made to bring the accounting records into agreement with the underlying fixed asset management.

It is equally necessary that the same kind of reconciliation of reported balances to actual physical assets is in place because for many companies, PP&E may represent 35% or more of total assets. Without a periodic reconciliation, the property record system will lose accuracy as items are scrapped or enhanced. If a reconciliation is performed and adjusting entries made, however, the resultant asset category totals have been verified. Management can then sign with confidence the Section 404 certification – its assertion that there is a system of Internal Controls and that the system is working properly.

Very few companies systematically reconcile the assets shown on their property records with actual physical assets being utilized by the organization. Progressive and responsible companies undertake regular physical audits, reconciling what is there with what is supposed to be there (per the property record system).

It is a high risk strategy for company management to sign a Section 404 certification if such an inventory of Fixed Assets has not been taken. Yet many companies are implying each year their Internal Control systems are working without such checks. How is this possible?

are sometimes referred to as Property, Plant and Equipment (PP&E) and the terms are used interchangeably. In many companies the following elements of Internal Control over PP&E are considered and performed according to standard guidelines:

Fixed Assets

-Approval process for Capital Expenditures (Capex)
-Determination whether planned expenditure is capitalized or expensed
-Purchasing and Accounts Payable systems are correctly applied
-If capitalized, appropriate useful life and salvage value determined
-Correct depreciation expense is calculated and applied each period
-Property tax reports filed with tax jurisdictions
-Insurance coverage relates directly to asset exposure

However, there is one critical element of Internal Control that often is missed. This involves periodically checking that the information shown in the property record system corresponds to the actual assets reported to be there. To put this into perspective, a company may have a very good system of invoicing and accounts receivable, but it is still necessary to confirm the outstanding balances as part of the required annual audit. One well known aspect of this is the verification of ageing debts in the A/R ledger to confirm their collectability.

Under Section 404 of the Sarbanes-Oxley Act of 2002, management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Company’s internal control over financial reporting is effective.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of external financial statements in accordance with generally accepted accounting principles. Internal controls over financial reporting, no matter how well designed, have inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the Company’s processes and assessment, as described above, management has concluded that, as of ________ , the Company’s internal control over financial reporting was effective. The effectiveness of the Company’s internal control over financial reporting as of __________ has been audited by an independent registered public accounting firm, as stated in their report, which appears herein.

This SOX mandate incorporates all financial aspects of a company’s business, including revenue recognition, valuation of securities, provision of adequate reserves, and so on. Many companies have spent literally millions of dollars to be in compliance with SOX. Further, the annual testing of these Internal Controls is a major responsibility of top management, which must personally sign a compliance statement with serious potential consequences if the report is in error.

There is, however, for many businesses one operating area that may not be in ‘Control’, at least as far as the word is defined in SOX. By definition, the directive requires that control totals (the property record detail and totals) accurately reflect the underlying fixed assets. Many companies have significant discrepancies between what is shown in their property record system and actual assets physically present. In the next series of blog posts, we’ll discuss Internal Control required by SOX with specific reference to Fixed Asset Management.

Why Small Biz Isn’t Ready For IFRS
IFRS conversion is a large task and some small companies may not be able to adjust.

IFRS Returns to the Front Burner
Are the problems that opponents of IFRS point out being resolved?

IFRS: Jekyll or Hyde?
Benefits of IFRS will differ from company to company while creating a level playing field for global organizations.

Balance Sheet Blues
How will the changes impact lessee accounting?

Want to learn more about IFRS in relation to fixed assets? Request RAMI’s IFRS white paper here.

It is important for organizations to understand the deficiencies in spreadsheets and implement solutions that are intended specifically for fixed asset management.   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 decrease in administrative cost but will be in a very strong position as the economy starts to stabilize.

In times of economic uncertainty, a degree of caution 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.

With a good asset register in place, organizations can employ excellent control over the management of assets and also streamline processes to reduce the administrative overhead – hence saving costs. Rather than relying on sometimes complex spreadsheets  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.

What happened to the fixed 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.

The difficulty 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 using spreadsheets to manage the asset register.

The process can be cumbersome, prone to errors and provides the finance team with little 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 valuable corporate investment that is only visible 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.

Many organizations have made the transition to IFRS, with its associated implications for asset valuation, but have yet to fully recognize the administrative overhead and inaccuracy created by reliance upon spreadsheets.

The adoption of a fixed asset register will not only streamline year-end audits and reduce reliance on specific, skilled personnel but will also provide the detailed insight into corporate assets required to attain maximum asset utilization across the business.

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 US GAAP to IFRS, it is tempting for the finance department to maintain increasing control.

However, over the past decade of prosperity, organizations have invested heavily in new assets and equipment.  Manufacturing lines have been replaced, state of the art IT equipment purchased and property portfolios extended.  Yet very few organizations have any real idea of where much of this asset base resides, whether it is being effectively utilized or whether it has been disposed of, despite still being depreciated on the balance sheet.

Up next: Spreadsheet Debacles

A recent article on CFO.com, IFRS Returns to the Front Burner, shows once again the difference of opinions among finance officials on the true impact that IFRS conversion will have on organizations.

CFO.com quotes C. Bradford Richmond of Darden Restaurants as writing:  “[T]he large majority of U.S. public companies, like Darden, serve primarily domestic customer bases and are adequately capitalized without tapping overseas capital markets.  Rather than mandating IFRS for all companies, we believe it would be more appropriate to allow large multinational organizations to adopt IFRS on a voluntary basis.”

Conversely, Martyn Webster of XenoPort Inc. writes:  “If the U.S. remains outside of the IFRS framework, then we will somewhat compromise our ability to participate in, and influence, important matters related to the overall operations of global capital markets.”

These quotes taken from the above mentioned CFO.com article are examples of the varying degree of opinions that IFRS has sparked.  Although we may never come to a strict agreement of the benefits or setbacks of IFRS adoption, one thing is for certain, the debate over whether U.S. companies should be forced to use international accountaing standards continues.

Up next: How IFRS adoption and its associated implications for asset valuations may effect your organization

Legacy System:  Is it high risk?

• Capability, customization, and technical support are limited.
• Slow and clumsy to operate/process information.
• Poor reporting facility/difficult to extract accurate data.
• Auditors insist that a more reliable system is required.
• Unable to run on company specific platforms or servers.
• Integration with other e-business solutions is required.
• Vendor is no longer in business or no longer provides support for old systems.

General ledger or ERP – Need something more robust?

• Does not meet group requirements.
• New workload requires changes to current e-business solutions.
• There is no centralized system.
• You must reconcile individual systems throughout your group.
• Lacks a cost of effective fixed asset solution.
• Built-in, basic asset register lacks the necessary functionality.

Summary

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.  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 enable maximum utilization and achieve a reduction in administrative cost.

There are multiple stages involved in researching and implementing a fixed asset management system. Before an organization begins to research a fixed asset management solution, it should identify current practices.

What type of system do you currently have in place?
A. No system
B. Spreadsheets
C. Legacy system
D. General ledger or ERP

No system: Why consider a system at all?

• Your organization requires on but the project has never been properly resourced.
• Auditors have recommended that you improve the way you manage your fixed assets.
• Your organization’s fixed asset function has been brought in-house.
• You are a fast-growing organization now of sufficient size to warrant one.
• Your asset base has significantly increased.

Spreadsheets:  Have you outgrown them?

• Multiple user system is required
• Audit history is inaccessible.
• Data is insecure and open to unknown, inadvertent corruption.
• Data is too complex to configure with such large quantities.
• Your asset base has grown and is now too large to manage
• No external/technical support.
• You spend valuable time verifying the accuracy of your system.

Up next:  Legacy system and General Ledger

In the previous posts we have reviewed four reasons why having an accurate asset register that shows location, condition and the responsible contact can help ensure that assets are available and usable when needed. Other areas where organizations require a dedicated asset register also include: access to multi-currency, multi-lingual or multi-book capabilities, unable to meet historical reporting and forecasting requirements, wasted time on data entry and lack of confidence in data integrity.

Access to multi-currency, multi-lingual or multi-book capabilities
If your organization operates in many different countries then multi-currency, multi-lingual and multi-book capabilities are most likely imperative in your fixed asset management procedures. A specialist fixed asset management system will have multi-book capabilities to allow core asset information to be shared across any number of books with different sets of figures, enabling compliance with both local and group depreciation policies. Vital information (such as analysis codes, descriptions, acquisition and capitalization dates, etc.) can remain constant across all books while details like asset life, depreciation rules and residual values can be book dependent. As far as multi-currency capabilities go, a specialist system will allow each accounting book to be independently configured to meet international accounting standards. Within the asset register, each office location should be able to record and report on its own assets in local currency. User-defined exchange rates will allow the parent company to easily view and report on the same values in USD.

Unable to meet historical reporting and forecasting requirements
Composing reports and forecasts can be a complicated and daunting process, especially if attempted in a spreadsheet. The data produced is far too important to chance inaccuracies. A specialist fixed asset management system will incorporate standard and customized reporting and forecasting templates to ensure an intuitive method of extracting and analyzing asset data.

Wasted time on tedious tasks such as data entry
Entering and maintaining asset data becomes an endless task when working within the parameters of a spreadsheet. A specialist system will automate the entire fixed asset management process. From data import capabilities to automated reports and forecasts, a significant amount of valuable time can be shaved off the entire process.

Lack of confidence in data integrity
Total control over your fixed asset management data simply cannot be achieved through the use of a spreadsheet. Whether a user input error or unintentional miscalculation, inaccuracies within your fixed asset register are inevitable. With that said how can you be 100% confident in the integrity of this vital data? A specialist fixed asset management system will have security features in place to effortlessly address the issue.

Now let’s visit two more examples relating to the importance of a dedicated fixed asset register.

Lack of an audit trail and overall security
A specialist fixed asset management system will track and record every detail of every action ever made by any user, which is unattainable with spreadsheets. Dates, times and explanations are recorded as well, making it very simple to ensure the security and integrity of your fixed asset data. A specialist system will require a valid username and password combination to enter the system and will enable department heads to define security at an individual level to ensure that confidential information can be viewed only by those that need to see it and safely hidden from those who don’t. In other words, limited access can be set by user in order to restrict read only and editing rights.

Inability to link ‘parent/child’ assets or conduct asset splits, batch disposals, etc.
The ability to link ‘parent/child’ assets is key in order to establish hierarchical relationships and dependencies. A specialist fixed asset management system will display such links pictorially in collapsible branches. A typical example of this might be the association between a PC and software license, where the PC is the ‘parent’ and the license assumes the role of the ‘child’. The option to transfer or dispose of the ‘child’ asset will subsequently follow the transfer or disposal of the ‘parent’ asset, keeping the relationship in tact

For obvious reasons, spreadsheets are unable to accommodate ‘parent/child’ asset relationships in such a way, making it difficult to accurately track and manage these important hierarchical dependencies. The ability to conduct automated asset splits and batch disposals will provide similar benefits.

In our next post we’ll look at the remaining reasons why organizations should implement a dedicated fixed asset register to manage and address a variety of issues surrounding the traceability and accountability of assets.

Let’s take a look at just two of the many issues in which businesses, without a comprehensive fixed asset management system, are failing to address.

Corporate governance requirements
(SOX, CSOX, US Tax, GAAP, SAS 70, IFRS, etc.)
Today, companies of all sizes are subject to increased scrutiny by government agencies and regulatory boards reacting to recent business reports and investor’s requests for higher standards of accountability, transparency and overall corporate behavior. The main goal here is to improve financial management, reporting and corporate governance. With such a high degree of attention focused on your organization, why would you risk the integrity of your financial data by relying solely on spreadsheets? Accurate and effective implementation, management, monitoring and updating can easily be accomplished with a specialist fixed asset management system in place; it’s the only real way to ensure compliance.

Inaccurate depreciation calculations
It is a proven fact that nearly all spreadsheets contain errors, which is to be expected with information entered by hand. Whether it be the background asset data or the formula itself, there’s little doubt that depreciation calculations, when based on a spreadsheet, are likely to be inaccurate. Several people within one accounting department will often access, manage and edit the same spreadsheet, making errors even more likely. A specialist fixed asset management system will eliminate costly depreciation errors. Depreciation formulas and asset lives can be defaulted for each book based on any defined asset category. Processing depreciation this way is both quick and easy, completed with just a click of a button.

But there’s more…In the next post we’ll take a look at two more critical issues that organization’s often do not address without a dedicated fixed asset register in place.

There are many reasons to use spreadsheets, but organizations that use 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.

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.

Manual fixed asset management methods can be labor intensive and add considerably to the total cost of asset ownership. A good fixed asset management system that also incorporates barcode technologies will speed up your physical audits, making them both fast and efficient, leaving your finance team with more time to focus on other tasks at hand. It will also establish asset values and produce accurate depreciation and amortization calculations in accordance with relevant tax and accounting rules.

But why does an organization need a dedicated fixed asset register? In the next few posts, we will take a look at just a few of the issues in which businesses, without a comprehensive fixed asset management system, are failing to address.

And the impact only appears when a claim is made and then challenged by the insurance assessor due to the inaccuracy of the register. In the worst case scenarios where the assets have been moved in mass from one location to another – and the move not recorded in the system – the insurance company will simply refuse to pay out. While companies can perhaps cover the cost of replacing office furniture, losing payment on a network server or two would be far from ideal.

Yet, in reality, the ease with which holes can be punched in the majority of asset registers should be a major concern not just to Financial Directors currently paying over the odds on insurance but also internal auditors. The asset register has a significant effect on company value, especially in industries such as manufacturing. By failing to ensure the asset register is up to date, internal auditors are not undertaking the required corporate due diligence.

It costs less than $60,000 to undertake a full physical audit on assets that could be worth up to $200 million. Combine the one-off event with sound processes for keeping the register up to date and an organization can reduce its insurance premiums and ensure any claims are rapidly processed. Can organizations really afford not to take asset value seriously?

The problems caused by poor asset information extend beyond the initial insurance premium. What happens if a company has to make a claim? As soon as a good insurance assessor sees a ten-year old PC on the asset register, alarm bells start to ring. With minimal likelihood of such an item still being in use, the assessor will be extremely unlikely to pay out.

More critically, the assessor will then be in a position to challenge every item on the register. Suddenly the fire/flood/theft that caused the initial claim becomes ever more serious as the challenge in confirming assets’ existence and location results in long term delays in receiving a payment. This can only cause further problems to an organization desperate to get back to business as usual.

The only way organizations can speed up the claim process is to provide a highly accurate, highly verifiable asset register. Tracking assets during a physical audit and storing the information in an integrated asset register alongside a detailed description and location information is the first step.

With this single record in place, it is a simple process to ensure any changes, such as scrapping or selling an asset or its relocation, are updated within the system. At any time, therefore, the organization has an up-to-date record of complete asset value and critically, location – key for the smooth progress of any insurance claim.