Fixed assets and 5 common failures associated with these assets

The 5 Common Failures of Fixed Asset Management
There are common failures that often occur with fixed asset management, largely due to ineffective systems or policies.  However, the common mistakes that many organizations experience don’t need to be a consistent force in your management.  Each of these problems has a solution that can easily remedy the situation.
This whitepaper will reveal the top five failures that can occur when managing fixed assets and offer resolutions for each.

Failure # 1: Using Spreadsheets
Nearly all spreadsheets contain errors, which is to be expected with information entered without effective controls.   Spreadsheets allow for several different types of errors to occur, thereby making it difficult to ensure precision.  Additionally, several people within one accounting department will often access, manage and edit the same spreadsheet, which can compound the likelihood of errors. 

Not only does access by more than one person cause potential for additional errors, but it also removes the ability to maintain an audit trail and overall security.  With spreadsheets, you are unable to track actions made by users.  Besides the probability of being error prone and lacking security, spreadsheets are also:

  Unable to accommodate ‘parent/child’ relationships, making it difficult to accurately track and manage these important hierarchical dependencies.   8 Ineffective in meeting historical reporting and forecasting environments, because of the complexity required by these reports and the inability to rely on the data. 8 “Unable to export information directly into government forms, requiring them to be filled out manually and risking incorrect transcription.

A specialist fixed asset system can eliminate many of the errors that the use of spreadsheets causes.  For example, depreciation formulas and asset lives can be defaulted for each book, based on any defined asset category, which will help remove depreciation errors.  Processing depreciation in a specialist system, rather than spreadsheets, is faster and easier.  It can be completed with just one click of a button.  A specialist system will also provide the structure to link ‘parent/child’ assets, set up security for all users, and offer the ability to run standard and customizable reports.

Failure #2: Not completing a proper physical audit
The credibility of an organization’s data (the existence of assets and its Net Book Values) will be in question if it cannot be verified.  Verifying what an organization owns and the whereabouts is essential for credibility and complying with US GAAP and SOX audit is also an effective asset management procedure that can help ensure assets are insured at the correct level, maintenance is accurately budgeted for and unexpected ‘write-offs’ are avoided.

Physical audits are essential to clean up the variances between what is being financially accounted for on the asset register and what is actually present.  The potential risks of not conducting a physical audit include:

Inaccurate physical verification of assets can render the asset register unreliable. Depreciation could be allocated to the wrong company/cost center/department/division.  Depreciation could be misstated resulting in over or under payment of taxes.  Missing assets (potential theft problem) could go undetected 9 The audit trail of transferred assets can be lost. Assets could be under or over insured 9 Exposure to accounting audit write-up

An organization can avoid these risks by implementing formal physical audit policies and procedures along with a supported asset tracking system which will help control and manage the fixed asset register.  Barcode tracking technology can help reduce the time and money spent managing assets, making proper physical audits quick and simple to carry out.

Failure #3: Unauthorized changes are occurring
There are two ways in which unauthorized changes can occur and cause problems.  The first is unauthorized access to the system and the second is not having the correct procedure in place for changes to asset events.

Security of data is critical to compliance for corporate governance regulations including Sarbanes-Oxley, IFRS, IAS and GAAP. In order to avoid unauthorized changes occurring in your organization’s fixed asset register, security should be defined at user level to ensure that confidential information can be viewed only by those who need to see it.  Individual or group access rights should be designated according to an organization’s specific requirements.  This cannot take place with
spreadsheets so a specialist system is essential for this security.

A well planned transfer and disposal process plays a key role in effective asset management.   An automated procedure that allows multiuser approval can help streamline processes and afford time and costs savings while ensuring the accuracy and accountability of the asset register.  Using a specialist system with event request authorization functionality allows users to create a transfer or disposal request which is then sent to a pre-determined supervisor for approval, thereby allowing organizations to ensure all changes made to the asset register are authorized.

Failure #4: Non adherence to compliance issues
Corporate tax regulations implemented by the IRS and the U.S. Department of the Treasury are constantly requiring enhanced levels of accountability from finance executives.  Various tax forms can be difficult to manage and complete.
You may experience problems with different regulations for the various states your organization may conduct business in or have the inability to regularly review US tax rules nationwide and regularly update your practices to accommodate the changes.

If your organization does not properly adhere to compliance issues you may:
Get audited by the IRS ! Affect your earnings statements and stock prices if your company is public ! Be subject to forfeiture of grant money or tax exemptions
A well planned transfer and disposal process plays a key role in effective asset management.   An automated procedure that allows multiuser approval can help streamline processes and afford time and costs savings while ensuring the accuracy and accountability of the asset register.  Using a specialist system with event request authorization functionality allows users to create a transfer or disposal request which is then sent to a pre-determined supervisor for approval, thereby allowing organizations to ensure all changes made to the asset register are authorized.

Failure #5: Poor reporting or lack of reporting
Composing reports and forecasts can be a lengthy, arduous and costly process that is often subject to human error if conducted by hand.  Bad reporting can affect organizations by:
 Misinforming management of information that is critical to business decisions ! Causing non-adherence with compliance issues, resulting in the consequences mentioned above
In order to avoid unreliable reports for your fixed assets, it is best to use a reporting tool in a specialist fixed asset system.  Typical reports available in specialist systems that will help your organization include:
 A fixed asset balance sheet.  This report consolidates starting points and ending points of the month and shows all of the month’s activities. ! Events.  The reports shows all transfers, disposals, relifes, and revaluations that have occurred in the given time period.  ! Audit history.

This paper was prepared and presented by Real Asset Management group out of Des Moines, Iowa.