Effective Fixed Asset Management

Fixed asset management is not something that companies generally have at the top of their priority list; however, having effective fixed asset management provides numerous benefits that should not be overlooked.

It is understandable that companies may fall short in this area since fixed asset management is something that not only takes considerable effort to maintain, but it also requires processes in place to do so effectively. In this article, we will take a look at common challenges facing companies, key considerations for managing fixed assets and the benefits of effective asset management.

Challenges
Often the biggest hurdle that companies face when managing their fixed assets is the volume of data that must be maintained in the absence of a policy on how to handle it. Not only must a company collect data for asset acquisitions, they must track improvements, disposals, impairments and relocation of assets. The complexity of managing these assets grows significantly when faced with numerous accounting and tax regulations and multiple tax jurisdictions.

Another issue commonly encountered is fixed asset records including assets that are fully depreciated, abandoned or disposed. These assets are also known as “ghost” assets. Although most fixed asset management plans focus on new asset additions, it is equally as important to regularly review asset records and remove “ghost” assets, as they can have an impact on your bottom line.

Understanding the specific challenges faced by your company is the first step to developing effective processes.

Key Considerations
A key consideration to effective asset management is a documented policy. An effective process should produce detailed records that can be traced throughout the asset’s lifecycle. The policy should consider all phases of the lifecycle and include asset recognition/capitalization procedures, record creation procedures, depreciation procedures, geographic or interdepartmental transfers, and lastly, asset disposals procedures.

The counterpart to a good fixed asset policy is the right information technology to manage the data. The right fixed asset management system varies from company to company depending on their needs. For some, it may be sufficient to maintain their asset tracking in an Excel spreadsheet; while for others, they will want to consider asset tracking software. In determining the right approach for your company, it is important to consider the complexity of your reporting requirements. The following scenarios are examples that may warrant asset tracking software:

• Operations in multiple tax jurisdictions with different rules
• Maintenance of separate records for financial reporting and tax reporting
• Tracking of assets at multiple locations
• Operations that include significant construction projects requiring tracking of multiple components

In some cases, the cost to bring the right technology and skilled personnel in-house may not be the right choice, and in those cases, outsourcing or co-sourcing your fixed asset management might be a more cost-effective solution.

Another important consideration is how assets will be physically tracked and reconciled back to the asset records. In larger organizations, physically tagging assets and maintaining a complete asset data record for tracking purposes may be essential. In this situation, it is often beneficial for asset tracking to be the responsibility of the department that purchased the asset. When this approach is adopted, it is crucial that each department report back to accounting periodically (in accordance with the documented policy). Companies should also consider completing an annual review of the fixed assets so the company can identify any assets that need to be written off as they are out of service and to ensure that there are no ghost assets negatively affecting the bottom line.

Benefits
It takes considerable effort to develop and maintain an effective fixed asset management system. So, what are some of the benefits of these efforts?

• A written asset recognition or capitalization policy will ensure that items are expensed or capitalized on a consistent basis.
• A detailed fixed asset system will allow you to produce accurate financial reports at department or category levels established within the system and allow you to evaluate your fixed assets for planning opportunities and maximize tax benefits.
• A robust fixed asset system will allow you to calculate basis for each asset and through different jurisdictions, as well as easily evaluate fixed assets for relevant tax credits and incentives.
• Tagging and physically tracking fixed assets will help prevent theft.
• Disposing of ghost assets will prevent you from over paying personal property tax and insurance.

Conclusion
While fixed asset management may seem daunting, it is an important consideration for your company. Whether you have a system and process in place, or you are just starting out, we are always here to help. Should you have any questions or concerns about your processes for managing fixed assets, or you want to begin the process of implementing systems and procedures, please feel free to contact me at (805) 963-7811 or tsolomon@bpw.com.