Automated Fixed Asset Management - A key component of capital spending policy
Defining fixed asset policies and procedures, and formalizing them in a corporate document,
is critical to effective fixed asset management. Those policies and procedures need to be implemented
and acted upon in a consistent manner. However, without a consistent method of managing those assets,
determining their value, location and lifecycle status, the policy and procedures become less effective.
Fixed Asset Management Policies and Procedures
Corporate environments are constantly changing, just as accounting standards,
tax laws and regulatory requirements change over time. These changes can impact fixed asset tracking and accounting.
A comprehensive automated fixed asset management tool can provide the information to ensure that the organization complies with all current rules and regulations.
Maintaining and monitoring a firm's fixed asset policies and procedures is facilitated by the investment in a fixed asset management toolset.
The benefits to the organization can be significant, including effective capital budgeting, accurate determination of asset values and a complete, accurate and up-to-date
repository of fixed asset information. Management, accounting and auditing operations will benefit from the additional level of control and ability to retrieve data on a timely basis.(*1)
What a Fixed Asset Management Policy Covers
Fixed assets include a wide range of equipment considered capital equipment that is expected to have
an extended useful life and are held on a balance sheet as assets. They are expensed through depreciation
over the course of their useful life. Because of rapid design changes in end-user computing devices,
many companies expense them as they are often replaced in 3 years or less.
In this case, they are better managed with an IT asset management tool, or in a tool such as xAssets which combines fixed asset management and IT asset management.
Fixed assets can include items with a long useful life that are installed within a facility,
in transit (e.g. vehicles), or relocated from facility or to another one.
All fixed assets need to be accounted for and their values properly depreciated for purposes of financial accounting, regulatory compliance and tax reporting.
A fixed asset management policy will provide guidelines for the acquisition, control, reporting and accounting for these large budget items. It should cover the following points:
- Define who can request, approve the acquisition and issue purchase orders and payment for fixed assets.
- Procedures for fixed asset acquisitions that require special handling.
- Recording the information required to identify and inventory fixed assets. (e.g. manufacturer, model, serial number, barcode, asset tag)
- The maintenance requirements and maintenance schedule, including those needed to comply with warranties, lease agreements (although the lease payments are typically expensed) and maintenance agreements.
- Authorizations necessary to relocate or transfer a fixed asset.
- A schedule for fixed assets physical inventories of the reporting entities within the firm.
- The process of disposing a fixed asset and recording the disposition
Fixed Asset Management Record Keeping
A truly successful fixed asset management policy requires a high degree of
detailed record keeping.
Firms need to record and track the acquisition, depreciation, lifecycle status, residual value and disposition of their fixed assets.
As part of this recordkeeping, organizations need to have the following information available:
- When the assets were acquired and how much was spent
- The legal and reporting obligations for fixed assets
- How depreciation is calculated
- GAAP and IFRS regulations
- The fixed asset budgets
- The location of the fixed assets
- The current value of the fixed assets
- The market value of the fixed assets
Too many firms, especially small and medium-sized businesses (SMBs),
rely on disparate data sets to manage their fixed assets.
Purchasing records indicate what was purchased,
when it was acquired, what department was charged and
how much was spent. They often do not, however, track the asset after it is deployed.
Spreadsheets can be used to calculate depreciation
but must be manually updated and rely on physical
inventories. The information is often not current and
does not include assets that were disposed of
between inventories, or the value of those assets.
Spreadsheets maintained by different departments or
subsidiaries, or in different countries/currencies, can
also complicate creating a consolidated balance sheet.
In addition, depreciation must be properly calculated.
The fixed asset management policy dictates what type
of depreciation is used and the period over which the
depreciation takes place and when the asset is fully
depreciated. Moreover, the prevailing accounting
standards must be adhered to. There are differences
between the ways depreciation is calculated under
Generally Accepted Accounting Principles (GAAP)
rules and the International Financial Reporting
Standards (IFRS). One of the most significant
differences between the GAAP IFRS depreciation
methods are the estimates of useful life and residual
Although both methods allow for estimates of these
values, under IFRS rules, they need evaluation each year
when a company prepares and releases its annual
report. Consequently, if these annual estimates change,
they affect the remaining depreciation amount for a
fixed asset. The fixed asset management policy needs to
define how and when these estimates will be recorded.(*2)
Automating Fixed Asset Management
Fixed asset management can be complex and time-consuming.
The company's policy must consider the
amount of data that needs to be collected and the
associated accounting practices. It becomes clear that
the policy should include the use of a centralized
automated system for asset management record
keeping. It will be more accurate, timely and require less
Automating the fixed asset management process should
begin with integrating input sources. At the asset level,
barcoding can simplify the collection of required
information for each device. Barcoding can make asset
tracking, inventory and disposal record-keeping faster
and more accurate, and help eliminate human error.
The information from the barcode system, along with
purchasing records and any spreadsheet data can be
imported into a fixed asset management software
solution. Ideally, the selected software can easily be
adapted to meet the company's specific needs. Key
features should include:
- An easy-to-use asset register with rich functionality
- Rapid configuration to meet corporate processes and reporting needs
- Integrate to any data source
- Cloud-based - no local installation required
- On-premise if required by the firm's security policy
- Accessible with any browser or mobile device
- Manage depreciation and disposals using any formula
- GAAP and IFRS compatible
- Output formatted journal data to the general edger or accounting software
- Planned maintenance and task scheduling reports
- User-defined data visualization and reporting tools
- Multiple accounting books and multi-currency support
A fully functional fixed asset management solution
provides a comprehensive database of all of the
corporate fixed assets and the reports and information
that management needs to run the company. Not only
will the software provide information on exactly what
fixed assets the company owns, but it can also be used
to identify and remove ghost assets, or those assets
that are on the books but are no longer company
property. It can also identify zombie assets or those
that don't appear on the books but are owned by the
Make It Part of The Policy
A functional fixed asset management policy needs to
take into account both the controls needed to manage
fixed asset acquisition maintenance, depreciation and
disposal, but the information needed regarding all of
those assets. Disparate record-keeping provides data,
but not actionable information. A central, automated
solution, such as that provided by xAssets, provides all
levels of management a complete picture of the
company's assets, their current value and how they are
being depreciated. For more information on fixed asset
management solutions, and how they would fit into a
fixed asset management policy go to www.xassets.com
1. Fixed Asset Policies and Procedures Manual
2. What Are the Different IFRS Depreciation Methods?
3. Asset Management Best Practices