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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.
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)
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:
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:
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 value.
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)
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 manual input.
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:
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 corporation.(*3)
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
4. Asset Management Best Practices - xAssets Blog Article
5. Asset Management Best Practices - xAssets Blog Article
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