A Guide On Benefits of Fixed Asset Management

Fixed asset management is a process of managing and exercising control on fixed assets owned by an organisation. Fixed Assets are often ignored and taken for granted and one of the least reviewed items on an organisation’s balance sheet. Hence, whilst additions to fixed assets are usually recorded, assets which are missing, sold or no longer in use are often ignored, leading to a less than accurate fixed asset figure on the balance sheet. This gap between the book figures and physical assets is primarily due to lack of tagging or identification of assets, controlling their movement and matching them with the fixed asset register.

It is a tedious task to identify and correctly tag the fixed assets of an organisation, especially if the number of assets is significant, often technical and in many cases widely dispersed.  In-house accounting teams are either ill-equipped to carry out such a task or do not have the time or resources. Consequently, physical tagging of fixed assets and creating a reliable fixed asset register is either ignored or not regularly updated, often to the detriment of the organisation in terms of stolen or missing fixed assets and an inaccurate and outdated fixed asset register.

Benefits of Fixed Asset Management

  • Enables tracking and identification of each asset
  • Assists in organising and maintaining a complete list of assets
  • Prevents theft and fraud by securing the assets
  • Helps in performing Asset Verification and Audit of Assets
  • Provides estimation on the repairs and maintenance cost
  • Complies with statutory requirements
  • Calculates annual depreciation
  • Helps in estimating future capital investment in fixed assets
  • Determines business valuations concerning the maintenance of assets, replacement and upgrading of assets
  • Enhances monetisation and cash flow related to assets

Some pointers to controlling and monitoring fixed assets

1. Procurement, disposal and recording process

A robust and documented fixed asset process must be in place which guides the user in what steps must be followed from the time an asset is planned to be acquired, to placing an order, physically receiving custody to updating the fixed asset register and maintenance frequency of the asset and ultimately its sale or decommissioning. Such a process ensures that no asset is purchased, disposed of or de-commissioned without the right authority and that due process is followed to ensure that all records are properly updated.

2. Periodic physical verification

There can be lapses in the process even with a documented manual in place. To overcome this limitation, fixed assets must be tagged and periodically compared with the fixed asset register to determine if there are assets which are missing or assets which are not included in the fixed asset register.  Such a process is recommended to be followed at least once each year, on a test check basis if a full verification is not possible for any reason. This opportunity can also be used to determine if the maintenance schedule agreed for the asset has been done at stated intervals or not.

3. Reviewing for obsolescence and useful life

As part of the physical verification process, obsolescence of an asset is often ignored. An asset may physically exist but is not actively used as it has either outlived its useful life or is no longer relevant or is obsolete. Appropriate treatment of such conditions is essential to maintain the integrity of the fixed asset register.

4. Restriction on movement of certain assets

Fixed assets often go missing or are lost as there are little or no restrictions on their movement. This is particularly true of remote locations. Process manuals should clearly state the sensitive assets which should not be moved without following a due process. The fixed asset register should record information of their default location and if possible, the custodian of such assets. In cases of very valuable assets such as a mobile X-Ray machine in a hospital or an expensive painting in a bank, use of RFID may be considered which will set off an alarm if such an asset is moved beyond the designated location. In case of remote assets, a tracking system can be deployed which will register the movement of such assets. This is especially true of expensive assets such as cranes, containers and container trucks. Such measures can restrict movement and protect the asset.

How can PKF assist in fixed asset management?

  • If no fixed asset register has been created, PKF can create one based on primary documents.
  • If a fixed asset register has been created but no physical verification has been conducted, PKF can undertake a physical verification and generate a report comparing physical assets with the fixed asset register.
  • If a fixed asset register is in existence and if the physical verification was overdue, PKF can do so and if desired, tag the individual assets. Depending on the nature of assets, resin or aluminium labels can be used. In the case of sensitive and valuable assets, RFID tags can also be used. Coding on the labels is also done by PKF after discussing the coding structure with the organisation.
  • PKF can tag all material assets of an organisation using a web-based fixed asset monitoring software, generate labels (using mobile printers) at the point of identifying and counting an asset, affixing the label and capturing relevant information such as location, nature of asset, serial number, class of asset, custodian, cost of asset, number of such assets, image of the asset and other such relevant details. The labels are machine readable and hence assists during the audit process and easy identification of assets.
  • At the end of the exercise, PKF can generate a detailed fixed asset register which can be integrated with an organisation’s accounting software or as a stand-alone solution.
  • Rather than restrict as a one-time exercise, PKF can continually maintain such a register to ensure that the fixed assets are controlled and accurately accounted for. This also provides assurance to the external auditors that fixed assets are duly monitored, and the fixed asset register is properly updated.

Contact us to avail our services of fixed asset management.