• It could also affect the general performance of the company if inaccurate gains or losses are recorded in the disposal of assets with their associated tax implications, particularly in the case of earnings.
• It could cause additional or increased audit costs, as auditors may have to spend more time auditing assets due to incomplete or missing records.
• Could result in poor capital budgeting, especially when the main source data that forms the basis of the budget is full of inaccurate or incomplete information
How to effectively manage fixed assets in companies
Profitability is not just a function of revenue, but also better management of resources, including fixed assets, hence the need to ensure their efficient management Possible practical ways to manage fixed assets are as follows:
Guarantee the responsibility and safe custody of assets. – Safe custody of assets is a very important part of the process and is accomplished by assigning a responsible officer as custodian. Only when this is done can asset liability be established, which can result in a higher level of security and help reduce the incidence of theft or misuse, including servicing as a risk management measure.
Institute asset tracking System– Companies that have a large number of assets, particularly mobile assets, should implement fixed asset tracking systems to ensure security and productivity. Keep asset details up to date by tracking their location, use, custody, maintenance, etc. it could help ensure safety, productivity and efficiency.
Perform tagging or tagging of fixed assets – Labeling or labeling assets with unique identifiers goes a long way towards ensuring effective and proper management and control of assets. For example, when a company has multiple fixed assets and some are even nearly identified, a mistake could be made when creating duplicate asset records, hence the need to correctly tag and label assets. Such tagging or tagging could also speed up the audit of fixed assets as they can be easily identified.
Perform asset verification – To ensure optimal asset management, a periodic verification of physical assets must be carried out to ensure their existence and identification, so that the results of the verification are reconciled with the asset records in the company’s books , with all important exceptions noted and investigated accordingly. It could also reveal inefficiencies in the asset acquisition and control process that may require the necessary attention and correction for their protection.
Establish standard operating procedures or a fixed asset policy and strong internal control. – The existence of standard operating procedures (SOPs) or a policy on fixed assets or internal controls is considered a prudent means to manage them effectively in a company. As they tend to be huge capital expenditures, putting these mechanisms in place will ensure that their acquisition, maintenance, movement and disposal are properly managed with a lower risk of incidents such as theft, existence of phantom assets, misuse and errors that have the potential to affect profitability. Duly accepted and documented depreciation and disposal policies with proper implementation will reduce the risk of financial reporting misstatements or errors.
Acquire reliable fixed asset software – Reliable fixed asset software will not only have data available on asset components, location, quantity, etc., it will also improve reporting. The application of manual means to calculate depreciation could have various errors that will affect the reliability of the value of fixed assets in the financial statements, however, the use of such software offers relatively improved reports that could be generated at any time or day. Practices such as comparing, scanning, and attaching invoices to asset records are recommended as they will provide management with an accurate assessment of fixed assets within the entire business and facilitate auditing of fixed assets.
It is proven that with effective fixed asset management, companies have the potential to maximize return on capital investments, reduce risk and increase asset management efficiency, save administrative time and costs, improve accuracy of financial and tax reporting compliances and to make effective decisions to improve overall organizational profitability and support growth.