Accounting and Asset management go hand in hand when taking a look at any accounting process for any size business. It can be difficult to find the time and the tools to devote the needed attention to assets that they deserve. The truth is that a company’s assets are the largest investments most companies make. Sound management of assets can yield substantial tax savings in depreciation deductions. Without thorough management of assets, the accuracy of financial reports will be threatened and there will be a negative impact on your bottom line. Establishing the highest standards of depreciation accuracy and best practices in fixed asset management will pay off in the form of savings and efficiency.
Correct Depreciation Calculations
The most important function of asset management is to ensure that depreciation is calculated correctly for all assets. Fixed assets represent the majority of capital investments for most companies and can account for 35-50 percent of a major corporation’s total assets. With this much at risk, it is crucial that fixed assets are managed with solid procedures, best practices and optimal technology.
Errors in Depreciation Cost You
Mistakes with fixed asset depreciation are costly to your company. Fixed assets represent such a significant investment for most companies, mistakes in fixed asset management can have negative consequences. Depreciation errors can lead to financial reporting mistakes and risking failure to comply with regulatory requirements. Depreciation that is improperly calculated can also be expensive to the company both through the overpayment of property taxes and insurance and failing to take maximum advantage of depreciation methods that result in larger tax savings.
Cutting Costs on Taxes and Insurance
If assets that are no longer in service are not properly disposed of in accounting records, companies can continue to pay property taxes and insurance on them. Companies are, on average, overpaying taxes and insurance on approximately 12 percent of the fixed assets on the books. Even mistakes in the amount of depreciation calculated can result in overpayment, as insurance premiums are usually based on a percentage of the total current value of fixed assets.
When you consider fixed asset management software, you need to determine the return on investment (ROI) that optimized fixed asset management would provide your company. To calculate your ROI, you need to look at the total value of your fixed assets and estimate the amount of lost or stolen assets on your books. The average missing assets, for most companies is about 12 percent. Next, based on your tax and insurance rates, calculate the value of overpayments on taxes and insurance for your missing, lost or stolen assets. Compare this annual expenditure to the cost of purchasing and maintaining support of a fixed asset management system.
Take Complete Advantage of Fixed Asset Depreciation
Fixed assets are expensive to purchase and maintain, so it is a benefit they also represent tax savings in the form of depreciation write-offs. But tax laws are constantly changing, and it takes extra caution to ensure that each asset is assigned the correct useful life, depreciation method and any additional bonus depreciation amounts in order to maximize tax savings. Additionally, the limits for Section 179 expenses, which allows for the full depreciation of an asset within the first year of purchase, have increased several times in recent years. Failing to take the full depreciation available on a fixed asset is an opportunity lost and provides additional incentive for companies to demand accurate depreciation calculations.
Asset management reports provide instant insight for tax planning, better use of existing assets and the purchase of future assets. You can easily generate reports with a fixed asset management system and export them to a variety of formats for distribution. Most fixed asset managers develop a set of reports they use frequently, as well as a variety of tools used to provide feedback and insight to the CFO and management.
Reporting from your fixed asset system can be accomplished in multiple ways. First, many software solutions deliver a number report templates included. These reports cover many common metrics reviewed by fixed asset managers and have the advantages of ease of use and rapid creation. Second, with a custom report writer solution, you can create any number of reports from scratch and save them for repeated use. This method has the advantage of allowing you to tailor precisely the type of calculations and format your business requires without limits. With a custom report writer, you can build appealing visuals such as charts and graphs, to create very complex, specialized custom formats such as multi-currency reports. A third, more blended approach exists in some fixed asset management solutions, the ability to customize standard reports. In this feature, you can easily add, remove and move columns, change headers, formatting options and create a tailored appearance and content without sacrificing the time required to build a new custom report.
In 2002, Congress passed the Sarbanes-Oxley Act, which focused on improving corporate governance of public corporations and reduce fraudulent reporting. The Act places new financial reporting burdens on corporations and imposes strict penalties for noncompliance. CEOs and CFOs of public companies in the U.S. must personally certify the integrity of financial reports, as well as the procedures and systems used to create them. Public accounting firms must affirm the validity of the financial reports and assessments.
Even though Sarbanes-Oxley currently only applies to public companies, many private companies and nonprofits are also adopting the methods in an effort to provide better financial insight to financial partners, boards, and donors.
Fixed assets represent so much of a company’s investments that errors in depreciation can have an impact on the accuracy of the larger financial picture. Corporate financial reports that are inaccurate can form the basis for criminal liability for both executives and auditing firms under Sarbanes-Oxley.
With the proper solutions in place, fixed asset managers can efficiently track, manage and report on fixed assets from their assembly or construction through the depreciation over their useful lives. With these exercises of fixed asset management used, the result is the more efficient use of the assets currently owned and better planning for the assets you need.
See what asset management system is right for you.
Image cc Flickr via 401(k) 2103