Fixed Asset Management Best Practices


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  • Number of issues pointed out here: Lack of relevant information being tracked for fixed asset purposes Lack of confidence in the data being tracked Costly because of the amount of time spent ensuring accurate financial information Disconnect between accounting and plants with respect to disposition tracking and/or transfers
  • Majority of small businesses track what they own manually in Excel or skip this altogether. Poor processes waste money and can get you into trouble on the financial statements and with compliance. Using Excel to manage fixed assets can be error prone and/or costly for many reasons 1. Excel was not made to act as an asset management system 2. There are not proper controls in place to ensure that assets are accurately categorized. 3. Any tax rules must be created manually in order to properly comply, increasing the risk of error and the time involved Dispositions and transfer tracking are always an issue: Poor communication/process between plants and accountants recording the entries for financial purposes Errors in initial asset creation create inability to correctly record dispositions, i.e. press consisting of many asset parts recorded as one asset – happens because corporate approval is granted to spend $ and proceed on a project basis not on individual asset basis – gets recorded as one press upon project completion Hunt and peck method of inventory may miss transfers – won’t show up on destination inventory list so won’t be looking for it when one plant says they transferred to another Determining the relevant pieces of data to track for acquisition, disposition and transfers is key. If tracking transfers via cost center is important to your business, then cost center must be recorded with the initial asset creation. Missing data is one of the most common problems. It prevents good analysis and reporting
  • Typically, for a customer that has 1,000 assets, the cost of the FAM software license for the first-year, including implementation and training services and customer support averages between $5,000 and $8,000. With a total loss per year of $16,125, the ROI is immediate!
  • Of course, this results in significant risks to companies with medium to large amounts of assets. This can be quite material. Significant deficiency in their provision for book tax basis for assets.
  • Take the time to properly analyze your requirements, goals and objectives before you start Getting all three: people, process and technology, aligned is absolutely essential to ensuring a changed process will work
  • Might argue that of the three, people are in fact the most important Many projects fail by not taking the “people” part seriously. Instead, they start out defining processes, then building technology that supports the processes, and discover later, with great surprise, that information workers are not single-minded It is amazing how “buy-in” can make or break a project. Both processes and technology must be defined with people in mind. They must support the activities that information workers need to perform and generally make their lives easier and more efficient. People must remain on top and in control of their world; technology should be designed and perceived as a useful tool, not as a surrogate dictator.
  • Understanding your current process can help you make better technology decisions Processes should be: Standardized Increase efficiency and productivity Help ensure compliance As simple as possible Should follow correct workflow
  • The value of your solution is in the information it brings to your business.
  • At the bottom of the pyramid, you can see you are heavy in the type of compliance activities you are performing, When you can more effectively manage lifecycle of your assets, you are able to limit your risk of audit and deficiencies as well as streamline the activities involved with remaining compliant both from a GAAP and tax perspective. This will reduce costs and you will see the shift from focusing primarily on compliance activities to more strategic planning for the business. These might include: Future purchasing decisions Better tax strategies for property tax & income tax savings
  • Of course, this results in significant risks to companies with medium to large amounts of assets. This can be quite material. Significant deficiency in their provision for book tax basis for assets.
  • Fixed Asset Management Best Practices

    1. 1. Asset Management: Best Practices for Small & Mid-sized Businesses December 6, 2007
    2. 2. Session Objectives <ul><li>Understand the impact fixed assets have on a company’s financial statement </li></ul><ul><li>See how utilizing the integration of Red Moon Solutions’ Fixed Assets Manager (FAM) with SAP Business One can help you achieve maximum accounting benefits </li></ul><ul><li>Review FAM’s intuitive interface and comprehensive tax calculations, which ensure a company is compliant with all IRS rules and regulations </li></ul><ul><li>Learn best practices used by other companies in tackling asset management </li></ul>
    3. 3. Who is Red Moon Solutions? <ul><li>Products/Services </li></ul><ul><ul><li>Fixed Assets Manager™ (FAM) </li></ul></ul><ul><ul><ul><li>Supported Andersen’s internal U.S. tax practice </li></ul></ul></ul><ul><ul><ul><li>SAP Business One Certified Solution Partner </li></ul></ul></ul><ul><ul><li>Like-Kind Exchange Matching™ (LKEM) </li></ul></ul><ul><ul><li>WorldPro™ Expatriate Solutions </li></ul></ul><ul><ul><li>PowerOLAP ™ - Tax Department Business Intelligence Solutions </li></ul></ul><ul><ul><li>eTaxCalendar ™ - web-based tax calendar </li></ul></ul><ul><ul><li>eTaxPortal ™ - SaaS collaboration workspace, including workflow and document management </li></ul></ul><ul><ul><li>Consulting Services </li></ul></ul><ul><ul><ul><li>Implementation & Integration </li></ul></ul></ul><ul><li>Founded by Jim Shedivy </li></ul><ul><ul><li>Andersen Partner in charge of Tax Technology Enterprises </li></ul></ul><ul><li>Ex-Andersen employees with minimum experience of 6 years </li></ul>
    4. 4. Incorrect information and errors in fixed asset inventory data are a near universal problem – resulting in significant and unnecessary tax overpayments of 8% to 20% Asset Management Resource (AMR)
    5. 5. What are small businesses saying? “ We can’t get the fixed asset information we need from our accounting system.” “ I spend too much time trying to keep track of fixed asset data and calculations in Excel.” “ Were there asset dispositions we didn’t know about?” “ It takes too long to provide required information to the different stakeholders.” “ We do not know where our fixed assets are located.”
    6. 6. Asset Management Challenges <ul><li>Lack of controls and validation in Excel </li></ul><ul><ul><li>Complicated calculations & formulas must be created </li></ul></ul><ul><ul><li>Lack of change control </li></ul></ul><ul><li>Difficulty tracking asset transactions </li></ul><ul><ul><li>Dispositions </li></ul></ul><ul><ul><li>Transfers </li></ul></ul><ul><li>Poor asset data management </li></ul><ul><ul><li>Missing asset locations, cost centers </li></ul></ul><ul><ul><li>Different acquisition vs. in-service dates </li></ul></ul>
    7. 7. Impact on Financial Statements <ul><li>Incorrect profit & income tax </li></ul><ul><ul><li>Continued depreciation on books for disposed assets </li></ul></ul><ul><li>Incorrect property tax </li></ul><ul><ul><li>Unrecorded asset detail for classifying property </li></ul></ul><ul><li>Incorrect insurance costs and inadequate coverage </li></ul><ul><ul><li>Paying for disposed assets </li></ul></ul><ul><ul><li>Missing new purchases </li></ul></ul><ul><li>Poor purchasing decisions </li></ul><ul><ul><li>Duplicate assets acquired </li></ul></ul><ul><li>Poor SOX compliance </li></ul><ul><ul><li>Inadequate controls and processes </li></ul></ul>
    8. 8. Financial Example Number of Assets 1,000 Average Cost per Asset $500 Total Original Cost of Fixed Assets $500,000 Total Cost of Assets Lost or Unaccounted For $75,000 15% of total cost Assumed Corporate Tax Rate 35% Estimated Federal Income Tax Overpayment $13,125 37,500 X 35% Potential Property Tax Overpayment $2,250 3% of asset cost Potential Insurance Overpayment $750 $1 per $1,000 rate Total Loss Per Year $16,125
    9. 9. Overstated adjustments, deductions, exemptions and credits compromise up to $30 billion per year in unpaid taxes, according to IRS estimates. -IRS FS-2006-27 November 2006
    10. 10. Demonstration: SAP® Business One & Fixed Assets Manager
    11. 11. 1. Order is placed in Business One with one or more items flagged as fixed assets 2. Order Arrives. Now there is an account payable for the fixed asset 3. The fixed asset must also be recognized and tracked in FAM 4. Track depreciation over time. As time passes, FAM generates Journal entries for depreciation of fixed assets which are posted to the General Ledger FAM Fixed Asset 1 FAM Fixed Asset 1
    12. 12. Best Practices
    13. 13. People <ul><li>What are the key issues? </li></ul><ul><ul><li>Asset acquisitions </li></ul></ul><ul><ul><li>Tracking disposals and transfers </li></ul></ul><ul><ul><li>Properly classifying assets </li></ul></ul><ul><li>Who owns the process? </li></ul><ul><ul><li>Accounting </li></ul></ul><ul><ul><li>Fixed Asset custodian </li></ul></ul><ul><ul><li>CPA (Tax) </li></ul></ul><ul><li>Who is committed and willing to do the work required to improve the process? </li></ul><ul><li>What training and education is in place to support them? </li></ul>
    14. 14. Process <ul><li>Evaluate your current state </li></ul><ul><ul><li>How are fixed assets recorded today? </li></ul></ul><ul><ul><li>How are dispositions and transfers tracked? </li></ul></ul><ul><ul><li>What are the standard or unique asset events that provide the most risk of failure? </li></ul></ul><ul><ul><li>What processes and procedures are in place to ensure regulatory compliance? </li></ul></ul><ul><li>Model your future state </li></ul><ul><ul><li>What can be done better? </li></ul></ul><ul><ul><ul><li>Tracking assets by location </li></ul></ul></ul><ul><ul><li>How can risk be minimized? </li></ul></ul><ul><ul><li>What don’t we have today that would make it easier? </li></ul></ul><ul><ul><ul><li>Better reporting </li></ul></ul></ul>
    15. 15. Technology <ul><li>Do you have the infrastructure to support the solution? </li></ul><ul><ul><li>System requirements </li></ul></ul><ul><li>What solution is right to address your issues? </li></ul><ul><ul><li>Asset depreciation for book & tax </li></ul></ul><ul><ul><li>Robust search and ad-hoc reporting capabilities </li></ul></ul><ul><ul><li>Ability to generate fileable tax forms </li></ul></ul><ul><ul><li>Simple data conversion techniques for existing assets </li></ul></ul><ul><ul><li>Ability to slice and dice your data for analysis </li></ul></ul><ul><ul><li>Ability to get your data out easily to provide reports to stakeholders and/or to respond to audit </li></ul></ul><ul><li>Can the solution be easily deployed and maintained? </li></ul>
    17. 17. 65% of fixed asset data is incomplete, inaccurate or altogether missing, a potential disclosure risk for executives now responsible for certifying the accuracy of financial data as a result of Sarbanes-Oxley compliance. - Asset Management Resource (AMR)
    18. 18. What Are Next Steps? <ul><li>Select champion or process improvement owner </li></ul><ul><li>Take time to review current state </li></ul><ul><li>Analyze requirements, goals and objectives </li></ul><ul><li>Create ROI and/or business case </li></ul><ul><li>Secure budget and implement sooner rather than later!!!!! </li></ul>
    19. 19. Thank you for joining us today. If you have additional questions or for more information, contact us at: (941)379-7106