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. 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.”
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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. 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
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
16. Managing Fixed Assets for Maximum Bottom-line Impact Strategic Activities Compliance Activities MANAGE ASSET LIFECYCLE Time Spent on: HIGH VALUE ASSET MANAGEMENT LIMIT AUDIT EXPOSURE STREAMLINE COMPLIANCE REDUCE COSTS ENABLE STRATEGIC PLANNING
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)
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19. Thank you for joining us today. If you have additional questions or for more information, contact us at: (941)379-7106 www.redmoonsolutions.com
Editor's Notes
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.
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