FIXED ASSETS TAX BOOKS ANALYSIS
                  ERP vs. Red Moon Solutions’ Fixed Assets Manager

Red Moon Solutions sol...
need to be built (cost, time and accuracy). Data entry validation is especially
   important for tax. ERP Fixed Asset modu...
that will be in place. Most ERPs do not have controls in place to make sure asset data is
entered correctly and don’t prov...
is to create assets matching the data used (method, convention, life, etc) in
          your current general ledger system...
4. Can foreign assets be restated back to USD within the application with the correct
      translation?

       Fixed Ass...
was in place at the time. All Accounting Information fields can be
               imported.

   7. Are FAS 109 reports ava...
Fixed Assets Manager™ (FAM) Response: FAM fully supports mass additions.
       Mass additions to the FAM system will most...
15. What are all of the items that can be updated or modified once the information is
       loaded into the tax set of bo...
•   4562 Report
   •   4626 Worksheet Report
   •   Bonus Depreciation Report
   •   Mid-Quarter Report
   •   Investment ...
•   Duplicating book data

   •   Exporting periods

   •   Importing data

   •   Making offline copies of a Fixed Assets...
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How ERP Fixed Asset Modules Compare

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Red Moon Solutions provides insight into things tax departments should consider when comparing their ERP fixed asset module to our Fixed Assets Manager product for tax.

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How ERP Fixed Asset Modules Compare

  1. 1. FIXED ASSETS TAX BOOKS ANALYSIS ERP vs. Red Moon Solutions’ Fixed Assets Manager Red Moon Solutions solves asset depreciation problems for professional accounts. It is all we do, we take it seriously, and do it right. Why is choosing an asset depreciation calculation tool so deceptively simple? Politics is the principal reason. Book depreciation has one straight forward set of rules defined by FASB that remain relatively constant over time. Tax depreciation, on the other hand, is the product of annual tinkering by the U. S. Congress and fifty state legislatures. That is why our product needs to ship with pre-defined calculation rules for 438 different asset types. Corporate tax departments call us surprisingly often and begin the conversation with “My ERP system can not handle …..” Having either gotten the first set of reports from the new system or discovered that no tax related reports exist; they call seeking solutions. The following table illustrates the issue. Item Accounting Needs Tax Needs Tax Reports None 20+ Calculation Updates Rare Annual Data Entry Simple/Automatic Complex Data Validation None A Lot Life to Date Calculations None Yes AMT Calculations No Yes Multiple Books No Yes Tax Law Changes No IMMEDIATE Corporations implementing new ERP systems often overlook the tax department issues until late in the game, if at all. To summarize Red Moon Solutions’ experience with companies who have implemented an ERP Fixed Asset module for the tax department: 1. ERP Fixed Asset modules are built to support GAAP accounting not tax. 2. ERP Fixed Asset modules require customization to handle all tax depreciation rules. Cost to implement, time to implement and accuracy are big concerns. Tax rules change every year and maintenance is required to stay compliant. Further work for IT professionals and customization consultants. . ERP Fixed Asset modules are typically unable to meet tax reporting needs – which are significant. We estimate that tax professionals use at least 20 specialized fixed asset reports to do their work. Even then, tax departments often need the ability to export to Excel and do further manipulation. With an ERP Fixed Asset module, extracts and custom reports will Confidential 1 6/25/2008
  2. 2. need to be built (cost, time and accuracy). Data entry validation is especially important for tax. ERP Fixed Asset modules do not provide these rules. Even after customizing calculations, asset classes and fields, ERP Fixed Asset modules remain unable to offer tax data validation. Tax professionals face uncertainty and potential reporting errors without the reliable data validation provided by Fixed Assets Manager. Having worked with large companies in the area of fixed assets, it is our experience that ERP/Financial applications, such as Oracle, PeopleSoft and SAP, are typically not sufficient to meet the tax departments’ needs. Often tax departments are not included in the ERP purchasing decision. We frequently speak with tax departments who were told their ERP application would be able to handle tax depreciation. They only find out that the ERP application won’t meet their needs when they receive their first set of reports and can’t get the information they need. The tax department is then forced to shop for and purchase specialty fixed asset software that meets their needs. The company wastes a lot of time and money doing the process twice. ERP systems were not designed to meet a tax department’s needs. Customization to capture the specific tax rules related to depreciation will almost always be necessary. Those special rules might include but are not limited to such things as: • bonus depreciation • Code Sec. 280F luxuary auto limitations • requirements for other listed property • mid-quarter test. Additionally, those same financial systems were not designed to handle tax reporting requirements. They often do not include reports that are necessary for a tax department such as: • Disposition Detail Report • Bonus Depreciation Report • Reconciliation Report • 4562 Report • Mid-Quarter Report • Book Tax Comparison You also have to consider the maintenance that will be required when a new tax law change is passed. In order to get that change into an ERP, it will often require an IT resource or outside consultant to code the new law, which means additional cost. It is also important to think about who will be entering and maintaining your data. For example, will a Financial/Accounting resource be indicating the tax class of the asset when the asset is entered in the ERP Fixed Asset module? Financial/Accounting resources typically aren’t familiar with tax classes. Will Finance and Tax both share the same system, so information can be entered properly the first time? Finally, one of the biggest things to consider in the ERP Fixed Asset module are the controls and validation Confidential 2 6/25/2008
  3. 3. that will be in place. Most ERPs do not have controls in place to make sure asset data is entered correctly and don’t provide validation to make sure proper depreciation rules are applied to assets based on IRS requirements. Red Moon Solutions’ Fixed Assets Manager (FAM) is an application that was built initially to support Arthur Andersen’s internal U.S. tax practice some 20 years ago. It incorporates all of the tax rules provided by the IRS, including bonus depreciation, auto limits, listed property and mid-quarter rules. Whenever a new tax law is passed or a new asset class is provided by the IRS, Red Moon Solutions incorporates that change into the software and ships the release out to customers. We accept responsibility for making sure FAM is compliant with the IRS rules for depreciation. We also provide 40+ standard reports, including Additions Report, 4562 Report, Mid-Quarter Report, the ability to create custom reports and the ability to export any report to a number of different formats, including Excel. Finally, because FAM was built for Andersen, there are a lot of controls and validation in place. When assets are entered or imported, FAM validates the data and makes sure it is appropriate based on the IRS rules. For example, an asset acquired in 1985 can not be coded to a MACRS method for depreciation. FAM knows that asset should be using ACRS, because it was acquired prior to 1987. If you were importing that information, you would receive a diagnostic indicating the asset had not been imported for that reason. The controls provided by FAM ensure that your data is compliant with IRS rules for depreciation. Red Moon Solutions was formed in 2006 by Jim Shedivy, an Andersen partner who headed up Andersen’s technology division. The majority of the people working at Red Moon Solutions worked for Andersen at one time and have extensive tax and technology experience focused primarily in the area of fixed assets. Red Moon Solutions continually looks for new ways to add value to the tax department and our fixed asset clients. We recently introduced a business intelligence tool that can be linked to our fixed asset data for enhanced ad-hoc reporting and data analysis. It is pretty exciting! We would be happy to set up a time to show you what we have to offer in this area. We strongly believe that we can provide you the best solution for your fixed asset needs. Below is a sample RFP that can be used when evaluating an ERP’s Fixed Assets module. It includes our responses to the RFP as well. SAMPLE RFP: Questions Issues/Posed Regarding 1. Can/How assets be entered just for tax purposes? Fixed Assets Manager™ (FAM) Response: Your general ledger asset data can be imported into FAM very easily at any desired interval (weekly, monthly, quarterly, etc.). Asset data can be created in two ways. The first way Confidential 3 6/25/2008
  4. 4. is to create assets matching the data used (method, convention, life, etc) in your current general ledger system. The second way is to create assets using limited data from your system, (only the id, description, cost, date acquired, and asset classification) and let FAM drop the correct tax rules for the asset for Fed, ACE, Alt Min, and Accounting as needed. Many new clients initially create two Fed books; one using our federally regulated tax rules and one using the data coming out of their general ledger system. In this second option, FAM has a tool to calculate what the correct amount of prior depreciation should be, as often times the depreciation has not been correctly calculated by the General Ledger system. Doing this allows users to run comparison reports between the two. The tax department can then make appropriate decisions on material issues they may have with incorrect past depreciation calculations. Data can be imported into all books or just the tax book. FAM allows you to create an unlimited number of user-defined books. Assets that don't exist in your general ledger system can be either entered manually or imported from an Excel spreadsheet into one or all books. If tighter integration is desired, the FAM team will work with IT to specify and implement this integration. Because FAM was built to support Arthur Andersen, the tax validation is robust. It ensures assets imported or entered manually conform to IRS rules for depreciation. 2. Is there a method of representing an asset at a point in time? a. Need information for audit and historic purposes b. Need to be able to historically look at value of asset at point in time Fixed Assets Manager™ (FAM) Response: FAM allows you to store and run reports on current year, as well as on historical data. You can run historical reports on data starting from the year it was entered in FAM. Reports can be run on yearly, monthly, quarterly, or any user-defined date range. Reports can be run for all assets, one asset, or anywhere in between. You will see all transactions that occurred to the asset with the report range (i.e. transfers, dispositions, splits, etc.). 3. For Sales Tax audits, is there the ability to link back to AP Invoices and Images? Fixed Assets Manager™ (FAM) Response: FAM has an Attachment tab for each asset. Pictures, invoices, spreadsheets, etc. can all be stored in the database for historical record keeping. In addition, each asset also has a text only tab which can be used to store any notes related to the asset. Confidential 4 6/25/2008
  5. 5. 4. Can foreign assets be restated back to USD within the application with the correct translation? Fixed Assets Manager™ (FAM) Response: FAM now has currency conversion capabilities through a new product extension module. The module is flexible in its conversion approach. It can either pull data out of the GL or other data sources for the global data, can apply exchange rate conversions in any currency translation and push the data into FAM. Otherwise, it can pull any book data out of FAM and apply currency translations. Currency rates can be tracked and maintained in tables in the tool and applied to convert the US dollar amounts out of FAM. During implementation we would apply the best approach based on a company’s requirements. Additionally, the product extension will allow for ad hoc reporting, business analysis, modeling, forecasting, property tax declarations/reporting, and many other data mining/use requirements. 5. Will the application maintain the historic location of the assets? a. This is an issue with the data loads b. Need by company, location, etc. Fixed Assets Manager™ (FAM) Response: FAM fully supports maintaining the historical location of an asset, both domestic and foreign locations. An item such as Location would be stored within a user-defined Accounting Information field within FAM. The Location will be stored for any point in time as long as an intra or inter-entity transfer is performed on the asset. Historical data starts from the year the asset was entered into FAM, and will continue to be tracked and reported on throughout the life and disposition of the asset. Location reports used for a variety of needs throughout the tax lifecycle are standard in FAM. In addition, easy reporting for Property Tax compliance is streamlined through the use of FAM. FAM also has the ability to integrate with Property tax systems and/or to create an extract to be imported into a property tax system. 6. Is there the ability to store the historic value of asset? a. Cost versus acquired value b. Place/method of storing value Fixed Assets Manager™ (FAM) Response: Normally, if the historic cost is not being used in any calculations and you are adding newly acquired assets (from an acquisition), you would store the historic cost in a user- defined Accounting Information field or just as a note on the Notes tab. If pre-existing assets get re-valued, a new book cost can be entered for each/all books. The asset's prior cost can then be stored in the manner that I just explained. The new cost will be used for the entire current accounting year. Running historical reports will show the old cost that Confidential 5 6/25/2008
  6. 6. was in place at the time. All Accounting Information fields can be imported. 7. Are FAS 109 reports available in the application? a. Report book vs tax book information? Fixed Assets Manager™ (FAM) Response: FAM provides a Reconciliation Report that allows you to compare data from any two books. At the end of this document you will see a list of all the reports that come pre-defined within FAM. An unlimited number of user-defined reports can also be created. Lastly, FAM also offers a custom reporting, analysis and planning module that provides unlimited flexibility in reporting and modeling – complete access to your data. 8. Is there the ability to maintain the original asset acquisition date versus the corporate acquisition date? Fixed Assets Manager™ (FAM) Response: You would store the original acquisition date in a user-defined Accounting Information field or just as a note on the Notes tab. This field could then be added as an extra field on the Depreciation Report. 9. Can you separate the corporate assets among various legacy companies? a. Need to track/report the assets based on original organizations Fixed Assets Manager™ (FAM) Response: FAM allows for tracking and reporting on assets among various companies. All legacy data such as this can be stored in a user-defined Accounting Information field. This way you could do a “Find” of those assets meeting this certain criteria. Or, you could run a report grouping on that Accounting Information field so each asset having a legacy company source will be group together for easy viewing and sub-totaling. You can also create custom views, so you can see the individual companies under a parent company umbrella. 10. How will Impairments/negative goodwill be flagged? Fixed Assets Manager™ (FAM) Response: FAM can track both tangible and intangible assets such as “goodwill”, patents, etc. FAM can handle appropriate amortization of intangible assets and/or be set to not allow calculations to occur. FAM will also calculate negative depreciation. 11. How will system handle Mass Additions where Adjustments are updating old assets? a. Will the system make changes in the current year? Confidential 6 6/25/2008
  7. 7. Fixed Assets Manager™ (FAM) Response: FAM fully supports mass additions. Mass additions to the FAM system will most likely be handled by Import. There are Import options allowing you to flag which type of data gets updated, i.e you have the option to replace existing data or not. There are five different types of Imports that can be run that will allow almost any type of update you need. FAM also provides a specific import type called Update Asset for updates to one or more fields for existing assets. 12. Will there be reports that list the changes to assets that are made in the current period? Fixed Assets Manager™ (FAM) Response: FAM tracks many things that happen within the FAM database. Some of these are entity specific, some asset specific, and some feature specific. At the end of this document I provided a rough list of the items we track. The events can be seen within the program and in a special report. We also have an Additions report that lists out all assets added during a certain time range. Also, each asset shows the time and the person who last edited the asset. 13. Can we create Summary by location reports for state apportionment taxes? Fixed Assets Manager™ (FAM) Response: FAM fully supports and facilitates state apportionment by supplying reports by location. All of FAM's reports can be grouped by any Accounting Information field, such as State, and then reported on at a detailed or summary level. Additionally, our FAM extension module allows for further help with apportionment by providing business intelligence and modeling to handle all state apportionment complexities. 14. Do the ERP patches maintain the current tax laws, rates, etc? Fixed Assets Manager™ (FAM) Response: FAM was originally built by and for the Arthur Andersen tax practice and its’ clients. Senior ex-Andersen personnel still maintain and support the application today. Red Moon Solutions provides updates to the programs as soon as any new depreciation rules are passed into law. The program is usually updated at least two times a year to include the new year's tax forms (Form 4562, Form 4797, Form 4684 and Form 6252) and to update the Auto and Section 179 limits. With Red Moon Solutions, you have access to tax and technical personnel via direct phone calls and email. As far as we are aware from our knowledge of all other ERP modules, tax law changes need to be coded in custom or separately, therefore there can be cost and delay associated with these endeavors. Additionally, we traditionally find that tax law is not effectively and always correctly applied. When we recalculate federal and tax books, we usually find differences due to incorrect ERP coding. Confidential 7 6/25/2008
  8. 8. 15. What are all of the items that can be updated or modified once the information is loaded into the tax set of books? Our easy-to-use Import function allows all asset data to be re-imported or updated. We have a very powerful 'Update Asset' type import that can update any field for an asset. All data elements related to FA changes above can be modified/updated in FAM. NOTE: Other considerations are a company’s normal processing cycles/requests, etc. Think about what you might have to do to analyze your valuation allowance and whether the ERP option will support you in this effort. Our lead Big Four partner that implements ERP FA modules every day, recommends our solution to clients who have material fixed asset management requirements. Any forecasting for future, and/or recalculating past blocks of assets will not be properly supported by those modules. Also, consider what happens when you have state apportionment changes, property tax declarations, provision needs (FIN 48) and other provisioning and planning, and acquisitions and dispositions, with a large asset base this could lead to quite a bit of additional requirements. Red Moon Solutions - Fixed Assets Manager™'s pre-defined reports & forms: • Forms 4562, 4684,4797,6254 for current and previous 2 tax years • Monthly Period Data Report • Journal Entry Report • Net Book Value Report • Period Data Report • Periods Setup Report • Reconciliation Report • Asset Attachments Report • Asset Detail Report • Data Entry Report • Non-Active Asset Report • Notes - Asset Report • Notes - Retirement Report • Asset Types Report • Entity List Report • Event Log Report • Additions Report • Adjusted Basis Report • Classification Summary Report • Depreciation Report • Fixed Assets Report • Fully Depreciated Asset Report Confidential 8 6/25/2008
  9. 9. • 4562 Report • 4626 Worksheet Report • Bonus Depreciation Report • Mid-Quarter Report • Investment Tax Credit Report • Preference Item Report • Property Tax Report • State Bonus Adjustment Report • Units of Production • Activity Report • Disposition Detail Report • Bulk Retirement Report • Inter-Entity Transfer Report • Retirement Report • Unrecognized Gain/Loss Report • Split Asset Report In addition, we have an unlimited number of reports for user-defined fields that can be generated. FAM also offers a Business Intelligence extension (module) that allows for complete data access for custom and ad hoc reporting, analysis, modeling and forecasting, etc. It provides an easy to implement and utilize solution that has an Excel front-end allowing you all the power of Excel and all the security of an application solution. Fixed Assets Manager keeps track of the following events/tasks after they are performed: • Adding entities, books, roles to entity access, or attachments to an asset • Application of Mid-Quarter changes for an entity • Backing up a Fixed Assets Manager database • Calculating period data • Changing calculation options, asset types, book types, books, and data on Entity Setup • Closing year end and periods • Creating periods - Additionally, records when the two Accounting Information Fields tied to the period are saved. • Deleting entities, books, book types, accounting information fields, assets, asset types, periods, inter-entity transfers, intra-entity transfers, roles from entity access, or attachments from an asset. Confidential 9 6/25/2008
  10. 10. • Duplicating book data • Exporting periods • Importing data • Making offline copies of a Fixed Assets Manager entity • Reapplying asset types • Renumbering assets • Restoring a Fixed Assets Manager database and offline copies of a Fixed Assets Manager entity • Retiring a mass amount of assets using the Bulk option • Reversing close year end and closed periods • Running maintenance on the database • Splitting/Unsplitting assets - Records when an asset is split or unsplit. • Updating assets through the Life to Date Utility • Updating periods - Records when a different book is selected, when any of the Accounting Information Fields are changed after creating the initial periods, or if the Prorate Option is changed after the initial period setup. • Creating new entities • Upgrading to a new FAM version Confidential 10 6/25/2008

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