2008 Review of Fixed Asset Management Systems

From the Dec. 2008 Issue

Asset depreciation is important; we all know that. Since assets are often one of the largest line items on a financial statement, effective strategic management of depreciation can give a business and its creditors a more precise knowledge of its overall fiscal strength, while poor depreciation management can lead to missed tax benefits.

If you have clients who still use spreadsheets to manage their fixed assets, or if you, as a professional accountant, manage depreciation issues for your clients using manual spreadsheets, you’ve missed the bus entirely. For very small concerns with a handful of fixed assets, say a building, a couple of vehicles and some equipment, this method is probably adequate. But for larger entities, especially those with assets spread across multiple geographic locations, the old Excel standby just can’t provide the same benefits as a true fixed asset management system.

First of all, using spreadsheets is extremely time consuming, and the annual barrage of tax law and depreciation changes, such as special bonus depreciation rules, make keeping up with the issues even more demanding. For clients who have an in-house bookkeeper managing this spreadsheet, there is also the risk of this one person with knowledge of it parting ways with the company and leaving the customized and likely complex set of macros for somebody new to try to figure out.

Secondly, managing fixed assets is much more than just an issue of properly depreciating these items. Asset management programs offer a varying degree of additional functions, from asset budgeting and capital management, to tracking physical location and responsible party, to managing maintenance schedules and speeding asset audits. An effective asset management system also provides consistency of asset information because, instead of having multiple lists and registers (an asset register for depreciation handled by the financial department, an IT asset list and a maintenance list), a singular program and database can be used for all of these divisions, with users only seeing the aspects they need to do their job.

Speaking of asset audits, a study by the New York State Society of CPAs showed that 15% to 25% of entries on corporate asset registers are missing; other studies have shown this number to be as high as 40% when including items that are poorly described or unidentifiable. These “ghost assets” directly result in inflated insurance and property tax burdens for a business, since it is paying premiums and taxes on items that may not be in existence. Furthermore, if an insurance claim is necessary, inadequate asset records may not stand up to the scrutiny of insurance adjusters.

While a myriad of business issues affect asset management strategies, depreciation functions generally remain the key area of focus for many financial managers. The programs included in this review all provide automated calculations that conform to the latest depreciation laws and GAAP standards, while a couple of the systems also offer IFRS guidance, which is likely to be enforced in coming years.

Asset depreciation and management systems vary greatly in pricing, based largely on the level of support they provide for asset base sizes, reporting functionality, compliance issues and analysis capabilities. But another key differentiator is the added features some of the systems offer for managing other asset issues, such as life events, location tracking and inventory. Also of note is the integration capabilities offered that can allow export of data into accounting, trial balance and tax preparation systems.