Considerations When Choosing Fixed Asset Software
Managing depreciation seems simple, right? Purchase capital fixed asset, depreciate over a number of years (cost / months = depreciation), and then dispose when it’s either broken, abandoned, or sold. Right? Not quite. Fixed assets are extremely important and ever changing than most are aware.
First, let’s think about the capital life cycle…
- Budget forecasting and approval of capital projects
- Follow the project and it’s spend (construction in progress accounting)
- Once an asset is placed into service, list on the sub-ledger and start depreciation
- Calculate monthly depreciation and make journal entries
- Dispose asset if sold, broken, or abondoned
- Reporting and reconciliation
- Oh yes… and track it so you know where it’s located
These are basic processes for fixed assets; what the industry calls ‘cradle to grave’. However, these bullet items need to be broken into deeper layers. Let’s try again…
- Capital Budgeting. Estimated costs (both capital and expense), project reasoning, return on investment analysis, project duration, asset category componentization, and approval workflow.
- Construction in Progress (CIP). Tracking spend. Asset categories and expensed line items should be broken down with transactional spend against the line item budget (estimated cost). Provides visibility to actual spend, project timelines/deadlines, credits, ability to clearly break out expenses, taxes, and more.
- Placed into Service. As per GAAP, assets should be placed into service when working (they do not have to be fully functioning). Keep in mind, when assets get placed into service for depreciation purposes, a company should be mindful and track for Federal Tax, State, ADS (if applicable), Property Tax, Insurance, and more if applicable. Many businesses only focus on tracking GAAP. Why? If a business is investing in an automated fixed asset software solution, it would be in everyone’s best interest to track it all in one place. Less risk, standardization, and accuracy across the entire fixed asset landscape.
- Depreciation. Yes, assets are depreciated from their costs when placed into service, however during the course of the assets life, additional costs or deductions can occur. For example: late invoicing, credits, tax, shipping/moving, impairments, held for sale, or purchase price accounting from either a stock or asset purchase. Be sure the fixed asset software selection includes these capabilities.
- Asset Activities. From everything to Disposing, Sales, Transfers, Impairments, and pausing assets. Keep in mind that a fixed asset software system that allows for ‘partial’ disposals and/or transfers comes in pretty handy if the sub-ledger includes ‘bulked’ asset line items (more about this in a blog entry). Not all fixed asset activities are the same. Moreover, ensure the system has sophisticated history tracking to keep auditors questions answered and risk mitigated.
- Reporting. The requirements for reporting on fixed assets is wide! The reporting list can grow exponentially if two systems are or are not integrated with your ERP system, have multi-locations, foreign entities, additional federal tax or state reporting requirements (forms), property tax compliance reporting, and so so so much more. Keep in mind, although Excel can be
GREATFANTASTIC for convoluted formulas and calculations, it is NOT a reporting engine.
- Fixed Asset Inventory Tracking. Not only is it good to know where assets are located, but tracking needs can go even deeper than just slapping a tag on it and writing it down. A thorough process document should be drafted, reviewed, and solidified prior to conducting a physical inventory of fixed assets. Who should be involved? What assets are getting inventoried? What information is getting verified? How can this be automated?
At the end of the day, everyone should be seeking a full suite of fixed asset software that entails a complete capital life-cycle.