A fixed asset register can be a strong foundation toward accurate and complete financial statements.
But if the foundations are flawed the financial reports will be also.
Here are some tips from QBO and AssetAccountant™ to make sure your fixed asset register is a rock solid foundation and integrated.
Understand why you need a Fixed asset register, and what you are going to use it for
Do you take the fixed asset register for granted?
Most organisations have one, or at least claim they do – but unless you clearly understand what you are going to use it for there is a risk that the fixed asset register won’t meet your needs.
A fixed asset register is important to many people in your organisation, and is used for many purposes, financially:
- Accountants and auditors need a fixed asset register so that the organisation’s balance sheet can be accurately calculated, and that the organisation’s accounts meet the needs and mandatory requirements of investors and external regulatory authorities (such as the Tax Office);
- Accountants need the fixed asset register so that they can apply the appropriate depreciation amounts to assets owned;
- Insurance premiums can be over, right or under-valued based on the accuracy of the fixed asset register; and (among many more)
- Accountants may also use the fixed asset register so they can make appropriate insurance or warranty claims in the event of loss or damage to the equipment.
The benefits of an accurate and useful Fixed asset register include:
- Assured compliance – with the requirements of financial, safety, environmental and other regulators;
- Preventing fraud – an effective fixed asset register allows you to more easily identify assets that have been lost or stolen; and
- Cost reduction – a sound fixed asset register assists with the identification and implementation of actions to improve operational performance.
Establish a logical hierarchy of assets
One of the keys to making the fixed asset register easy to use is to establish a consistent way of describing and grouping assets. This has several benefits including:
- Being able to “drill down” to find an asset in the register when you are unsure of the asset name or number; and
- Being able to group together assets that belong together, making it easier to determine the asset value for the group, or to determine related equipment when planning.
Establish structured, easy to understand numbering and naming conventions
Names and numbers should be easy to understand so that assets can be easily identified, and names and numbers easily remembered. If you take just a little time to set up the conventions properly, it will be much easier all round if you can remember the name or number of the asset without having to drill down or search through the entire register.
Of course, you can accept the automatically added number as a unique identifier when you add an asset to the register, but this will almost certainly just be a number allocated in sequential order, and not easy to understand. It will be far better to set up a structured numbering system – which aligns with how you use your assets.
Naming conventions should be consistent.
But if your current naming convention isn’t perfect, don’t worry AssetAccountant™ will effortlessly work with the data you already have.
Understand and define differences
Do you need to differentiate between locations, equipment and components?
There are many situations where you may have many similar assets, at the same location, with different ‘first use’ dates.
Managing this information will ensure the appropriate financial treatment of the asset and allow identification of specific equipment items in given locations – even though these can relate to assets at different levels in the equipment hierarchy.
So, one of the key decisions that you need to make is whether you want to record activity and costs against both equipment and location – and if so, which equipment/locations you want to do this for.
Assets as equipment
There are benefits in limiting the number of assets that you classify as equipment:
- It makes the fixed asset register more concise,
- The fixed asset register is easier to navigate,
- It tends to be easier to find assets in the hierarchy,
- It is more likely to result in work order information being recorded against the right asset in the hierarchy, and maintaining and updating the fixed asset register as plant configuration change is a much easier exercise.
However, if you do not establish all assets as individual items in your fixed asset register, then it makes it more difficult to collate and analyse data for those assets.
So, give careful consideration to what level of detail you need and establish clear rules for deciding whether an item is required to be recorded as an individual asset in the fixed asset register.
What assets to record
Things to consider in establishing when to include an asset in your fixed asset register include:
Depreciation rates – for accounting purposes, items with differing depreciation rates should be recorded separately in the fixed asset register. Otherwise, depreciation calculations become more difficult than they need be.
Statutory requirements – is there a need to be able to easily track the performance of the specific asset. If so, you may find it easier to include it individually in the fixed asset register.
Asset criticality – what is the impact of asset failure on your organisation? If the consequences of failure events of a specific asset are significant, then it as an individual item in your fixed asset register.
Costs – is the item expensive to purchase or maintain? Effective management of costs will generally require that these assets are established separately in your fixed asset register.
Warranty – items for which you want to separately track warranty information are most likely best established as separate items in your fixed asset register
Only collect and store fixed asset information you will use
It’s easy for systems to store lots of information regarding assets. But every field takes time – time that is potentially wasted if you are not going to use the information recorded. For example, recording warranty information is of little value if you don’t have a system in place to ensure that all possible warranty claims are investigated and initiated.
Key information you are likely to consider recording, however, includes:
- Asset Name: should be user friendly – what is it actually called by those using it.
- Serial number: would normally be a number provided by the manufacturer.
- Location: Useful where assets may be moved from location to location.
- Cost Centre: for effective cost management, control and accounting reporting purposes.
- Date of purchase: This important for tax and accounting purposes.
- Purchase price: Also important for tax and accounting purposes.
- Warranty information: Only if you are going to track warranty for the item.
- First use: Important to accountants for depreciation purposes.
- Depreciation details: the method and rate for calculating depreciation.
- Asset group: e.g. all vehicles may belong to a single equipment class.
- Description: a place to capture any other information that is useful to you.
This article has offered tips to help your fixed asset register to best meet the needs of your organisation. If you would like further guidance or assistance in establishing or improving the fixed asset register in your organisation, Quickbooks Online and AssetAccountant™ can help you and your business to manage risk, time and give you confidence in the quality and compliance of the Fixed Asset Register and financial reports.