Why use third party software as your Fixed Asset Depreciation Module?


But our ERP has a fixed assets module...

We are sometimes asked the question:

Why should we use a third party fixed asset software to manage our fixed asset depreciation instead of our accounting system or ERP?

Given a lot of such systems do have a native fixed asset module, it’s a fair question to ask and this article addresses some of the issues to consider.

Before we get into the details, it’s worth outlining how a third party depreciation system is best set up.

With the increasing availability of APIs as more and more businesses move to cloud-based systems, it is easy to transfer data automatically so use of different systems doesn’t cause the manual effort it once did.

At AssetAccountant, we integrate with a growing number of accounting systems and ERPs where we are able to automatically extract “draft assets” from the underlying GL or AP system that allows users to set their tax and accounts depreciation.

Once this is done, AssetAccountant posts the journals back to the accounting system and/or reporting data into tax compliance systems so even those steps are automated.

AssetAccountant – saving you from spreadsheets since 2019

So, what are the advantages of using a dedicated system to manage your depreciation?

There are a wide range of scenarios that we see at AssetAccountant, and we’ve given some examples of these further down below.

For our users who are faced with these requirements, the benefits that they get from using AssetAccountant include:

  • No requirement to work on custom development within the core accounting system. Certain extensive accounting systems and ERPs have the requirement to undergo tailored development in order to fulfill the specific needs of users. Nevertheless, this process is frequently time-consuming and demands a particular skill set, making it a costly endeavor. Moreover, custom development can potentially lead to complications during subsequent updates and upgrades, as they may not be compatible with the customized modifications that have been implemented.
  • Avoiding ongoing maintenance of the accounting system. Even in the cases where an accounting system has been perfectly configured, requirements frequently change – this could be caused by a new business process, acquisition or updated tax rulings. In these scenarios, updating the custom configuration can add further ongoing material cost.Third party dedicated software can materially reduce this cost by providing coverage for all these needs as standard functionality.
  • No need to resort to spreadsheets. In many cases, either when the accounting system cannot be customised or you encounter a scenario it can’t handle, there is often no choice but to adopt some form of spreadsheet use as a workaround to one or more limitations. Time after time, we see this happening and once a spreadsheet has been created for this purpose, it is very hard to then move back into the accounting system without a large scale project to undertake.

Why our clients love AssetAccountant

When is it appropriate to consider a third party depreciation management system?

If your fixed asset depreciation calculations are relatively straightforward, the use of your native accounting software module is almost certainly appropriate. It will (or should) work well as part of the suite offered by that provider and it makes sense that there is a general preference to minimise the number of systems that you might use.

However, for many businesses, their accounting system will not handle all their requirements meaning that the reasons that they look to a third party system to manage depreciation include:

  • A requirement for multiple sets of books for accounts and tax
  • Large volumes of data to manage meaning that functionality such as the following saves a vast amount of time:
    • Unlimited classifications such as cost centres, locations etc
    • Custom fields per asset
    • Audit trail reports
    • Efficient performance at scale
  • Some specific treatments that occur frequently:
    • Different cost bases and acquisition dates by book
    • Components
    • Partial disposals
    • Bulk actions (disposals, revaluations, etc)
    • Work in progress / Assets under construction
  • Forecasting
  • Management of complex accounting matters such as:
  • Enablement of full tax calculations:
    • Pools such as the Low Value Pool, Small Business Pool or Software Pool
    • Second element of cost
    • Private/taxable use
    • Tax rulings maintained and updated by AssetAccountant™ including the real-time ATO effective life lookup tool, backing business investment & luxury vehicle cap limits
  • Leases and hire purchase calculations are also required