The Importance of Starting with an Accurate Baseline

Any business, no matter how big or small, must have information about the location, use, condition and possible future usefulness of its productive assets such as land, buildings, transport and manufacturing equipment.In many cases these fixed assets represent the largest and most costly investment the company will ever make.Nothing is more crucial to providing that information than the effective management of fixed assets, which in turn depend on an accurate initial fixed asset inventory.  Without it, no amount of added processes or controls will ever lead to correct conclusions or assure the accuracy of fixed asset accounting procedures.

Conducting a physical inventory on a regular basis is the only way to establish an accurate baseline for asset tracking.This is important as fixed assets can be a significant component of corporate balance sheet and identifying so called ghost assets is just one immediate advantage of conducting a physical audit.   Ghost assets are those assets that are lost, stolen or unusable but are still listed as active fixed assets in the system, even if you are using the latest inventory management software.    It’s estimated that around 65% of fixed asset data is incomplete, inaccurate or altogether missing, while anything between 10%- 30% of fixed assets on a register are in fact no longer owned by the company. Ghost assets can therefore damage a company’s profitability because missing or unusable assets are not available when they are needed and may also make capital spending planning unrealistic because management will not be aware of critical assets that need replacing.

In order to provide the accurate baseline from which everything else should stem, fixed assets should be inventoried (using bar-code or RFID systems) should be conducted on a regular basis and new assets entered into the system as soon as they are purchased.  If this is done, both the facilities management and fixed asset accounting managers can be confident that the most accurate information possible is available to senior management and auditors in the company’s fixed asset management system.