IT SYSTEMS OF FIXED ASSETS PROCESSES (STUDY OBJECTIVE 7)

The complexities of the fixed asset processes described earlier indicate the obvious fact that information technology is a friend of the fixed asset processes. More and more companies are using specialized asset management software programs instead of spreadsheets or traditional manual systems. Due to the abundance of fixed asset data, the time-consuming and tedious requirements for tracking changes, and the intricacy of the tax laws, most companies can justify the investment in computerized systems dedicated to fixed asset accounting. IT systems have evolved into simple, customized applications that may be integrated with other accounting software. These fixed assets applications automate the processes of creating and maintaining the financial records and tax documents required for adequate fixed assets management.

The benefits of automated fixed asset systems are numerous. Most companies would find it much more expensive and time consuming to manage their fixed assets by manual procedures or spreadsheets than by purchasing and implementing fixed asset software. The shortcomings of a spreadsheet-based system are as follows:

• The design of spreadsheets is very time-consuming. In addition, most companies have complex structures that are nearly impossible to replicate in spreadsheets. For example, the multiple categories and locations of fixed assets require detailed design and linkages that are very difficult to maintain in a spreadsheet system.
• Spreadsheets are not flexible enough to accommodate changes efficiently. When assets are relocated or disposed of, or changes are made to the underlying cost basis or estimates, updating the spreadsheet is time consuming and prone to error. Add to this the complexity when such changes are implemented to entire categories or departments of fixed assets, and the benefits of automated systems become even more obvious.
• It is difficult to apply varying depreciation policies within spreadsheets. Since many companies use varying rates of depreciation, especially for financial and tax purposes, they need a flexible record-keeping system.
• Spreadsheets are not well suited for handling the nonfinancial data (locations and descriptions) that are necessary for maintaining physical control of the company's assets.
• It is difficult to establish an audit trail through spreadsheets, so tracking fixed assets changes is difficult.
• Manual processes are typically required to link the spreadsheets with the general ledger and other accounting programs.
• There are limited opportunities to customize reporting. In particular, spreadsheets do not meet the needs of companies to project depreciation information and prepare specialized management reports.

Computer-based fixed asset systems can handle all of the listed items that spreadsheets cannot. It is therefore clear why most companies have replaced their spreadsheet systems with automated ones.

With automated fixed asset management systems, information related to fixed asset acquisitions and changes to existing assets are input into the software by an employee in the fixed asset accounting department. This can be done in real time or in batches, depending upon the company's reporting needs and the volume of transactions. For most companies, fixed asset acquisitions are considered nonroutine processes because they require specific authorization and are carried out infrequently. Thus, the online approach is most reasonable. On the other hand, for large companies that have numerous acquisitions, a batch process may be a better match.

All of the relevant information regarding depreciation policies must also be input in the computer so that the system can automatically prepare the depreciation schedule and update the fixed asset control accounts in the general ledger. Similarly, when asset disposal information is input, the system can instantly remove the related asset records and record any resulting gain or loss. Regardless of the type of information entered in the fixed asset system, the company should implement controls to ensure that unauthorized access does not occur. The control environment may be enhanced through the implementation of various access controls, including passwords, limits on the number of employees who have access to the system, and limits on the number of computer workstations where information may be entered.

THE REAL WORLD

Fixed asset management systems are easiest to implement at the beginning of the company's fiscal year. By timing the conversion for after the prior-year numbers are finalized and before any current-year depreciation is recorded, the need for midyear adjustments is eliminated.