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Best Practice Financial Processes: Fixed Assets
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Fixed Assets - Best Practice Objectives
Organisation Asset recording integrated with maintenance and non financial data Centralised asset accounting Asset ownership devolved to business unit level People Control focused Challenge asset requisition proposals Fixed Assets Objectives To maintain a complete register of all the organisation’s fixed assets which reflects location, age, current values, associated cost centres To calculate depreciation consistently with financial reporting requirements To optimise replacement policies To minimise ownership costs Processes Information Systems Maintain asset register Acquisitions and disposals Depreciation charge Verifying asset base Maintaining of valuation basis Asset ledgers integrated with GL and AP Depreciation and project control by cost centre Automated depreciation calculation Controls Measures Number of assets maintained Cost of department Elapsed time to record asset Asset verification Asset valuation Acquisition and disposal authorities
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Fixed Assets - Measures/Cost Drivers
No of Business Unit FTEs per Fixed Assets FTE Fixed Assets cost per Business Unit FTE (in £s) £31 90 percentile Median 10 percentile 5,200 1,400 350 £7 £151 10 percentile 90 percentile Median Fixed Assets processing time Cost drivers Complexity of assets Number of assets on register Number of asset movements Complexity of depreciation policies Complexity of authorisation procedures Range of data held Number of users of data range 1 day 14 days 40 days 10 percentile Median 90 percentile Source: Statistics taken from Benchmarking database: 21 February 1997
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From To Fixed Assets - Trends Integrated systems for:
Asset tracking via Geographical Information System (GIS) Asset usage Network Capacity Planning Asset Maintenance Capital project planning and control Product/service costing BU responsibility for ownership Separate fixed assets module Lack of asset ownership Cost of asset usage not attributed to product Performed by Finance Department
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Fixed Assets - Critical Success Factors
These are a summary of the key business requirements, which must be met to achieve the objectives. Asset accounting policies clearly documented Appropriate coding by asset category established Authority levels clearly defined Procedures surrounding Fixed Asset process are documented and communicated to staff Budgets in place for capital expenditure All existing assets identified and classified Staff trained in FA process and have clear roles and responsibilities Statutory and tax requirements understood FA calendar in place and communicated to staff Standing data set up on the system reflecting asset accounting policies Ability to model depreciation scenario
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Fixed Assets - Level 0 Context Diagram
Accounts receivable General Ledger Maintenance Inventory Asset data (depreciation etc) Asset disposals Goods issued Maintenace Cycle Management Accounting Accounts Payable Fixed Assets Mgt Reports Asset details & asset payments Unique asset identifier Statutory reports Usage data Capitalised assets Commitments Purchasing Circuit Provisioning Project accounting Audit
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Fixed Assets - Level 1 Overview
Depreciation policies Maintenance policies Systems controls Month end reconciliation Period end timetable Cost centre analysis Notification procedures System validation controls Change request procedures Authorisation rules Verification timetable Inventory control system Audit trial Authorisation for write off’s Authorisation procedures Maintenance policy System controls System controls Accounting policies Changes in FA Policies and Procedures Updated FA register & reports FA register structure maintained GL a/c’s maintained for additions Verified FA Register Maintain Standing Data Add Assets FA 1.2 Maintain Asset Register FA 1.4 Perform Period End Routines FA 1.5 Verify Physical Assets FA 1.6 Reports Reconciled GL A/ c’s Updated FA Register Amend/update asset types or categories FA 1.1 Authorised GL adjustments AP system FA accounting staff Cost centre managers FA accounting staff Cost centre manager Management accountant FA accounting staff FA system FA accounting staff Inventory staff Requester FA accountant Finance manager Adjustments Asset addition notification Assets from AP or project accounting Reporting guidelines System controls Disposal procedures, validation procedures, authorisation, reconciliation procedures Request for adhoc reports Answer Adhoc Queries FA 1.7 Dispose of Assets FA 1.3 Updated FA Register Reports Reports Asset Addition notification GL a/ c’s maintained for disposal FA accounting staff FA systems Cost centre managers Cost centre manager, FA accounting staff, FA requester, financial manager
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Fixed Assets - Level 2 FA1.1 Maintain Standing Data
Change request procedures Change request procedures System validation controls Authorisation rules Notification procedures Changes in FA Policies and Procedures Raise request FA 1.11 Prepare formal request FA 1.12 Review and approve FA 1.13 Set up new codes / data FA 1.14 Notify affected users & groups FA 1.15 Request Formal request Accepted request Actioned request FA Register structure maintained Requester FA Accountant Finance Managers FA Accountant FA Accountant Amend/update asset types or categories Rejected request
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Fixed Assets - Notes on Maintain Standing Data
Best Practice Features Asset accounting polices clearly documented; Master Data set up on the system to reflect these policies Appropriate coding by asset category established Procedures surrounding the Fixed Asset process are documented and communicated to staff including requirements for issuing new codes Asset Register Rules incorporated into Master File, which control issues of new numbers within structured coding scheme Staff trained in Fixed Asset Accounting processes and have clear roles and responsibilities. They should have a good understanding of network and engineering areas Supervisory staff understand statutory and tax requirements Internal Control Requirements Once entered, updates should be verified against the original requests Codes will be received from the Master File and updates will be confirmed against the Master File The system will check that all required data fields are complete There must be supervisory review for Master Data updates Key Performance Indicators Speed of update: time from receipt of request to modification and verification of records: this should not exceed one day Number of input errors when asset details are validated: this should be zero Cost Drivers Complexity of assets New types of assets Number of changes to physical location coding
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Fixed Assets - Level 2 FA1.2 Add Assets
System controls Accounting policies Accounting Policies System Controls Assets from AP or Project Accounting Input automatic data FA 1.21 Add additional information FA 1.23 Post asset details FA 1.24 GL a/c maintained for additions AP lines with Skeleton details AP lines with additional information Updated FA Register FA register structure maintained AP System FA accounting staff System controls & accounting policies FA accounting staff FA accounting staff FA register structure maintained Input manual data FA 1.22 Added Assets Asset addition notification FA accounting staff Cost centre managers
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Fixed Assets - Notes Add Assets
Best Practice Features Linked databases used in recording asset details, to increase accuracy of the asset register and to eliminate duplicate paper trails Appropriate asset “numbering” methods driven by users of asset information; bar coding used on relevant assets Direct links to Project Accounting Clear policy established for treatment of assets and guidance on how to classify different types of assets, to reduce the number of reclassifications needed System interconnection to MIS (Management Information Systems) for tax and insurance planning Assets identified by “custodian”, i.e. person who controls the asset, rather than a department or the company as a whole Unified transfer pricing in all Business Units for asset transfers Use of asset transfer strategy to optimise the usage of assets Internal Control Requirements Asset number controls All asset register updates reviewed after entry, to limit period end differences Update details sent periodically to source and asset custodian (or other initiator of the update) for information and coroboration purposes Key Performance Indicators Number of reconciliation at period end: if a reconciliation is needed between Fixed Assets and other accounts, this indicates that one or other of the accounts is not up to date Number of changes processed Number of verification adjustments Cost Drivers Number of assets Average useful life of assets (i.e. rate of asset turnover) Number of changes in Master Data leading to manual adjustments.(e.g. change in organisation codes) Number of revaluation's / disposals
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Fixed Assets - Level 2 FA1.3 Dispose of Assets
Disposal procedures Valuation procedures Authorisation procedures Disposal procedures Disposal procedures Reconciliation procedures FA Register updated GL a/c’s maintained for disposals Select assets to dispose FA 1.31 Obtain quote (if applicable) FA 1.32 Sell/dispose of assets FA 1.33 Notify finance FA 1.34 Asset sale or disposal registered with Accounts dept Record transactions in accounts FA 1.35 Reconcile GL accounts FA 1.36 Asset disposal notification Assets identified for disposal Sales price and buyer confirmed Sale/Disposal completed Interface to GL Update FA register Cost centre managers Cost centre managers Cost centre managers Cost centre manager FA accounting staff FA register FA accounting staff Financial manager
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Fixed Assets - Level 2 FA1.4 Maintain Asset Register
Systems controls Transfer Assets FA 1.42 Adjust Assets FA 1.43 Authorisation procedures Maintenance policy Authorisation procedures Maintenance policy Receive request FA 1.4 Write-off / down Assets FA 1.44 Report on adjustments FA 1.47 Updated FA Register Approved request Asset register updated Reports FA accounting staff Cost centre managers Management accountant Revalued Assets FA 1.45 FA Accounting staff Cost centre managers Capitalise WIP Assets FA 1.46 FA accounting staff
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Fixed Assets - Level 2 FA1.5 Perform Period End Routine
Month end reconciliation Period end timetable Cost centre analysis Depreciation policies Maintenance policies Systems controls Period end timetable Updated FA register & reports Calculate depreciation FA 1.52 Post depreciation to GL FA 1.53 Reconcile accounts FA 1.54 Spend monthly reports to asset owners FA 1.55 FA interface with GL Adjustments Reports Depreciation amounts Reconciled GL accounts FA accounting staff FA accounting staff FA system FA accounting staff FA accounting staff FA system Adjustments
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Fixed Assets - Notes Depreciation calculation
Best Practice features Integrated fixed asset systems to calculate depreciation charges for tax and accounting purposes Depreciation rates by asset category are based on useful life of the asset, rather than designed to meet accounting requirements only Consistency of depreciation methods and rates across the business Internal Control requirements Results of depreciation run compared to expected amounts (from budget or forecast) to identify potential errors and over-runs Updates to assets’ depreciation information must only be accepted if properly authorised and consistent with management/tax policy Key Performance Indicators Time taken to update depreciation data in fixed asset register at period close Reconciling items on depreciation accounts: should be zero Cost Drivers Number of depreciation rates Number of assets
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Fixed Assets - Notes Perform Period End Routine
Best Practice Features Automatic data flows between ledgers, e.g., between Fixed Asset Register and General Ledger, Project Accounting, etc., to remove manual reconciliation effort System allows assets to be grouped or desegregated for reporting purposes Internal Control Requirements System internal controls (e.g. user profiles) Timely and accurate clearance of system reject reports Reconciliation of budget Vs. actual period end totals Reconciliation of movement in fixed asset accounts for the month (e.g. new NBV = old NBV + additions - disposals - depreciation) Key Performance Indicators Time taken to close Fixed Asset Register at period end Time taken to complete the GL/FA reconciliation Differences during reconciliation Time to print out the period end reports Cost Drivers Number of asset records CPU time for generation of reports Reconciliation required to clear General Ledger mis-matches Number of necessary changes during reconciliation with General Ledger
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Fixed Assets - Level 2 FA1.6 Verify Physical Assets
Verification timetable Inventory control system Inventory control system Audit trial Authorisation for write off’s Compile accurate data for asset verification FA 1.61 Conduct inventory check FA 1.62 Highlight exceptions FA 1.63 Track asset history and reconcile FA 1.64 Update FA register & prepare GL journals FA 1.65 Verified FA register Updated FA register & reports Complete list for Inventory control Feedback on items held Items to be further investigated Identified corrections Authorised GL adjustments FA accounting staff Inventory staff FA accounting staff FA accounting staff FA accounting staff FA accounting staff
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Fixed Assets -Notes Verify Physical Assets
Best Practice features All existing capitalised assets identified and classified Regular physical verification, focused on high-value and high-risk areas Use alternative verification methods where appropriate eg review maintenance log, establish that asset is operating effectively Internal Control requirements Regular physical verification exercises and reconciliation to the Fixed Asset Register Fixed Assets must ensure that transferred assets retain their original project number identification in the asset record, to ensure appropriate access to archived records Cost Drivers Number of verifications required
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Fixed Assets - Level 2 - FA 1.7 Answer Adhoc Queries
FA Register System controls FA register routines Receive request for adhoc reports FA 1.71 Produce reports FA 1.72 Reports FA Report routine Reports Request for adhoc reports FA accounting staff FA systems FA accounting staff FA systems Cost centre managers
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Fixed Assets - Appendix 1 : IDEF Process Flow
The diagram below provides a key to the process diagrams used in this document. Controls (i.e. Procedures Standards Requirements for rework) Process / activity Input Output (i.e. (i.e. Information Material) Information Material) Resources (i.e. People Functions IT systems Machines)
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