Fixed Asset Controls
Fixed asset controls are the policies, procedures, and systems that companies put in place to manage and protect their fixed assets. These controls are essential for ensuring that fixed assets are properly acquired, recorded, depreciated, and disposed of. They also help prevent and detect theft, loss, or misuse of assets.
Here are some examples of fixed asset controls:
- Asset Identification: Each fixed asset should be clearly identified, often with a unique tag number. This allows assets to be tracked and managed effectively.
- Fixed Asset Register: A company should maintain a complete and up-to-date fixed asset register. This register should include details like the asset’s identification number, description, acquisition date, cost, accumulated depreciation, and net book value.
- Depreciation Schedule: The company should have a consistent method for calculating and recording depreciation for each class of fixed asset.
- Physical Verification: Periodically, the company should perform a physical count of its fixed assets to verify that they exist and are in good condition. This count should be reconciled with the fixed asset register.
- authorization and Documentation: The purchase, disposal, or any major repair of fixed assets should require proper authorization. All such transactions should be well-documented.
- Segregation of Duties: Different aspects of fixed asset management (such as purchasing, tracking, and disposing of assets) should be handled by different individuals. This helps prevent and detect errors or fraud.
- Insurance: The company should have insurance policies in place to protect against the loss or damage of fixed assets.
- Asset Disposal: Procedures should be in place for properly disposing of or selling assets that are no longer needed, including removing them from the fixed asset register and calculating any gain or loss on disposal.
These controls are important not only for accurate financial reporting but also for ensuring that the company makes the best use of its fixed assets. Without effective controls, a company may lose track of its assets, overstate or understate their value, or fail to detect theft or misuse of assets.
Example of Fixed Asset Controls
Let’s consider a hypothetical example of a company named “TechCorp” that manufactures high-tech equipment. Here’s how TechCorp might implement fixed asset controls:
- Asset Identification: Every asset TechCorp purchases, such as machinery, computers, and vehicles, is tagged with a unique identifier. This allows the company to track each asset throughout its lifecycle.
- Fixed Asset Register: TechCorp maintains a detailed register of all its fixed assets. This includes each asset’s identifier, description, acquisition date, cost, accumulated depreciation, and net book value.
- Depreciation Schedule: The company follows a consistent method for calculating depreciation for each class of asset. For example, it might use the straight-line method, depreciating an equal amount each year over the asset’s useful life.
- Physical Verification: Once a year, TechCorp conducts a physical count of its fixed assets. This involves checking each asset against the fixed asset register and verifying its condition.
- Authorization and Documentation: Any purchase or disposal of a fixed asset requires approval from a senior manager. All such transactions are documented and stored for future reference.
- Segregation of Duties: Different employees are responsible for different aspects of fixed asset management. For instance, one person might be responsible for purchasing assets, another for maintaining the fixed asset register, and another for conducting the physical verification.
- Insurance: TechCorp has insurance policies that cover all its fixed assets, protecting against potential losses due to theft, damage, or other unforeseen events.
- Asset Disposal: When a fixed asset is no longer needed, TechCorp follows a procedure for selling or disposing of the asset. This includes removing the asset from the fixed asset register and calculating any gain or loss on the disposal.
By following these fixed asset controls, TechCorp can effectively manage its fixed assets, ensure accurate financial reporting, and reduce the risk of asset loss or misuse.
