Understanding Fixed Asset Management: A Complete Guide to Process, Policy & Best Practices

Every enterprise typically has a wide variety of assets such as machines, equipment, tools, computers, servers, office furniture and so on. 

And, you would agree that these assets are at the core of revenue generation in any organization. Hence it is very critical to have efficient Fixed Asset Management processes.

Fixed asset management → Basically, if your enterprise owns physical assets that’re critical for day-to-day operations and you have some level of processes in place to manage them, then you’re already doing fixed asset management.

The question is—how effective is it?

Now, unlike other types of assets, fixed assets have a life of more than a few years. And hence it is important to manage them throughout their lifecycle.

Meaning, if you buy 100 business laptops today, they’re effective for about 3-5 years. Post that, you’ll have to either upgrade them or replace them with newer laptops. This process is universal across all types of physical or fixed assets.

So, from the time of purchase/acquisition to the time of disposal, these assets need to be physically audited, inspected for their physical condition, accounted for in your financial statements with their fair value as well as depreciated each year since they decrease in value.

But… Here’s the challenge → most of the times, these assets are not purchased as per their requirement schedule, not recorded appropriately, do not have a unique identification, are not utilized optimally, not audited accurately, managed poorly (misplaced, stolen, lost) or written off incorrectly—affecting the overall costs & expenses of an enterprise.

Only those enterprises with effective processes manage & utilize these assets to their fullest.

And that effective management of fixed assets throughout their lifecycle is what we call fixed asset management.

In this article, we aim to share our real-time experience of fixed asset management processes, policies, best practices and how to address its various moving parts.

Knowing this information and with the help of FAM software such as AssetCues, you’ll be able to achieve robust asset management systems.

Without further ado, let’s start by diving deep into fixed assets.

 

What are Fixed Assets?

Fixed assets are physical assets used to execute your day-to-day operations and help you generate income over a period of time.

They have a useful life and are prone to wear & tear.

They’re owned by businesses and are not held for sale within an accounting calendar year.

Fixed assets are capitalized, meaning their cost is recorded as an asset in the balance sheet rather than an expense in the “profit and loss” statement.

In the balance sheet, they’re represented as Fixed Assets or Property, Plant & Equipment (PP&E).

Suppose, a construction company purchases an excavator understanding that the average lifespan of the equipment is about 3 years. To them, it is a critical asset used almost everyday. And due to wear & tear, its lifespan can reduce, go as planned or last longer.

However, the accounting team of this construction company spreads the cost of the excavator over 3 years. That’s what we call depreciation. They do so for three primary reasons:

• The true cost of the asset is not yet realized at the time of purchase
• The value of the asset reduces each year
• And dividing the cost helps in reducing the taxes

So if they have purchased the excavator for $120,000, they spread out the cost as $40,000 over 3 years and pay tax for the depreciated amount each year. So at the end of the three years, the net value of the asset becomes $0.

Likewise, if you’re a manufacturing company and you start a new production plant or property, that new unit is considered a fixed asset, as it adds value to your overall operations.

A more simplistic example would be laptops, which every company uses at any given minute.

It’s important to remember that purchases and sales of fixed assets are reflected in the investing activities section of the cash flow statement. Investors use this information to assess company efficiency and potential.

That’s why managing fixed assets is critical!

Examples of Fixed Assets

Common examples of fixed assets are:

• Land
• Buildings and facilities
• Computer equipment and software
• Vehicles
• Machinery and Equipment
• Tools
• Furniture
• Fixtures and fittings

Let’s look at the difference between fixed assets and other types of assets.

Fixed Assets Vs Current Assets and Intangible Assets 

Key Characteristics	Fixed Assets	Current Assets	Intangible Assets
Nature	Tangible, long-term assets used in business operations	Short-term, liquid assets convertible to cash within a year	Non-physical, long-term assets with no tangible form
Depreciation/Amortization	Depreciate over time	Typically valued at current market value	Subject to amortization rather than depreciation
Liquidity	Low liquidity	High liquidity	Non-liquid, challenging to value
Purpose	Long-term use, not for immediate sale	Support day-to-day operations	Generate potential revenue through intellectual property
Valuation	Based on purchase cost, adjusted for depreciation	Based on current market value	Based on acquisition cost or fair value in business combinations
Accounting	Recorded on balance sheet, depreciated over time	Recorded on balance sheet, no depreciation	Recorded as long-term assets, amortized over time
Risk Exposure	Subject to operational risks, e.g., wear and tear	Exposure to market risks affecting liquidity	Susceptible to market demand and technological changes
Regulatory Considerations	May be subject to industry-specific regulations	Subject to financial reporting standards	Governed by intellectual property laws and accounting standards

 

Fixed Assets vs. Current Assets

Fixed Assets are long-term, tangible assets used in business operations. These assets are not intended for immediate sale and are expected to last over a year, gradually losing value through depreciation.

In contrast, Current Assets are short-term, liquid assets like cash, inventory, and accounts receivable, which can be easily converted into cash within a year. They support day-to-day operations and are crucial for maintaining a business’s liquidity.

Fixed Assets vs. Intangible Assets

Fixed Assets are physical and depreciate over time, reflecting their diminishing value due to wear and tear. They are recorded on the balance sheet and are easier to account for due to their tangible nature.

Intangible Assets, on the other hand, lack physical presence but hold significant value, often linked to a company’s intellectual property, such as patents and trademarks. Unlike fixed assets, they are amortized rather than depreciated and can even appreciate in value depending on market demand and technological advancements.

And that’s a wrap on what fixed assets are → Check out Asset Lifecycle while you’re at it.

Now, let’s move on to the defining moment of fixed asset management.

 

What is Fixed Asset Management – The Definition

As mentioned earlier,

Fixed asset management is the process of effectively tracking and managing your fixed assets throughout their lifecycle, from acquisition to disposal.

Fixed Asset Management is the backbone of any organization that intends to build operational efficiencies through better asset utilization and performance.

Fixed Asset Management also involves grouping of assets into asset-classes/categories, thereby establishing templates for different asset types—that dictate how different assets should be managed. These templates include details like depreciation methods, lifetimes, residual values, and even account interactions for a class of assets.

For example, when a company buys a large machine, the bill for that machine creates a General Ledger (GL) impact, adding it to the company’s balance sheet as an asset.

From there, FAM takes over, generating a record in the fixed asset register that will govern how that machine is depreciated over its useful life. And once the entry is created in the asset register, FAM software like AssetCues take over the responsibility of tracking & managing these assets effectively. 

And that’s why asset management software is critical in this process.

Importance and Objectives

The importance of Fixed Asset Management cannot be overstated.

Businesses rely on their assets to generate revenue, and poorly managed assets can lead to significant financial losses.

FAM ensures that assets are tracked accurately, maintained efficiently, and depreciated according to accounting standards. This not only keeps the company compliant with financial regulations but also maximizes the value derived from each asset.

The primary objectives of Fixed Asset Management include:

• Ensuring Accurate Asset Tracking: Know exactly what assets you have, where they are, and what condition they’re in.
• Optimizing Asset Utilization: Ensure that each asset is used to its full potential before it’s retired.
• Maintaining Financial Accuracy: Accurately depreciate, amortize and impair assets to reflect their true value on the balance sheet.
• Complying with Regulations: Ensure that asset management practices meet legal and financial reporting requirements.

Benefits of Fixed Asset Management

Effective Fixed Asset Management brings a host of benefits to an organization:

• Improved Financial Reporting: With accurate tracking and depreciation, financial statements reflect the true value of the company’s assets, leading to better decision-making and investor confidence.
• Cost Savings: By optimizing asset use and ensuring timely maintenance, businesses can extend the lifespan of their assets and avoid unnecessary purchases.
• Regulatory Compliance: FAM helps companies stay compliant with various financial regulations by ensuring accurate and timely asset reporting.
• Increased Efficiency: Automated FAM systems reduce the administrative burden, allowing staff to focus on more strategic tasks.
• Risk Management: By keeping track of asset conditions and maintenance schedules, FAM helps mitigate the risk of asset theft, misappropriation and failure.

 

10 Components of a Fixed Assets Management Process

1. Monitoring Asset Acquisition

Fixed asset acquisition refers to the process of purchasing or constructing assets that are intended for long-term use in a business, such as machinery, IT equipment, or buildings.

Whether acquired through direct purchase, intermediary accounts, or asset under construction (AUC), accurate monitoring is crucial for financial transparency and compliance.

Effective monitoring involves

• Inspecting assets/its components when received
• Verifying and documenting invoices, purchase orders, etc
• Reconciling acquisition costs to the appropriate general ledger accounts,
• Ensuring the correct classification of assets.

For example,

• In a direct acquisition against a supplier, the financial entry involves debiting the fixed asset account and crediting accounts payable.
• In an intermediary account acquisition, the first transaction debits the fixed asset and credits the intermediary account, while the second transaction debits the intermediary account and credits accounts payable.
• In contrast, more complex processes like AUC require ongoing tracking of costs as assets are constructed over time and only capitalized when complete.

Mismanagement in this stage can lead to accounting errors and compliance risks, especially in processes involving intermediary accounts or long-term projects.

For businesses seeking a streamlined solution, AssetCues simplifies this process with its asset creation module, which supports up to 200 fields for detailed recording, ensuring thorough documentation and comprehensive financial compliance.

2. Maintaining Asset Records

Maintaining asset records is the process of systematically recording detailed information about an organization’s assets. The information includes asset number, name, cost, depreciation, net book value (NBV), location, and condition.

These records are primarily maintained in a fixed asset register.

A well-maintained Fixed Asset Register (FAR) serves as the cornerstone of this process. By consistently updating the asset  register, businesses ensure their assets are properly tracked throughout their lifecycle. It plays a vital role in audit control, helping reconcile assets across departments and ensuring internal controls are met.

Furthermore, aligning the fixed asset register with the IT asset register and other ERP systems helps maintain accuracy across financial systems, supporting compliance with accounting standards.

Key Elements Recorded in a Fixed Asset Register:

• Asset Number: Unique identifier for the asset.
• Asset Name: Description of the asset.
• Depreciation Information: Includes depreciation rates and accumulated depreciation.
• Location & Cost Center: Tracks where the asset is physically located and the department responsible.
• Net Book Value (NBV): The asset’s value after accounting for depreciation.
• Expiry and Disposal Dates: Tracks the end of the asset’s life cycle and any disposals.

Keeping precise records of assets minimizes discrepancies during audits and ensures that assets are tracked accurately for tax, insurance, and compliance purposes.

Any errors or gaps in data, especially when dealing with depreciation and disposal, can lead to significant financial misreporting.

One of the critical features of AssetCues is the accurate fixed asset register. We enable businesses to easily maintain a comprehensive fixed asset register by providing customizable fields and workflows.

3. Physical Tracking of Assets

Physical tracking of assets refers to the process of tracking and monitoring assets that allows for real-time visibility, ensuring assets are in the right location and condition. This process is vital for maintaining accurate records, preventing loss, and optimizing asset usage.

For companies with large asset counts or expensive assets, keeping track of where each item is located reduces time spent searching and helps with scheduling maintenance or asset relocation. It also supports informed decision-making, especially when managing fixed assets in multiple locations.

Physical tracking requires asset tagging and usage of tracking Technologies

1. Asset Tagging: This involves attaching a physical tag to an asset that contains key identification information. Tags may include barcodes, QR codes, or RFID tags that are scanned for tracking.
2. RFID (Radio Frequency Identification) Tracking: RFID technology uses electromagnetic fields to automatically identify and track tags attached to assets. It enables real-time asset tracking, often without needing direct line-of-sight scanning. This is beneficial for large asset counts or highly mobile assets..
3. Barcode Tracking: Barcodes are a more traditional method of asset tracking, requiring manual scanning. While less sophisticated than RFID, barcodes remain cost-effective and widely used. They are ideal for smaller-scale operations where high-frequency tracking isn’t necessary.
4. GPS Tracking: GPS tracking is essential for mobile assets that travel long distances, such as fleet vehicles or outdoor equipment. It enables real-time location monitoring across wide geographical areas, ensuring that high-value assets are always accounted for.

AssetCues enables seamless asset tracking by providing a comprehensive platform that integrates various tracking technologies like RFID, barcodes, IoT and GPS. Moreover, we allow for easy asset tagging and grouping to customize tracking workflows, making it possible to tailor the system to a company’s specific needs.

 

 

4. Asset Maintenance Management

Asset maintenance management involves scheduling, tracking, and managing all maintenance activities to ensure assets are operating efficiently throughout their lifecycle. It plays a critical role in fixed asset management, preventing unexpected breakdowns, reducing downtime, and prolonging asset longevity.

Key Maintenance Approaches

• Preventive Maintenance: Routine inspections and maintenance are performed regularly to prevent failures before they occur.
• Reactive (Breakdown) Maintenance: Repairs are made after equipment has already failed, a more costly and time-consuming approach.
• Condition-Based Maintenance: Maintenance is triggered based on the current condition of the asset, often monitored through sensors.
• Predictive Maintenance: Using historical data and real-time monitoring, this method predicts when an asset might fail, allowing for maintenance to be scheduled right before issues arise.

The choice of approach is crucial, as each asset may require a different maintenance strategy depending on its use, importance, and wear and tear.

Work Order Management

Work order management is central to asset maintenance. It allows companies to create, assign, and track maintenance tasks, ensuring that issues are resolved promptly. From breakdown requests to routine inspections, work orders ensure that maintenance activities are systematically managed.

In large organizations, Computerized Maintenance Management Systems (CMMS) are often used to automate these processes. CMMS software supports task assignment, tracking, and completion of maintenance work. Whether it’s repairing a machine or conducting regular checks, the system ensures nothing is missed.

5. Asset Custody Management

Asset custody management involves tracking and overseeing who is responsible for the care and handling of fixed assets within an organization. It ensures that assets are properly managed, maintained, and returned when necessary.

Imagine an organization with numerous assets spread across different departments.

Employees or managers who need specific equipment can request custody through the asset management system. Once the request is approved, the system tracks who has the asset and ensures it is returned or maintained properly.

If an asset breaks down, the user submits a maintenance request, which is then prioritized and scheduled for repair. The system’s ability to track these requests ensures that assets are always in good condition and available when needed.

The key components of asset custody management are:

1. Custody Requests: This process allows individuals to request the custody of assets they need for their tasks. The request involves selecting assets from a catalog, specifying the location or person, and submitting the request. The system then notifies the relevant users and updates the asset records accordingly.
2. Processing Requests: Custody requests are processed through the system, which updates asset records and notifies the relevant stakeholders. Requests for returns or disposals are also processed similarly, ensuring that asset statuses are updated accurately.
3. Tracking Custody: Once assets are assigned to individuals, their custody is tracked through self certification —whether they’re in use, need maintenance, are returned, or are disposed of. This tracking helps in maintaining an up-to-date record of who currently holds each asset.
4. Maintenance Requests: If assets require maintenance, custodians can submit requests through their fixed asset management system. These requests can specify the type of maintenance needed and assign a priority level to ensure timely attention.
5. Status Tracking and History: The system maintains a history of all custody requests, including their statuses. Users can view this history to track the progress of their requests and ensure that all actions are completed as required.
6. Return and Disposal Requests: When assets are no longer needed or are to be discarded, custodians can initiate return or disposal requests. These actions are processed by the FAM system, which ensures proper documentation and handling of the asset.
7. Tracking Assets in the Store: This helps in tracking which assets are yet not assigned to any user and are available in the store. 

6. Managing Asset Transfers

Asset transfer involves the relocation or reallocation of fixed assets within an organization, whether between locations, departments, or cost centers. 

Key Types of Asset Transfers:

1. Location Transfers: Assets may be transferred between different geographic locations, whether inter or intra-state. This process requires updating records to reflect the new location for accurate tracking and reporting.
2. Sub-Location Transfers: Assets might also be moved within the same location, such as between floors, buildings, or storage areas. Although less complex, these transfers still need to be properly documented for accountability and asset tracking.
3. Cost Center Transfers: Assets can be reallocated between different cost centers within the same profit center or a completely different one. This often involves updating financial records to reflect the new cost allocation and to ensure that the right department bears the cost of asset usage and depreciation.

Stages of Asset Transfer:

The process of asset transfer involves several key stages:

• Initiation: The transfer request is created, usually by the department or location managing the asset.
• Approval: Relevant stakeholders, such as department heads or asset managers, approve the transfer based on company policies and asset availability. 
• Physical Transfer: The asset is physically moved to the new location, and logistical details like transportation are handled. 
• Inward Confirmation: The receiving location confirms the asset’s arrival and ensures that records are updated accordingly.

AssetCues streamlines the entire asset transfer process by offering a robust platform to manage asset movement across locations, sub-locations, and cost centers. With automated workflows for initiation, approval, and tracking, users can ensure that every stage of the transfer is accounted for.

The system also enables the creation of gate passes to authorize and monitor the physical movement of assets, ensuring that assets are securely transferred and properly logged at both the sending and receiving locations.

Benefits of Managing Asset Transfers:

• Accurate Records: By automating adjustments and journal entries, asset transfer management reduces the risk of financial errors.
• Regulatory Compliance: Correctly accounting for asset changes ensures adherence to accounting standards and simplifies audits.
• Efficient Reporting: The process streamlines financial reporting, ensuring consistency in asset depreciation and valuation over time.

7. Performing Physical Verification of Assets

Physical verification of assets is the process of confirming the existence, location, and condition of an organization’s fixed assets.

It’s part of fixed asset audits and it ensures accurate asset tracking, compliance with accounting standards, and early identification of discrepancies like missing or unrecorded assets. AssetCues offers specialized solutions for streamlining this process, making it more efficient and accurate.

Regular physical verification helps organizations:

• Maintain Accurate Records: Ensures assets are properly accounted for in financial records.
• Improve Compliance: Supports audit requirements and financial reporting accuracy.
• Identify Discrepancies: Finds discrepancies between physical assets and asset registers, such as missing, damaged, or unutilized assets.

The Process:

1. Planning:
   • Define the scope (assets to verify, locations, timeline).
   • Assign a verification team and gather necessary tools (RFID/barcode scanners, asset tags).
2. Preparation:
   • Compile an asset list from the asset register, including locations and descriptions.
   • Prepare verification templates and ensure the team is trained.
3. Physical Verification:
   • Visit each location and verify each asset’s existence, condition, and location.
   • Scan or tag assets, comparing physical details with records.
4. Reconciliation:
   • Compare results with the asset register to identify discrepancies (missing, additional, or damaged assets).
   • Investigate and adjust records accordingly.
5. Reporting:
   • Generate a report summarizing the findings, discrepancies, and corrective actions.

8. Reporting and Analytics

Reporting and analytics in Fixed Asset Management (FAM) are essential for tracking, managing, and optimizing an organization’s assets throughout their lifecycle.

Importance of Reporting and Analytics in FAM

• Informed Decision-Making: Provides insights into asset utilization, depreciation, and performance, enabling better financial planning and operational decisions.
• Compliance and Audits: Helps ensure accurate reporting for regulatory compliance and smooth audits by maintaining detailed records of asset movements and valuations.
• Cost Optimization: Identifies underperforming or obsolete assets, facilitating cost reduction by timely disposals or redeployments.

Key Reporting and Analytics Features

• Asset Lifecycle Reports: Track every stage from acquisition to disposal, ensuring visibility into purchase costs, maintenance, depreciation, and residual value.
• Physical Verification Reports: Verify the physical condition of the assets and provide detailed descriptions of their existing condition.
• Depreciation Reports: Offer insights into how assets depreciate over time, aiding in financial forecasting and tax compliance.
• Maintenance and Usage Reports: Highlight maintenance schedules, asset downtimes, and overall usage, ensuring efficient operations and timely repairs.
• Reconciliation Reports: Align physical asset counts with the asset register, helping identify discrepancies and improving data accuracy.

With effective FAM reporting and analytics, businesses can make data-driven decisions, optimize asset performance, and maintain financial transparency.

9. Depreciation and Impairment Accounting

In the fixed asset management cycle, depreciation and impairment accounting play critical roles in accurately reflecting the value and condition of long-term assets.

Depreciation is the systematic allocation of an asset’s cost over its useful life, while impairment refers to recognizing a permanent decline in an asset’s value. Together, these processes ensure that the balance sheet reflects an accurate picture of an organization’s assets.

Failing to properly account for depreciation and impairment can lead to overstating asset values, which distorts financial health and can mislead stakeholders.

Depreciation: Process and Key Terms

Depreciation allocates the cost of a fixed asset, across its useful life. The main purpose is to match the expense of using the asset with the revenues it helps generate.

• Residual Value (or Salvage Value): This is the estimated value an asset will have at the end of its useful life. For example, if a company buys a delivery van for $50,000 and expects it to be worthless after 5 years, the residual value would be zero. If they expect to sell it for $5,000, that would be the residual value, and depreciation would be calculated on $45,000.
• Carrying Amount: This is the asset’s value on the balance sheet, calculated as the original cost minus accumulated depreciation. For the delivery van, after one year of straight-line depreciation ($10,000 per year), the carrying amount would be $40,000.
• Obsolescence: Depreciation also accounts for obsolescence, which happens when an asset becomes outdated or no longer useful before the end of its expected life. For instance, a technology asset might become obsolete due to advancements in newer, more efficient technology.

Impairment: Recognizing Losses

Impairment occurs when the carrying amount of an asset exceeds its recoverable amount. This is typically caused by unexpected circumstances that reduce the asset’s value, such as physical damage, economic downturns, or technological changes.

• Recoverable Amount: The recoverable amount is the higher of an asset’s fair value (its current market value) and its value-in-use (the present value of expected future cash flows). For example, if the delivery van is damaged and its recoverable amount drops to $30,000 while its carrying amount is $40,000, the company would recognize a $10,000 impairment loss.
• Fair Value: Fair value is the price that would be received to sell an asset in an orderly transaction between market participants. In impairment testing, fair value often requires calculating the present value of future cash flows, which adjusts the asset’s value based on its expected performance.

Once impairment is identified, the company reduces the carrying amount of the asset to its fair value. This adjustment is recorded as an expense on the income statement.

Recording Depreciation and Impairment

Here’s a simplified example using the delivery van:

• Depreciation: The van’s original cost is $50,000, and it has no residual value. Each year, the company records $10,000 in depreciation expense, reducing the van’s carrying amount on the balance sheet. After three years, the carrying amount is $20,000.
• Impairment: Due to damage, the recoverable amount of the van falls to $10,000. Since the carrying amount is $20,000, the company would recognize an impairment loss of $10,000, reducing the carrying amount to $10,000.

This comprehensive approach ensures accurate asset valuation and compliance with accounting standards, giving organizations a true reflection of their financial position.

Understanding depreciation and impairment is crucial for maintaining financial accuracy, managing the lifecycle of assets, and complying with accounting regulations.

10. Asset Disposal Management

Asset disposal management is the process of removing fixed assets from an organization’s financial records. It involves accounting for the asset’s value, accumulated depreciation, and any resulting gain or loss from the disposal.

Asset disposal management is crucial for accurately removing assets from your financial records and ensuring compliance with accounting standards. Whether selling, scrapping, or otherwise disposing of assets, proper accounting practices are necessary to reflect these changes accurately.

Understanding Asset Disposal When disposing of a fixed asset, you need to reverse the initial acquisition entries and account for any gain or loss. Here’s a streamlined approach:

1. Remove the Asset from the Books: Credit the asset account to remove it from your balance sheet.
2. Eliminate Accumulated Depreciation: Debit the accumulated depreciation account to remove accumulated depreciation.
3. Record the Cash Proceeds: Debit the cash account with the amount received from the disposal.
4. Recognize Gain or Loss: Calculate and record any gain or loss on the disposal.

Example: Consider you bought a vehicle for $10,000 and used it for two years. You depreciate it $2,000 per year, accumulating $4,000 in depreciation. When you sell it for $5,000:

1. Remove Asset: Credit Fixed Assets for $10,000.
2. Remove Accumulated Depreciation: Debit Accumulated Depreciation for $4,000.
3. Record Cash Proceeds: Debit Cash for $5,000.
4. Recognize Loss: Debit Loss on Disposal for $1,000 to balance the entry.

Calculating Gain or Loss To determine gain or loss:

• Net Book Value = Cost – Accumulated Depreciation
• Gain/Loss = Proceeds from Sale – Net Book Value

In our example, the net book value is $6,000 ($10,000 – $4,000). Selling it for $5,000 results in a loss of $1,000 ($5,000 – $6,000).

IT Asset Disposal For IT assets, disposal involves secure methods to protect sensitive data:

• Data Wiping: Use software to erase data from functional systems.
• Physical Destruction: Methods like shredding or degaussing ensure complete data removal but may destroy the asset.
• Environmental Compliance: Avoid landfilling; use certified e-waste vendors to comply with regulations.

 

Role of a Fixed Asset Manager in the Process

A Fixed Asset Manager is the professional responsible for overseeing the management of a company’s fixed assets.

From acquisition to disposal, the Fixed Asset Manager ensures that assets are accurately tracked, managed, and maintained to maximize their value and comply with regulatory requirements.

Here’s a breakdown of the key responsibilities:

1. Asset Acquisition and Capitalization

• Oversight of Procurement: The Fixed Asset Manager collaborates with procurement teams to track and document new assets, ensuring they meet the organization’s capital expenditure policies.
• Capitalization of Assets: Once an asset is acquired, the Fixed Asset Manager is responsible for determining whether it should be capitalized based on cost thresholds and other criteria, ensuring that the asset is recorded properly in the asset register.

2. Tagging and Identification

• Asset Tagging: As assets are brought into the organization, the Fixed Asset Manager ensures they are tagged appropriately. This step is vital for physical tracking and future audits. Tags typically include unique identifiers like barcodes, RFID tags, or serial numbers.
• Integration into Systems: Once tagged, asset details are entered into the fixed asset management system, which helps monitor depreciation, transfers, and other lifecycle events.

3. Asset Register Maintenance

• Accuracy of Records: One of the primary responsibilities is keeping the asset register up to date. The Fixed Asset Manager must ensure all relevant information—such as purchase price, depreciation schedules, location, and ownership—is accurately recorded.
• Compliance and Auditing: Regular updates and accuracy checks are crucial for compliance with financial regulations. The manager works closely with finance teams during audits to provide detailed asset records.

4. Depreciation

• Tracking Depreciation: The Fixed Asset Manager oversees the calculation of depreciation for each asset based on its useful life and accounting method (e.g., straight-line or declining balance). This ensures assets are expensed accurately over time.
• Review of Residual Values: The manager periodically reviews assets to ensure that their residual values and useful lives are still accurate, making adjustments when necessary.

5. Asset Transfers

• Facilitating Internal Transfers: If assets need to be relocated within the organization or reassigned between departments, the Fixed Asset Manager oversees this process to ensure that asset records are updated with new locations and custodians.
• Maintaining Documentation: Documenting the asset transfer process ensures transparency and accountability, preventing assets from becoming “lost” or unaccounted for.

6. Physical Asset Audits

• Conducting Regular Audits: Regular physical verification of assets is a core responsibility. The Fixed Asset Manager schedules and oversees these audits to ensure the physical presence of assets aligns with the asset register.
• Reconciling Discrepancies: When discrepancies arise between the physical audit and the asset register, the Fixed Asset Manager investigates and resolves them, ensuring that records are corrected as needed.

7. Maintenance and Repairs

• Tracking Asset Condition: The Fixed Asset Manager monitors the condition of assets and schedules regular maintenance to extend their useful life. This helps prevent unnecessary downtime and asset deterioration.
• Planning for Repairs: When assets require repair, the Fixed Asset Manager coordinates with maintenance teams to ensure the process is done efficiently and that the asset is returned to service promptly.

8. Asset Disposal Management

• Coordinating Disposal: When assets reach the end of their useful life, the Fixed Asset Manager oversees their disposal, ensuring compliance with company policy and any relevant regulations. This may involve selling, recycling, or scrapping the asset.
• Recording Gains or Losses: The manager ensures that financial records accurately reflect any gain or loss from the disposal. If the asset is sold, proceeds are tracked; if scrapped, the asset is removed from the register.

9. Ensuring Regulatory Compliance

• Adherence to Accounting Standards: The Fixed Asset Manager must ensure that all asset-related processes comply with relevant accounting standards (e.g., GAAP, IFRS) and local regulatory requirements.
• Environmental Compliance: For asset disposals, especially electronic or hazardous materials, the manager ensures the organization complies with environmental regulations, such as using certified e-waste vendors.

10. Financial Reporting and Analysis

• Supporting Financial Reporting: The Fixed Asset Manager collaborates with finance teams to provide accurate data for financial reporting, ensuring that asset-related figures such as depreciation, book value, and asset turnover are correct.
• Forecasting and Budgeting: The manager plays a key role in budgeting for capital expenditures and forecasting asset replacement needs, helping the organization manage its resources efficiently.

11. Technology and System Management

• Utilizing Asset Management Software: The Fixed Asset Manager oversees the implementation and use of fixed asset management software, ensuring that all relevant data is captured and maintained in real-time.
• Improving Processes with IoT and RFID: With advancements in technology, such as IoT and RFID, the Fixed Asset Manager may implement smart tracking solutions to improve accuracy and reduce the need for manual intervention.

12. Cross-Departmental Collaboration

• Working with Procurement, IT, and Facilities: The Fixed Asset Manager works closely with multiple departments to streamline asset-related processes. For example, they collaborate with IT for technology assets, procurement for new purchases, and facilities for physical asset locations.
• Providing Training: The Fixed Asset Manager may also be responsible for training other departments on asset management processes, including tagging, transfers, and disposal protocols.

The role of a Fixed Asset Manager is both strategic and operational. From ensuring compliance and financial accuracy to extending the life of critical assets, they are central to effective asset management processes.

 

Fixed Asset Management Policy – Why it is Critical for a Company to Have One

A Fixed Asset Management (FAM) policy is the backbone of how an organization controls, monitors, and optimizes its physical assets.

These assets, which include property, machinery, and equipment, play a pivotal role in driving operational efficiency, reducing costs, and ensuring compliance. Without a clear and structured FAM policy, companies risk mismanaging these assets, leading to increased financial losses and inefficiencies.

What is a Fixed Asset Management Policy?

A Fixed Asset Management Policy outlines the standards and procedures for acquiring, managing, and disposing of physical assets. It provides a clear roadmap for handling capital assets, ensuring they are tracked throughout their lifecycle—from purchase to disposal.

Think of it as your ultimate guide for maintaining control over your physical assets.

How It Impacts an Organization

Implementing a strong FAM policy brings several advantages:

• Financial Control: Assets are a key component of an organization’s balance sheet. A well-managed policy ensures proper accounting and depreciation, making financial reporting more accurate.
• Operational Efficiency: When you know exactly what assets are available and where they are located, it enhances productivity and reduces downtime. Asset tracking systems can also ensure timely maintenance.
• Risk Mitigation: Mismanagement of assets can lead to significant financial and legal risks. A structured FAM policy helps minimize losses, theft, and non-compliance with financial regulations.
• Regulatory Compliance: Many industries require organizations to report their asset usage and value. A FAM policy ensures that organizations comply with governmental and industry regulations such as GAAP or IFRS.

Why It’s Necessary to Have One

Without a fixed asset management policy, organizations can easily fall into chaos. Assets might be misplaced, underutilized, or forgotten altogether, resulting in financial waste and missed opportunities. Beyond that, having a policy:

• Ensures Accountability: Assets, especially those purchased with public or investor funds, must be tracked for accountability purposes.
• Helps with Auditing: Regular audits are necessary for financial accuracy. A proper FAM policy ensures clean, auditable records of asset purchases, transfers, and disposals.
• Supports Strategic Decisions: Knowing the true value and status of your assets allows you to make informed decisions about purchases, replacements, and budgeting.

What Should a FAM Policy Include?

A comprehensive FAM policy should cover the following:

1. Purpose and Scope: Clearly define why the policy exists and which assets it applies to.
2. Roles and Responsibilities: Assign key roles for overseeing asset management, from acquisition to disposal.
3. Asset Tagging and Identification: Define which assets need to be tagged and how they are identified in the system.
4. Acquisition Process: Set guidelines on how assets are acquired, including approval processes and financial documentation.
5. Transfer and Disposal Procedures: Outline how assets are transferred between departments or disposed of.
6. Physical Inventory: Include provisions for regular asset audits to verify their existence and condition.

Best Practices and Guidelines

To make the most of your FAM policy, follow these best practices:

• Conduct Regular Audits: Schedule periodic physical inventories to ensure records are up-to-date and accurate.
• Use Technology for Tracking: Leverage RFID, barcodes, or IoT-enabled asset tracking to streamline the management process.
• Train Personnel: Ensure that everyone involved in asset management understands the policy and their role in it.
• Update Your Policy Regularly: As your business grows, so do your asset management needs. Regularly review and update the policy to accommodate changes.

Here’s a FAM Policy Template for You to Download

We’ve created a detailed Fixed Asset Management Policy template that you can customize for your organization. Download it now to get started!

Download the Fixed Asset Management Policy Template

 

Fixed Asset Management Best Practices: Proven Strategies and Techniques

Adopt a Comprehensive Asset Tracking System

Effective fixed asset management starts with a robust tracking system. Transition from outdated spreadsheets to an integrated software solution like AssetCues, which offers real-time tracking, automated updates, and detailed reporting.

This ensures that all assets are accounted for and accurately recorded, reducing the risk of errors and improving overall efficiency.

Implement Regular Physical Inventories

Schedule regular physical inventories to verify the existence and condition of assets. This practice helps identify discrepancies between physical and recorded assets, uncovering potential issues such as lost or misplaced items.

Regular audits also aid in spotting underutilized assets that can be reassigned or disposed of, optimizing asset usage.

Use Detailed Descriptions for Each Asset

A vague entry like “office furniture” isn’t enough.

Ensure each asset entry in your system includes comprehensive details—make, model, serial number, location, and purchase date. Accurate and descriptive records facilitate easier tracking, maintenance scheduling, and accurate depreciation calculations.

This level of detail helps avoid confusion and ensures that assets are properly categorized and managed.

Establish Clear Depreciation Policies

Develop and adhere to clear depreciation policies that align with accounting standards and tax regulations. Consistent application of depreciation methods—such as straight-line or declining balance—ensures that asset values are accurately reflected in financial statements.

Regularly review and update these policies to accommodate changes in accounting standards or asset management practices.

Integrate with Financial Systems

Integrate your asset management system with your financial accounting software or ERP to streamline processes and enhance accuracy. This integration ensures that asset costs, depreciation, and disposals are automatically reflected in financial reports, reducing manual entry errors and improving financial oversight.

Document Asset Lifecycle Events

Maintain detailed records of all asset lifecycle events, including acquisition, maintenance, and disposal. This documentation supports transparency and accountability, making it easier to track asset performance and compliance with regulatory requirements. It also provides valuable insights for budgeting and forecasting future asset needs.

Implement an Efficient Disposal Process

Develop a systematic approach for asset disposal, including proper authorization, valuation, and documentation. Ensure that assets are either sold, recycled, or written off in accordance with company policies and environmental regulations.

An efficient disposal process helps minimize losses and ensures compliance with legal and financial standards.

Educate and Train Staff

Provide ongoing training for staff involved in asset management to ensure they understand best practices, system functionalities, and regulatory requirements. Regular training helps maintain consistency in asset handling and fosters a culture of accountability and accuracy.

Conduct Periodic Policy Reviews

Regularly review and update your fixed asset management policies to reflect changes in business operations, technology, and regulations. Staying current with industry standards and best practices ensures that your asset management practices remain effective and compliant.

Leverage Technology for Enhanced Analytics

Utilize advanced analytics and reporting features available in asset management software like AssetCues to gain deeper insights into asset performance, utilization, and lifecycle costs. Data-driven insights enable better decision-making, optimized asset allocation, and improved budgeting.

By incorporating these best practices into your fixed asset management strategy, you can enhance efficiency, accuracy, and financial control, ultimately driving greater value from your assets.

 

Frequently Asked Questions (FAQs) on Fixed Asset Management

What are examples of fixed asset management?

Fixed asset management encompasses various practices to oversee and optimize an organization’s assets.

Examples include tracking the lifecycle of machinery, computers, office furniture, and leasehold improvements; scheduling regular maintenance; and managing asset disposal.

For instance, using software to monitor equipment usage and planning for replacements are practical examples of fixed asset management.

What is Fixed Asset Lifecycle Management?

Fixed Asset Lifecycle Management refers to the process of managing assets from acquisition through to disposal. This includes planning, purchasing, deploying, maintaining, tracking, and finally disposing of assets.

Effective lifecycle management ensures that assets are utilized efficiently, maintained properly, and disposed of in compliance with regulations.

What is the difference between fixed assets and inventory?

Fixed assets are long-term assets used in the operations of a business, such as machinery, buildings, and office equipment, which are expected to provide value over multiple years.

Inventory, on the other hand, consists of goods and materials a business holds for sale or use in production, typically expected to be sold or consumed within a year.

Why do fixed assets need to be depreciated?

Fixed assets need to be depreciated to allocate their cost over their useful life. Depreciation spreads the expense of an asset over several years, reflecting its decreasing value and wear and tear. This approach aligns the asset’s cost with the revenue it helps generate, providing a more accurate financial picture. It also helps in tax relief.

How to maintain fixed asset records?

Maintain fixed asset records by using an asset management system to track each asset’s details, including purchase date, location, and maintenance history.

Regularly update records through physical inventories, ensure detailed and accurate descriptions, and integrate the system with financial accounting software for consistency and accuracy.

Are fixed assets capitalized?

Yes, fixed assets are capitalized. This means their cost is recorded as an asset on the balance sheet rather than an expense on the income statement. Capitalization allows the cost of the asset to be spread over its useful life through depreciation, reflecting its ongoing contribution to the business.

Where to find fixed assets on financial statements?

Fixed assets are found on the balance sheet under non-current assets. They are listed as property, plant, and equipment (PP&E) or a similar category, depending on the organization’s reporting format. The balance sheet will show the net book value of fixed assets after accounting for depreciation.

Is machinery a fixed asset?

Yes, machinery is considered a fixed asset. It is a long-term asset used in the production of goods and services, and its cost is capitalized and depreciated over its useful life.

Are fixed assets an expense?

No, fixed assets are not recorded as expenses. Instead, their cost is capitalized and then depreciated over time. Expenses are typically costs that are incurred and consumed within the same accounting period, such as utilities or office supplies.

Are fixed assets taxable?

Fixed assets themselves are not directly taxable. However, the depreciation of fixed assets can affect taxable income. Additionally, the disposal of fixed assets might have tax implications, such as gains or losses that need to be reported for tax purposes.

What is a fixed asset schedule?

A fixed asset schedule is a detailed report that lists all fixed assets owned by a company, including their acquisition costs, accumulated depreciation, and net book value. It helps track the status and value of assets over time and is used for financial reporting and planning.

Who is responsible for asset management?

Asset management is typically overseen by a fixed asset manager or an asset management team within an organization. This role involves tracking, maintaining, and optimizing assets to ensure efficient use and compliance with policies.

What is the responsibility of a fixed asset manager?

A fixed asset manager is responsible for managing the lifecycle of fixed assets, including acquisition, tracking, maintenance, and disposal. They ensure accurate record-keeping, oversee asset depreciation, and ensure compliance with accounting standards and regulations.

Are fixed assets intangible?

No, fixed assets are tangible assets. They include physical items like machinery, buildings, and vehicles. Intangible assets, in contrast, include non-physical items such as patents, trademarks, and goodwill.

Are fixed assets current assets?

No, fixed assets are not current assets. Current assets are expected to be converted into cash or used up within a year, while fixed assets are long-term assets used in business operations and typically have a useful life of more than one year.

Which are not fixed assets?

Items that are not fixed assets include inventory, cash, accounts receivable, and short-term investments. These are categorized differently on financial statements and have different roles and reporting requirements compared to fixed assets.