What Is an Asset Register and Why Is Accuracy Important
There is a famous saying in the asset management world, “if you can count all your assets, you always show a profit” – yet a staggering 81% of small and medium businesses (SMBs) do not have an accurate view of their assets let alone access to an asset register. Most businesses rely on pen and paper or spreadsheets to manage their inventory and assets. Even in cases where businesses have an effective Asset Management Software solution, there is a tendency to export asset data into spreadsheets. As a result, the level of inventory write-off has dramatically increased.
Whilst large businesses have teams of accountants and auditors who help them to leverage the value of their physical assets, small businesses tend to have a “do-it-yourself” attitude. Especially when it comes to managing assets which quite often can have an impact on cash flow, debt, and financing avenues. Small businesses quite often do not appreciate that their assets help them to produce income, yet they do not keep an accurate record of all their assets.
What Is an Asset Register?
In its simplest form, an asset register is a detailed list compiled of all business assets. It includes details on assets such as location, condition, and owner. The purpose of an asset register is to enable businesses to know the status, procurement date, location, price, depreciation, and current value of each asset.
Although building and maintaining a complete asset register on a day-to-day basis may seem like a lot of admin work, it can have an overall positive impact on a business’s bottom line. So much so, that an accurate register can increase business revenue and cash flow by 5 – 18%
Other benefits of an accurate asset register include:
- Providing complete transparency of all asset data
- Ensuring all assets remain compliant with regulatory standards
- Providing an accurate audit trail
- Helping to track and identify assets
- Preventing assets from being lost or stolen with accurate location data
- Allowing you to calculate depreciation
- Estimating maintenance and repair costs
What Should Be Included in an Asset Register?
What goes into an asset register is typically governed by a capitalisation policy. For example, if a business decides to record all assets that have a purchase value of £2,000, then its asset register will contain only assets that had a minimum purchase value of £2,000. I.e, a computer worth £1,200 would not feature in an asset register.
Capitalisation policies differ for each organization; some businesses have it as low as £250 and others can have a starting point of £5,000. A capitalisation policy regulates the minimum value of assets a business wants to track.
No matter what type of register is required, each will require specific asset data such as:
- What is the asset
- The exact location of each asset
- Procurement details including purchase date and price
- Estimated life expectancy
- Depreciation value
- Insurance and compliance details
- Maintenance history including repairs and downtime
Keep in mind that, although error-prone and not ideal for scaling, spreadsheets can be useful where small businesses have less than 100 assets that are collectively worth less than £100,000.
What Are the Different Types of Asset Registers?
The type of asset register that a company builds can depend entirely on the size of its operations. Not only can registers be in the form of paper, spreadsheets, or specialised asset register software, they can also be specific to the type of asset.
Small businesses tend to have just one asset register that consists of the data of all assets. Typically, when businesses have only one register, it is called an asset register. But, depending on a business’ capitalisation policy, this can also include fixed assets that are movable too. For example, if a register includes all assets worth more than £2,000, then company vehicles may also be counted for in a fixed asset register.
Whereas larger companies, depending on the industry, are likely to have up to three different types of asset registers that include their IT and digital assets. In this instance, the asset data that is stored will vary depending on the register.
Data Found in an Asset Register
- Description of an asset
- Purchase date
- Purchase price
- Location of assets
- Owner of assets
- User of assets
- Barcode or Serial Number of assets
- Insurance coverage
- The current value of assets
- Depreciation method used
- The warranty information from the manufacturer
- Maintenance information
- The remaining life of an asset
- Estimated Resale Value (Salvage Value) of the asset
Data Found in an IT Asset Register
- Type of Asset – Hardware or Software Asset
- Location of the Asset – On-premise, Private, Public, or Hybrid Cloud
- Operating System
- License Renewal Date
- License Start Date
- Cyber Insurance Coverage
- Depreciation Method Used
Data Found in a Digital Asset Register
- Description of the asset
- Location of the asset
- Asset Owned or Copyrighted
- Asset User
- Depreciation Method Used
- Digital Insurance Cover
- Asset Format
- Preservation Risk
- Type of Digital Asset
- Estimated Value of Digital Asset
How to Keep an Asset Register Consistently Accurate
When businesses are creating an asset register, it’s recommended that they take an export of all assets as recorded in their accounting or asset management software.
The next step is to carry out a physical audit of assets. Physical audits can be easier if businesses have tagged their assets with barcodes or RFID tags.
After the audit, they can compare the list of assets from their accounting or asset management system with the physically audited assets. Inevitably, businesses are likely to find a difference between the audited assets and their list of assets. Missing assets are technically termed ghost assets, which are typically written-off.
Once a company has created a master fixed asset register, keeping it updated and accurate can be challenging. Particularly if assets are constantly moving across multiple locations. Most companies will tag their assets with tracking labels so that they can track movement in real-time.
What Are the Challenges of an Accurate Register?
Quite often companies rely on spreadsheets to manage their asset register. Whilst spreadsheets can be easy to use, they are not designed to maintain the accuracy of an asset register. Most information related to an asset is dynamic. Such as location, user, depreciation value, warranty information, and maintenance history. Therefore, it is very difficult to maintain the accuracy of a spreadsheet when managing dynamic information. As well as, in most cases, multiple teams entering different information.
It is for this reason that reliable Asset Management Software is highly beneficial to maintain the accuracy of an asset register. Most modern asset register software is cloud-based, which means multiple teams from multiple locations can edit data at the same time.
Moving forward with internet-based tracking, enabling equipment to transmit its location and status, maintaining an accurate register is likely to require fewer manual inputs. For example, a compressor would update its location and transmit that information to a software database. This means that there are no manual tasks required to update equipment data.
The Importance of an Asset Audit and Depreciation Methods
Whilst maintaining an accurate asset register digitally is vital, it can be complemented with physical audits that increase a register’s effectiveness.
Physical audits provide vital “What you see is what you get” information, which can be difficult to capture digitally. For example, environmental wear and tear are almost impossible to fully describe without a physical audit.
Another benefit of a physical audit is that it provides significant confidence in the accuracy of a business’s asset register. As a result, they’re better equipped to handle external audits and compliance-related situations.
The depreciation method is another factor that needs to be recorded to better manage fixed asset management strategies. Quite often tax authorities dictate the type of depreciation method to be applied to assets. The four most popular depreciation methods are:
- Double Declining Balance
- Units of Production
- Sum of Years digits