Fixed Assets: Seeking the Unkown

As regulations increase, more and more companies are turning to fixed assets software.

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Scott Swarts guarantees tax savings for his customers by uncovering assets they didn't even know they no longer own. "One of the main benefits of implementing a fixed asset solution comes from inventory reconciliation. When we assess a company's inventory, it's not unusual for us to find that an average of 15 percent to 30 percent of the fixed assets have actually been retired, sold, discarded, or are not in use," says Swarts, president of Schaumburg, Ill.- based Paragon Systems, a division of Paragon International.

Fixed Asset Software Vendors

Best Software

Partner Insights

Reston, Va.

(800) 368-2405

www.bestsoftware.com

BNA Software

Washington, D.C.

(800) 424-2938

www.bnasoftware.com

CCH Tax and Accounting

Torrance, Calif.

(800) 739-9998

www.prosystemfx.com

Creative Solutions

Dexter, Mich.

(800) 968-8900

www.creativesolutions.com

Decision Support

Technology

Ramsey, N.J.

(877) 995-9500

www.bassets.net

Intuit

Mountain View, Calif.

(800) 934-1040

www.intuit.com

"Identifying these assets and removing them from the records can result in immediate tax write-offs, reduced income taxes, reduced insurance premiums, and lower property taxes," he says.

Paragon, which has sold fixed asset management software to small and mid-sized companies for more than 18 years, carries Best Software's FAS Suite.

The firm goes beyond the Best offering with a package of products and services that it markets as the Gold Strike Solution.

Paragon begins with a needs analysis to establish the company's current fixed asset records, prior equipment inventories, existing accounting systems, and listing of the locations and sizes of the company's facilities.

From there, the reseller implements FAS Asset Inventory to simplify the fixed asset inventory and reconciliation process, and integrates the module with FAS Asset Accounting, allowing users to share a database that can track assets, conduct depreciation calculations, and produce financial reports. The two applications are then combined with a custom report writer.

"Using portable, Pocket PC handheld barcode scanners, personnel can take and update physical inventories of corporate assets. Barcode tags applied to equipment, furniture, and fixtures provide a direct link to asset records in the database with details such as serial number, date of service, location, and value," says Swarts.

The data gathered at various locations can be uploaded directly to the computer database. Assets not matched in the databases are reported as exceptions and listed as unrecorded additions. Those assets missing from the inventory are listed as unrecorded retirements so that depreciation schedules for tax reporting purposes and insurance premium calculations can be adjusted.

Swarts explains the costs included with the Gold Strike solution: Asset inventory services vary depending on the level of detail that is captured per asset, and the size and number of facilities where the assets are located. Typically, this service ranges from $5 to $10 per asset. The software installation and implementation starts at $5,000, but to manage asset ledgers in excess of 10,000 assets, a SQL Server database implementation starts at $15,000.

Paragon isn't the only firm finding increased demand from customers for a fixed asset solution. As regulations have increased, CPA firms and accounting resellers have seen customers paying more attention to fixed assets.

Reaching Governments and Nonprofits

Fixed Assets software represents only 10 percent of John Francis' business.

But with the GASB 34 and 35 regulations, more nonprofits and government entities are being pushed into using such software.

"Companies have a desire for enterprise-wide solutions, and want to add fixed assets to their already established accounting systems," says Francis, president of NFP Consultants, a reseller based in Tampa Bay, Fla.

Francis says those changes have spurred increased interest in Best Software's FAS Nonprofit and FAS Gov from his clients.

For example, a recent engagement involved a Native American tribe which found during an audit that it needed to begin valuing and tracking its fixed and capital assets. The tribe wanted to integrate that system with Best's MIP Fund Accounting product. "We went in and created a fixed asset system, which is similar to creating a chart of accounts. We categorized assets into classes such as vehicles versus buildings, tracked inventory of assets, set-up check in/check out feature to help track assets such as laptops, and designed a codification structure," says Francis.

Because the tribe had not previously tracked assets, many cost records were not available. Francis worked with a firm that reviewed the inventory and valued the assets. He also provided training for the staff that included how to add, modify, or retire assets, how to depreciate assets and how to transfer information to the general ledger.

Once the cost records were identified and valued, it took Francis about 40 hours to create a database and three more days to train users. The cost of the engagement was approximately $30,000.

"Like many projects, clients are being forced to add fixed asset software to keep up with regulations, but once they look at the benefits more clients are moving toward it. Tracking assets saves them money because people aren't walking off with items, and less time is spent generating reports and doing tedious depreciation calculations," says Francis.

"Legislation is the main driver for the interest. The software already has the features, but now financial managers want a way to record assets. Before they used spreadsheets, and that worked, but now they need software," says Ernest Zoumot, director of product management for CCH Tax and Accounting.

Steve Schimpff, vice president of sales for Decision Support Technology, which markets the Bassets fixed asset line, says, "Before fixed asset software was low in the order or priority, but with Sarbanes-Oxley it's becoming more important.

Although SOX doesn't specifically affect fixed assets, it does affect the big picture. "Companies have to know what's on the books and need to produce reports from fixed assets. It's a good first step toward compliance," says Sam Hunter, product marketing manager for Best Software's FAS products.

Achieving Control

Compiling an accurate financial picture of a company requires accurate fixed assets records, as well as compliance with applicable tax laws and regulations for acquiring, depreciating, and disposing of assets.

Fixed asset software can help companies achieve tighter control over fixed asset management to ensure the accuracy of their fixed asset data and compliance with Sarbanes-Oxley.

In fact, the financial accuracy required by SOX makes a physical inventory of fixed assets essential for compliance. "Many companies find it difficult to find the time to conduct fixed asset inventories by surveying corporate assets with a clipboard and re-keying data into a spreadsheet," says Hunter.

Reston, Va.-based Best Software developed an easier way with its FAS Asset Inventory module. Using bar-code technology, FAS Asset Inventory creates and tracks multiple physical inventories, ensuring that the fixed assets that will later be included in financial reports are still in service and accurately recorded and depreciated.

Hunter provides this example: A company can now tag assets as they are received but before they are distributed to off-site facilities. Assets can also be depreciated every month, with updated numbers available for month-end closing reports.

"In addition, the Check In/Check Out feature allows employees to check a laptop out of a building, and the company can still maintain control over where the asset is. The module helps companies keep an inventory of their fixed assets, and almost always helps them save money," adds Hunter.

Another factor increasing interest in fixed asset software is cost segregation, the technique in which a large asset such as a building is broken into a number of pieces, allowing each to be depreciated separately.

Both the 2001 and 2003 tax acts made cost segregation more important. The acts allow for bonus depreciation, in which 30 percent of the cost basis of certain types of assets is recognized as depreciation expense in the year of acquisition.

"Certain industries, such as manufacturing, which were in the past losing money, are now making money, and they're looking for ways to maximize their tax benefits," says Dean Sonderegger, director of fixed assets solutions for Washington D.C.-based BNA Software.

Cost segregation allows companies to reclassify property from real to personal property, if it qualifies for bonus depreciation and increases the allowable depreciation expense. If planned right, cost segregation can help accelerate tax benefits and protect against future charges.

BNA Fixed Assets Desktop and Web lets users make changes such as reclassifying assets from real property to personal property for individual assets or multiple assets at the same time. All adjustments are automatically applied. BNA Desktop starts at $1,500 and its Web product at $1,600.

Although regulations are driving interest in such systems, companies purchasing the software are still looking for strong basic functionality. "People purchasing fixed asset software want strong tracking and depreciation, strong reporting, and integration with general ledgers," says Hunter.

Most of the products on the market offer a variety of functionality, including compliance with current IRS regulations, future depreciation projections, and grouping of assets by location or departments for efficient depreciation and reporting. In addition, depreciation books and methods provide alternative choices of asset expensing, and most software offers integration to various accounting systems.

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