Fixed asset processes in MENAT - auditing, tagging, management

Introduction

Enterprises lose $70,000 on average per year due to inaccurate tracking of fixed assets, as estimated by Chron.

Fixed Asset tracking technology is vital to the success of modern enterprises. But technology alone is not enough—you need experts and proven processes to make your asset tracking a success. Truly effective Fixed Asset Management enables your organizations to make better decisions based on your capital investments, maintenance schedules, and asset depreciation.

Fixed assets on rise in MENAT region

The need for strong fixed asset tracking, and compliance with IFRS accounting standards has become imperative to meet global regulatory pressures in the MENA region. This guide provides step-by-step instructions and tips for fixed assets auditing, tagging, and tracking - critical processes that help enterprises stay compliant. It also gives a glimpse into the fixed asset management setup procedure to understand the full spectrum of compliance measures.

As organisations expand both within the region and internationally, they find themselves subject to increasingly stringent regulatory compliance. For example, in KSA, Royal Decree No. 13059 mandates all governmental institutions to convert their accounting from a cash basis to an accrual basis, using IPSAS Standards. The law requires the recognition, recording, tagging, and valuation of assets to log them accurately as assets and associated expenses.

A fixed asset audit, although complex, labour-intensive, and time-consuming, is a crucial component of an enterprise risk management strategy. It ensures both maximised operational capability and strict adherence to local regulations. The process involves scrutinising an organisation’s assets to verify their existence, accuracy, and value. With third-party fixed asset management and auditing solutions, enterprises can monitor and evaluate their assets in real-time, with minimal in-house involvement.

The fixed asset audit process: everything you need to know

Did you know? Businesses lose 5% of their revenue due to fixed asset fraud each year on average.

Why it’s important

A study published in the Journal of End User Computing revealed that humans make mistakes when entering data in standard spreadsheets 88% of the time. With 61% of enterprises receiving audit requests within 18 months before the third quarter of the year, and 57% using manual tracking methods for IT asset management, noncompliance and inefficiencies are widespread and costly concerns.

Despite this, audits are essential for maintaining accurate financial records, preventing losses, and ensuring compliance with standards and regulations. Many companies in the MENA region are not adequately prepared for audits. Such businesses often scramble to allocate resources and gather required information, negatively impacting company productivity and efficiency. Inadequate paperwork or unorganised files can transform the auditing process into a stressful, time-consuming, and costly ordeal.

Companies with tangible assets should carry out specialised audits to guarantee compliance. A fixed asset audit involves verifying a company’s tangible assets, ensuring they are still in possession, operational, and in line with both internal guidelines and external asset management policies.

Regularly auditing fixed assets helps confirm:

• Assets’ physical existence, location, and department assignment
• Assets’ classification
• Purchase dates and original costs
• Assets’ overall condition
• Overall quantity of assets
• Assets’ overall depreciation rate
• Current year’s depreciation and depreciation of specific types of assets
• Scrap or sale particulars
• Effectiveness of asset security measures

The best audit process

To begin a fixed asset audit, you’ll need to select an auditor, who can be an in-house employee or an external professional. The auditor’s primary responsibilities include verifying previously listed assets, updating records, and ensuring compliance with relevant regulations.

Identify ghost assets

The fundamental step in a fixed asset audit is confirming the existence of assets through physical inspection. It is estimated that 10-30% of a company’s fixed assets become ghost assets – items listed in the register but cannot be located. Eliminating ghost assets helps avoid unnecessary taxes and inflated insurance premiums.

Check your asset tags

Updating asset data as it changes is crucial. Up-to-date asset tags and tracking processes facilitate physical verification, especially during extensive audits and inventories. Attaching an asset tag to each item enables quicker identification.

Track asset conditions

Adding high-resolution photos of your assets can help monitor wear and tear throughout their useful life. Comparing previous photos may reveal usage patterns and the need for procedural adjustments.

Determine the aggravated value of your assets

Current asset values are based on acquisition costs, verified freight costs, taxes paid, and miscellaneous costs like setup expenses. Calculating an overall asset expenditure helps make better strategic decisions.

Ensure compliance

During audits, verify that assets meet regulatory requirements. Integrated Fixed Asset Management solutions allow generating reports of compliance with both IFRS and a company’s internal guidelines.

Get the bigger picture

With updated data, assess the overall situation. Consider asset depreciation, current valuation, and usage patterns. Conclude each asset audit with a report on findings, ensuring that balance sheet amounts match fixed asset inventory values. Reports help identify patterns of losses, disproportionate shrinkage, or overall operational pain points.