Controls are necessary in order to ensure that asset management is occurring and as expected. There are many ways to achieve control and they will vary throughout the asset life cycle. For example, controls that apply to acquisition will differ from those of verification.
However, the principal problem that is commonly experienced lies in record-keeping. In addition to establishing standards and policies, identifying stakeholders and making them accountable is considered a “best practice”.
A stakeholder is usually someone who has management responsibility for a business practice and department. One effective way to ensure that record-keeping is both accurate as well as up-to-date, is to impact the budget of the stakeholder.
The cost of ownership for a capitalized asset represents an expense that is incurred over time as the asset ages throughout its useful life. This expense is calculated as depreciation. The cost is typically incurred on an annual basis over the life of the asset.
As an asset depreciates, its value lessens, which in turn impacts both the balance sheet and taxes for the organization.
Therefore, it is important to ensure that the asset is being utilized and properly reported on. Many companies allocate depreciation expense to the various departments who have custody of and use the assets.
This expense impacts their annual budgets accordingly. This mechanism reflects a good practice as it delegates responsibility and motivates custodians to maximize asset utilization while maintaining accurate records.