It is estimated that at least 65% of companies have ghost assets listed on their general ledger.
Based on 11 years of performing fixed asset reconciliation projects, we believe this number to be higher.
A ghost asset is a fixed asset that is recorded on the general ledger, but is physically missing or no longer a useable asset.
Maintaining ghost assets on the general ledger and worse yet, allocating financial value to them will ultimately cost you in the form of inflated property taxes and insurance coverage, in addition to various issues resulting from regulatory non-compliance.
Ghost assets are caused by any infinite number of circumstances. Some common causes we see are:
- An asset reaches end of life and is disposed of. Finance is not notified of the disposal, and therefore the assets is still on the books, potentially with remaining book value and still being depreciated long after it is gone.
- An asset reaches end of life or perhaps breaks and is rendered unusable. The asset must now be replaced. It is placed into storage, or worse, a back hallway where it simply gathers dust and takes up space. As with the previous scenario, the asset remains on the books.
- An asset is no longer needed by the end user. It is stripped for parts that are used to enhance other assets. You are left with an empty shell and a worthless asset that is inflating your books.
So how do you resolve ghost assets on the general ledger?
Start by taking regular physical inventories of your fixed assets. Identify discrepancies and reconcile them each month. This will avoid having a substantial reconciliation issue come year end.
Items that are recorded on the FAR, but are not found during physical inventory should be flagged. If these items cannot be located after additional investigation, they are likely no longer in your possession. If during the inventory, old assets are determined to be broken or are being used as a doorstop, they should be properly retired.
This can be daunting task, however if done properly, produces accurate financial reporting of fixed assets.
Verasset can help. We perform fixed asset inventory services and reconciliation and verification of financial records. The process is designed to validate the contents of the fixed asset register and remove ghost assets.