Manufacturing companies, regardless of size, typically have a significant investment in capital assets. Regardless of what it is they produce, specialized machinery, tools, equipment, vehicles, etc., are used in daily operations. This is in addition to the everyday office equipment (furniture, IT equipment, etc.) used to run the business.
If the company is publicly traded, they are required to comply with the Sarbanes Oxley Act (SOX), and therefore are required to accurately account for their capital assets as it relates to their balance sheet. If the company is privately held, they are not concerned with government compliance or mandates. Their goals however, are still one and the same.
The goal is to have an accurate accounting and reporting of fixed assets. This is important from both a financial as well as an operational view. and is accomplished via establishing an accurate baseline inventory of their capital assets and reconciliation of their fixed asset register. Further, they are looking for a means to track their capital equipment, including additions, changes/moves, and disposals.
The Sarbanes Oxley Act mandates publicly held corporations to perform a physical inventory at a minimum, every 3 years and to reconcile their fixed asset register. Corporate officers, as well as an external auditing firm must sign off on the company’s financial statements.
Capital assets, particularly; specialized machinery, tooling and equipment, and vehicles often represent a significant value on the balance sheet.
While privately held organizations do not face the same mandates, they are concerned with understanding their overall investment in capital assets for various reasons, such as; property taxes, insurance, and improved utilization.
The most common problem we find, across the board, is that the fixed asset register reflects various high value assets that are no longer in the organizations possession. These are commonly known as Ghost Assets. This can amount to hundreds of thousands of dollars in equipment on the FAR that have been retired and disposed of for years.
Performing a wall to wall physical inventory and reconciliation of the FAR will bring these issues to light, and allow finance to make the necessary adjustments to financial statements.