All private or public organizations need to keep an accurate record of their assets for many reasons. One reason is so capital asset listings are ready for audits.
What are capital assets?
A capital asset is defined by GASB as land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period.
Why keep an accurate record of assets?
When assets are misstated, it harms the legitimacy of your asset reports and balance sheet. After year-end, it is important that you provide your auditors with a compiled list of all assets so they can work better and provide you with a better understanding of your association.
Tips for preparing capital asset listings
Sometimes compiling a capital asset listing after year end can seem super daunting especially if you didn’t update it throughout the year. Here are some tips to help you.
- Establish key controls/procedures – Your first step should be to make sure you have proper controls in place to ensure proper recording of each capital asset. This includes defining the criteria to report such as useful life of each asset, date asset was purchased, method of depreciation and cost. You will want to implement procedures to approve capital asset acquisitions and dispositions. Having these controls and procedures in place protects the integrity of your organization and minimizes risk of fraud.
- Update schedule periodically – Instead of looking back at the entire fiscal year to determine what capital assets need to be added or disposed of it would be a great idea to set reminders to periodically update your listing. Choose to update your listing monthly or even quarterly instead of waiting for the auditor to ask for the report.
- Inventory Observations – Frequently perform physical inventories and make sure your count reconciles to your capital asset listing. This will ensure better accuracy of your asset reporting. This is especially important for when you use federal funds to purchase assets because you then are required to have a physical observation of inventory every two years.
By implementing each of the recommendations above you will be better prepared to report your capital assets at year-end and have a lighter load around audit time. Year-end can be extremely busy so take the time during the fiscal year to update your reports and it will result in more accurate financial statements.
If you have any questions on capital asset listings, contact your Henry+Horne advisor.