Like any project, an fixed asset inventory project must be well organized and structured.
It should have stages, each of which should be time-bound with a requirement for intermediate results.
Before embarking on an asset fixed inventory project, it is important to know the essential steps to be planned and scheduled.
In the article below, we detail the steps that we believe are essential for a successful fixed asset inventory project
1. What is an fixed asset inventory?
For companies, an inventory refers to the action that allows for the identification of all the elements that a company possesses on a specific date. In France, the inventory is an accounting obligation that all companies must fulfil annually. It involves recording all the assets and debts of a company on a given date. https://infonet.fr/lexique/definitions/inventaire/
When we talk about the fixed asset inventory project in companies, this operation usually includes the following operational phases:
- Inventory (listing) of assets present on site, with or without marking
- Reconciliation of this inventory with the company’s accounting bases
- Treatment of differences (in accounting surplus or in physical surplus)
That is, under the term “fixed asset inventory” companies include all actions related to the project, including accounting reconciliation and processing of discrepancies.
This is an “abuse of language” which in some cases can mislead the actors concerned and cause confusion as to the purpose of the fixed asset inventory project.
It would be more appropriate to use the term “physical asset management” instead, but certain practices still persist in companies!
2. Step 1 – Inventory/identification of fixed assets
Based on the definition of a fixed asset inventory (see previous paragraph), it is an operation aimed at identifying all the fixed assets physically present in the defined building perimeter and a defined period of time.
A fixed asset inventory operation should be carried out as quickly as possible; the longer the inventory takes, the more unreliable it becomes due to the movements of assets that may occur during the process.
- The fixed asset inventory can be carried out “blind”, i.e. the inventory takes place without knowing whether the asset inventoried is fixed or not; the inventoried assets will be reconciled with the company’s accounting bases at a later stage.
The advantage of a “blind” fixed asset inventory is that it ensures the completeness of the inventory of fixed assets, thus securing asset disposals; this “blind” fixed asset inventory method with asset marking is systematically favoured by internal auditors
- The inventory of fixed assets can also be carried out “by checking off”; this consists of validating the fixed assets entered in the company’s accounts in the field. In order to make the operation more reliable, checking off can also be done using other lists of assets held by the company (computer equipment, industrial tools, assets belonging to third parties, etc.).
- The main disadvantage of the inventory of fixed assets “by checking off” is that it does not guarantee the exhaustiveness of the inventory operations; very often the internal auditors do not validate this inventory method.
- The inventory of tangible but not tangible fixed assets (fixtures, fittings, installations, works) is done on the basis of a list from the company’s computer listings.
3. Step 2 – accounting reconciliation of fixed assets
At the end of the physical inventory stage, the physical assets inventoried must be reconciled with the fixed assets accounting base.
Depending on the inventory mode chosen in step 1, the reconciliation will be different:
- Blind” inventory of fixed assets; this inventory results in a physical inventory base reflecting the reality of the field.
Reconciliation consists of matching the assets physically inventoried in the field with the fixed assets in the company’s accounts.
The methodology to be implemented must be defined during the preparation of the fixed asset inventory project; the reconciliation keys must be relevant and take into account the reality of the company in terms of fixed asset management, the category of fixed assets and their value.
- Inventory “by checking off”; this operation does not give rise to a physical inventory database, but consists of checking off the fixed assets recorded in the company’s accounting file.
The quality of the checking off depends to a large extent on the quality of the fixed asset file; the better the file, the more reliable the checking off will be.
The reconciliation of this inventory of fixed assets with the company’s accounting databases is theoretically done at the same time as the checking off and it is advisable to take advantage of this concomitance to enrich the fixed assets file with data collected in the field.
In general, the “blind” fixed asset inventory method is more reliable and is preferred by internal auditors in large groups.
The “checking off” method of asset inventory is easier to implement but is not exhaustive and is less reliable than the “blind” method. In addition, the “checking off” method of inventory does not provide all the safeguards required for the removal of assets not present in the inventory (since the checking off method is not exhaustive).
The “checking off” inventory consists of reconciling the asset accounting base with itself!
The assets that are physically present and correspond to fixed assets will not be made reliable if they are not included in the fixed assets file; yet the very essence of a fixed assets inventory project is to make the accounting bases reliable by comparing them with the physical reality on the ground.
4. Step 3 – Post-reconciliation discrepancies, during an fixed asset inventory project.
Once the physical inventory of fixed assets has been reconciled with the company’s theoretical accounting bases, it is necessary to treat the discrepancies noted.
Depending on their nature, the discrepancies generated during the accounting reconciliation fall into two categories:
- Differences in physical surplus; these are assets inventoried/recorded during the physical inventory phase of fixed assets, but which could not be reconciled with the company’s accounting file.
In theory, these surplus assets should be reintegrated into the company’s fixed asset list if they are of a fixed asset nature.
- Accounting surplus differences; these are assets that are fixed assets in the company’s accounts, but which were not found in the field when the asset inventory project was carried out.
After verification (notably of the net book value), these fixed assets can be removed from the company’s accounts.
As we have just seen, the division of an fixed asset inventory project into stages is important for its success.
But the success of a project, in this case the fixed asset inventory project, depends above all on the people who lead and participate in it.
With accounting, financial, management and other backgrounds, the staff involved must understand the challenges of the fixed asset inventory project and fully embrace it.
The success of a fixed asset inventory project depends on the motivation of the participants and their adherence to the main lines of the project.