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Corporate reporting and fixed assets - an introduction

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18th Mar 2005
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Fixed asset software house Assetware has published a 23-page guide explaining how International Financial Reporting Standards and the US Sarbanes-Oxley Act are changing how companies have to account for their fixed assets.

Assetware managing director Richard Fisher said the company drew on its experiences with customers to create the guide, 'Clarifying the Confusion'.

"The new requirements currently apply to larger companies - European listed companies in the case of IFRS, some US companies and their subsidiaries in the case of Sarbanes Oxley. But the changes will certainly filter down to smaller organisations," he warned. IFRS is likely to spread to all UK companies in the next few years and the European Commission is working towards introducing similar rules to Sarbanes-Oxley, he added.

This extract from the Assetware guide highlights how the new reporting regimes affect fixed assets. Free copies of the full guide can be requested from Assetware.

IFRS and asset management
IFRS fundamentally affect the way a company's numbers are reported. The relevant standards require more analysis of fixed assets, together with a different means of depreciation for finance leases and restatement for property.

The IFRS regime requires depreciation methods to be open and customisable to reflect the expected consumption of economic benefits. Fixed assets must be recorded at cost, while depreciation, revaluation and/or impairment are then applied to categories, subcategories or components of assets. Where the revaluation option applies, a complete audit trail must be provided.

These requirements are beyond the scope of spreadsheets, or non-specialist systems and will require asset software can recognise the initial asset at cost, and record subsequent measurements at either cost less accumulated depreciation and impairment losses, or revaluation on a systematic basis.

Should subcomponents of an asset have different expected lives or depreciation treatments, each component must be identified and managed separately, for example an aircraft and its engines.

Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 (often known as Sarbox) covers the reliability of both business processes and reporting. Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) must personally certify the company's books and records do not contain untrue statements and fairly present their company's results.

The law also requires the executives to affirm that appropriate internal controls were in place and were independently tested and reported on.

To achieve this level of assurance, Sarbox requires every transaction to be available for analysis and reporting, including the purchase and sale of assets. For example, if a loss is made when an asset is sold, it must be measured and evaluated as to whether good value was acquired for that item.

Under Sarbox, a greater level of detail is needed in the the control reports. If fixed assets information is dotted all over the organisation in a variety of systems and spreadsheets, no one will be able to attest to robustness, and sign off internal controls.

For more detail on the requirements and impacts of the two regulatory regimes, visit the Assetware website to access a copy of 'Clarifying the Confusion', or email: [email protected].

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