Best Practices for Fixed Assets Management March 11, 2010

Best Practices for Managing Fixed Assets for Financial Firms Rashid Nur BNA Software March 11, 2010

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Today’s Presenter •

Sr. Product Manager – Fixed Assets

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Responsible for BNA Software’s Fixed Assets Suite

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15+ years experience in Fixed Asset Management

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17+ years commercial software experience

Rashid Nur BNA Software O: 703-341-3623 E:[email protected]

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Best Practices for Fixed Assets Management March 11, 2010

Agenda – Best Practices • Document Fixed Assets Management Policy • Improve Efficiency – Completing Fixed Assets Work • More Efficiency • Ensure Accuracy – Compliance / Getting the Numbers Right • Strong Internal Controls – Preventative and Detective • Asset Inventory – Reconciling Physical Assets with Financials • Case Study - Financial Industry Firm

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Fixed Assets Management Policy – Your Roadmap for Success

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Best Practices for Fixed Assets Management March 11, 2010

Document – Fixed Assets Policy Includes: • Threshold – Asets that should (or not) be capitalized • Data – what data must be captured, maintained, and archived • Depreciation -- how to depreciate assets for GAAP and Tax • Asset Inventory – how often to perform and assigning the different levels of priority for assets (high value etc.) • Reporting – what type of reports are required and who needs them (additions, disposals, transfers, reconciliation, audit trail, etc.) slide 5 Quick | Convenient | Cost-Effective | Online Learning

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Poll Question #1 •

Which of the following items are described in your fixed assets policy document? (Select all that apply.) A. Threshold for assets that should (or not) be capitalized B. Data that must be captured, maintained, and archived C. How to depreciate fixed assets for GAAP and Tax D. How often to do asset inventory / what assets to inventory E. Specific fixed assets reporting requirements F. Do not have a policy

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Best Practices for Fixed Assets Management March 11, 2010

Improve Efficiency •

Processing Fixed Assets Transactions

– One/or more at the same: Additions/Disposals/Transfers – Capture All required data in one step, i.e. copy and paste •

Minimize Data Entry to Complete Transactions

– Additions: Asset Type, Cost, Acquisition Date, Description – Disposals: Asset ID, Disposal Date, Proceeds, Type of Sale • Monthly Closing – Reconciliation work, posting journal entries, minimize the # of transactions to reconcile, batch reporting

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Improve Efficiency • Automate use and enforcement of depreciation policy (after you have documented depreciation policy) – System should automatically use your policy to depreciate assets • Book: Asset Type, Property type, method, life, convention, rate

– Staff inputs basic required data for each book; • type, cost, date, description, other user defined fields etc

– Reduce volume of input without sacrificing quality or quantity • input 4 items of data vs. 9 items to complete addition – 55% improvement • Additions [100 Assets x 2 minutes = 200 minutes (x .55 = 110 minutes)]

– Reduce potential costly errors / increase reconciliation time

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Best Practices for Fixed Assets Management March 11, 2010

Improve Efficiency • Ability to Report on Required / all periods – Prior, current, and future periods • Batch Reporting / list of reports for period-close – Sorting /grouping data to meet reporting requirements – Selecting required books (GAAP, Tax, State etc) – Summary, Detail, round/decimal, Page break • Separate process to report on data / open backup data file

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Improve Efficiency • Ability to Mass Data Change – Transactions – Process multiple additions / disposals, etc. – Modify multiple assets, i.e. cost center changes, etc. • Managing Construction-In-Progress (CIP) Assets – Track budgeted expenses vs. actual expenses – Report on project / contract status – Converting CIP assets into capitalized assets

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Best Practices for Fixed Assets Management March 11, 2010

Poll Question #2 Which of the following tasks is the most time consuming for you / your staff? A. Data Input: additions, disposals, transfers, modifications B. Reconciliation: data changes and reconciliation with GL C. Reporting: period-close activity reports, journal entry report

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Ensure Accuracy • Enforce Depreciation Policy for GAAP and Federal Tax regulations in the system (not rely on manual process) • System should use predefined depreciation policy. Users should not manually enter Depreciation Method, Life, Rate, or Convention (it may be too late once you catch mistakes). • If outsourced tax work to CPA Firm, increase quality of data by enforcing tax depreciation policy defined with help of CPA Firm – Assets may or may not qualify for bonus / whether or not you qualify for S179 deduction. Tracking how much S179 deduction or ITC taken or remaining etc

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Best Practices for Fixed Assets Management March 11, 2010

Ensure Accuracy • Expert System - Users should not need to be experts in GAAP and Tax depreciation regulations • Automatically track and test for mid-quarter application for Federal Tax purpose, and system alerts when necessary to switch to mid-quarter • Automatically calculate depreciation in short years or 12-month year. Standard IRS Forms & worksheet provided to CPA firm (if outsourced). • Automates compliance with GAAP and Tax regulations, reduces errors, and increases accuracy.

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Ensure Accuracy • System should allow you to do“what if” scenarios / calculate depreciation with or without the bonus depreciation • Helps you and your CPA determine how to depreciate assets, when to take bonus depreciation / S179 deduction – or not • If you modify asset records, the system should automatically recalculate depreciation for GAAP and Tax • System should include all data (additions, disposal, transfers) in the report. Eliminate additional processes to ensure accuracy (example, staff added 10 assets, printed acquisition report)

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Best Practices for Fixed Assets Management March 11, 2010

Internal Controls • Types of Fixed Assets Controls – Preventative: Most effective control, prevents issues from occurring – Detective: Detects issues after they have occurred, typically through some form of audit and sampling • System Goals – Simplify controls through system functionality – Enable preventative controls where possible

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Controls, Security and Validations • Overview – Preventive controls allow for companies to define • What data can be entered into what system files • Who can perform actions • How It Works – System enforces policies: data entry / modification – User roles dictate which users can perform actions

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Best Practices for Fixed Assets Management March 11, 2010

Controls and Security • Allows Establish User-Specific Rights – By company or by action – Standard user roles: • administrator, data entry, senior data entry, report, read only, manager – Define custom roles – Determine who can: • View or modify, or report on data • Setup company, books, asset types, asset fields, assets, queries, reports, exports, etc.

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Controls and Protect Periods • System provides Controls to Protect Periods – For each book, user able to establish a “protected through” date – System provides alerts or warnings to users who may be making changes that effect protected data – User permissions can be set to disable ability to edit data in a protected period – designated by executives

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Best Practices for Fixed Assets Management March 11, 2010

Controls and Validations • Assets Records (controls) • Require (certain) data captured during entry • Use of pick-list, drop-down list, set default values

• GAAP & Tax Books (controls) • Selecting proper Assets Class or Type • Expert system should have complete GAAP and Tax validation • Users should not manually enter Method, Life, Rate, etc.

• System Controls should be available in all entry points (whether interface or import tools)

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Controls and Audit Trail Tracking • Overview – Allows to track relevant actions and the impact of those actions

• Data Tracked – – – – –

Where: Asset changed What: Actions take place When: Date / time action occurred Who: Performed the action How: which, if any, calculated depreciation values are impacted

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Best Practices for Fixed Assets Management March 11, 2010

Controls and Audit Trail Tracking •

Type of Control: Detective

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How It Should Work

– You have reports to identify changes that occurred – Using transaction detail from the audit trail reports, auditors ensure corporate policies were followed – Provides opportunity to review all changes to your data when performing reconciliation work

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Asset Inventory • Physical Inventory of Assets – Compare assets on the floor with financial records – Physical verification of assets and condition of assets – Perform on a periodic basis / all or sample assets • Asset inventory provides – Property tax benefits – Lower property insurance premiums – Federal Income Tax deductions (dispose ghost assets)

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Best Practices for Fixed Assets Management March 11, 2010

Case Study – Company Asset Profile • Financial Industry Firm – $120 Million Revenue / 100 Employees – 2100 Fixed Assets / Excel to manage assets (transactions: 400 additions and 100 disposals per year)

– Accounting staff performs fixed assets work – Outsources tax work to CPA firm

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Case Study – Challenges • Extensive Use of Excel – – – – – – – –

Calculating depreciation, potential errors Long closing cycle: additions, disposals, modifications No controls, security or validations No audit trail tracking and documenting changes Lack of comprehensive reporting / large spreadsheet Knowledge of Excel file limited to one person Essentially built depreciation software in Excel Time-consuming to provide information requested by external auditors or CPA firm performing tax work

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Best Practices for Fixed Assets Management March 11, 2010

Case Study – Solution • Implemented BNA Fixed Assets DesktopPro – Expert System: Provides complete out-of-the-box compliance with GAAP and Tax regulations: – Depreciation calculation, Bonus, S179, ITC credits – Easy-to-use, spreadsheet-like interface: • Wizards to efficiently enter data for additions, disposals, adjustments – Complete audit trail, security, and validation to help eliminate errors and provide supporting documentation

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Case Study – Solution • Comprehensive Reporting Tools – Over 35 standard reports, including: • Additions, Disposals, Reconciliations, IRS Forms, Depreciation Expense, Comparisons, and Projections – Standard “Report Maker” tool that provides ability to create custom reports: • Optional Report Writer tool for advanced report creations – Batch Reporting capability / ability to group data by any user defined field

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Best Practices for Fixed Assets Management March 11, 2010

Q&A

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Thank You! For more Information about BNA Fixed Assets: Contact a BNA Software Sales

1-800-424-2938, Option 3

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Best Practices for Fixed Assets Management March 11, 2010

About FMS The Financial Managers Society, Inc. is the only individual membership society exclusively devoted to serving the needs of finance & accounting professionals from financial institutions. Our more than 1,500 members are CFOs, controllers, CEOs, COOs, treasurers, investment officers and internal auditors from banks, thrifts and credit unions. FMS offers career-enhancing education, targeted news and research, national leadership opportunities, a voice in shaping regulations and accounting principles and connections with other industry professionals. Mission The mission of the Financial Managers Society is to enhance the professional development of financial personnel within financial institutions. The Society accomplishes this mission by: •Offering premier education and information to members and others within the financial services industry regarding accounting, financial management, regulatory, operational, auditing and other industry issues. •Providing various forums for the exchange of information and practical applications. •Articulating industry and member concerns to regulatory and accounting policy-setting bodies. •Providing members with opportunities for technical, personal, and leadership growth and development.

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