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Critical Considerations when Selecting a Fixed Asset Management Solution for TAX!
Critical Considerations when Selecting a Fixed Asset
Management Solution for TAX!
We all know there is a need to automate GAAP and Tax Books for Fixed and Intangible Assets!
“We can’t get the fixed asset information we need from our accounting system.”
“Were there asset dispositions we didn’t know about?”
“I spend too much time trying to keep track of fixed asset data and calculations in Excel.”
“We do not know where our fixed assets are located.”
“It takes too long to provide required information to the different stakeholders.”
What are corporate tax departments saying?
What are tax consultants and the Big Four saying?
65% of fixed asset data is incomplete, inaccurate or altogether missing, a potential disclosure risk for executives now responsible for certifying the accuracy of financial data as a result of Sarbanes‐Oxley compliance.
Asset Management Resource (AMR)
Incorrect information and errors in fixed asset inventory data are a near universal problem – resulting in significant and unnecessary tax overpayments of 8% to 20%
Asset Management Resource (AMR)
CURRENT STATE
FUTURE STATE
How do you get from your current state to a future state of fixed asset automation, compliance and low risk?
• Evaluate your options
• Don’t just take people’s word for it
• Investigate further… Do your homework!
• Your colleagues out there will share their
thoughts!
• They have experience in evaluating and
deciding. Perhaps they can share what
happened when they went down the
wrong path.
Before looking into your options, make sure you understand your requirements!There are great differences between accounting department
needs and the tax department needs for managing
depreciation.
Overall requirement considerations:
•Tax depreciation rules and tax reporting
• How many tax books and/or sets of tax calculations
do you need?
• Federal Tax, ACE, & AMT
• States (Bonus & no Bonus)
• E&P, Canadian, Federal tax with and without Bonus,
others?
Before looking into your options, make sure you understand your requirements!Overall requirement considerations:
•Do you track assets at summary or detail level or both?
•Do you need to automate adds, disposals, transfers, splits?
•Do you need to automate updates to assets, cost basis,
lives, other asset details?
•Do you need to adjust assets differently for
•GAAP than you do for Federal Tax books?
•Do projections and “what if” scenarios?
•Do you need to report easily over prior years and across
entities, i.e. consolidations?
Before looking into your options, make sure you understand your requirements!
What are your needs?
• Do you need to access the system from anywhere? Multiple users?
• Do you want to be able to reconcile between book and tax… easily?
• Do you want to make sure you have the latest tax law updates on a timely basis?
• Do you need to minimize use of your internal IT?
• Do you need robust reporting and ad hoc query capability?
• Compliance controls and risk management?
• Do you have trouble with audits today?
Evaluate Your Options.
After Determining Your Requirements and Needs, Discuss What You Really Want Out of a System
What are my options?
•Option 1: MS Excel spreadsheets
•Option 2: Homegrown system for Tax Books
•Option 3: ERP Module for Both GAAP Book and all Tax Books
•Option 4: ERP Module for GAAP Book and Third Party Solution for all Tax Books
Option 1: Excel Spreadsheets
PROS• Flexible
• Can be simple to track
• Inexpensive cash outlay for solution
CONS• Really not an option for a small
to large organizations with more than 500 assets
• Manual steps
• Error prone
• Reconciliation challenging
• History can be lost
• Audit risk
• Change control
• Tax law calculation logic
• Lack of tax reports and forms
PROS• Internally developed system can
sometimes have more of the end user features you wanted
• Reports in the formats and with the fields you wanted
• Tax logic built in
CONS• IT resources are required to program
• Development, maintenance and support is expensive
• Updating tax logic
• Reconciliation with ERP
Option 2: Homegrown System for Tax Books
PROS:• All books – GAAP & Tax in one
system
• Great for GAAP Accounting Book & Journal Entries
• Leverage the ERP investment already in place
• In theory, less manual reconciliation
SAP
Oracle
PeopleSoft
Option 3: ERP Module for Both GAAP Book and all Tax Books
CONS:• ERP’s do not have tax personnel on
staff
• Requires tax technical resources and technical resource experienced in the coding/configuration of the ERP Module
• Costly, and time consuming to set up for tax
• Tax law changes require prioritization of IT staff and/or consultants, and need to be planned, paid for and tested each year.
CONS (Cont.)• Lack of compliance forms and
worksheets
• Lack of tax reconciliation and depreciation reports
• Inability to create, update and maintain all tax books across all entities
• Inability to easily adjust cost basis, useful life, make other adjustments to asset details…
• ERP allows asset classes/types, methods and conventions to be coded incorrectly
Option 3: ERP Module for Both GAAP Book and all Tax Books
Option 4: ERP Module for GAAP Book and Third Party for Tax Books
PROS• Extremely cost effective
• GAAP Book resides in the source system where Finance and Accounting are booking new entries
• Ease of sync if asset ID’s are utilized along with robust reconciliation reports
• Unlimited amount of tax books can be set up
• Each book can have different cost basis, life, and asset details
• Extensive tax reconciliation and tax reports
• What if scenarios and comprehensive projections
• Custom queries
• All tax law updated for you, when you need it!
Option 4: ERP Module for GAAP Book and Third Party for Tax Books
PROS (Cont)• Simplified implementation and data conversion
• Support from IT and tax professionals who know what you are dealing with
• Can track on summary or detail level
• Compliance forms as well as extracts to domestic compliance solutions for integrating into the eFile transmission
• Easy automated updates for additions, disposals, transfers, and adjustments
• More user defined fields leveraged for tax reporting, grouping, sorting and sub‐totaling
CONS• If import/export is not easy to use or
robust, reconciliation could be difficult or time consuming
• Need to make sure that transfers are worked through prior to implementation. Some ERP modules create new asset ID’s when an asset is transferred. Tax needs to trace through and integrate.
• Still need to ensure that accounting/finance is booking assets correctly in ERP – however, now you will have the reconciliation reports you need!
• Politics in getting this approved!
Option 4: ERP Module for GAAP Book and Third Party for Tax Books
Next, you will need to create a“business case”
• Keep it simple
• Use facts
• Do your homework
• Make sure you ask questions
• Create a grid for requirements compare them against ERP and 3rd Party Modules
Summarize Accounting Needs vs. Tax Needs
Selecting a Fixed Asset Management Solution
In summary, when selecting a fixed asset management solution, make sure to:
Capture the needs of all parties – in this case, both the accounting and the tax departments needs.
Verify a tool’s true functionality ‐ just because someone tells you the tool can do something doesn’t mean that it’s the right tool for you. Be sure to dig deeper into how it accomplishes it: e.g., via customization, manual work around, built‐in, etc.
Thank you for reading!For more information, contact me at:
Kelley Lear
941‐379‐7108
www.redmoonsolutions.com
blog.redmoonsolutions.com
www.twitter.com/redmoonsolution
