Hidden assets can be ghosts and zombies. A “ghost” asset is a fixed asset in a general ledger that is lost, stolen, unusable, or no longer owned by your company and cannot be accounted for. A recent business survey found that 12% to 25% of the assets in a fixed asset ledger don’t exist. Physical assets often assumed to be in place are fixed assets such as office equipment, machinery, vehicles, and real estate.
Should you be concerned? Well, if a percentage of your listed assets do not exist or are over- or under-valued, the financial costs could be significant. Insurance premiums and your company’s tax liability may be inflated unnecessarily. Capital budgeting and financial reporting will also be inaccurate. What is really spooky is that most small business owners don’t understand how ghost assets impact their books!
Eliminating ghost assets from the fixed asset register and then keeping them off it is a process. The first step involves a physical inventory identifying and correcting historical inaccuracies. The second step is to ensure that the required processes and resources are available to prevent ghost assets re-appearing. The third is to put in place a simple process of retiring assets when they are no longer in service.
Had a recent renovation? We recommend taxpayers identify what assets may have been replaced during renovation or demolition and dispose of the remaining depreciable basis. Sold an asset? Be sure to tell your Fuoco Group professional so it does not remain on the books.
A zombie asset is one that can be physically found, but is nowhere on the fixed asset register. Finding these can bring value back to your company. Beware also of phantom inventory and phantom income. Regularly assess your risk of inventory overstatements and financial statement manipulation. Misstated asset valuations account for nearly half the cases of fraudulent financial statements. Inventory overstatements make up the majority of asset valuation frauds.
Contact Us: Don’t let ghost assets haunt you! Need an audit, business valuation, or some forensic accounting services? Fuoco Group is a multi-disciplined professional services firm that can accommodate all your accounting and financial needs. Call us toll free at 855-534-2727.
