A Fixed Asset Policy establishes the guidelines for managing, accounting, and safeguarding an organization’s fixed assets. Below are the essential components of such a policy:
- Purpose and Scope
Define the objective of the policy (e.g., to ensure proper management, accountability, and reporting of fixed assets).
Specify the assets covered (e.g., property, plant, and equipment) and any exclusions (e.g., consumables).
- Definition of Fixed Assets
Clearly define what constitutes a fixed asset (e.g., tangible items with a useful life exceeding one year and above a specified capitalization threshold).
Include examples (e.g., buildings, vehicles, equipment).
- Capitalization Threshold
State the minimum cost at which an asset is capitalized (e.g., £5,000 or a specific percentage of the organization’s revenue).
- Classification of Fixed Assets
Provide categories for fixed assets (e.g., land, buildings, vehicles, machinery, IT equipment).
- Asset Acquisition
Outline the procedures for purchasing, receiving, and recording fixed assets.
Specify approval requirements and documentation needed (e.g., invoices, purchase orders).
- Asset Identification and Tagging
Establish procedures for asset tagging or numbering for tracking and identification purposes.
State the timeline for tagging after acquisition.
- Depreciation Policy
Specify depreciation methods (e.g., straight-line, reducing balance) and rates.
Define asset classes and their respective useful lives.
- Asset Maintenance
Detail procedures for maintaining assets to ensure longevity and functionality.
Include roles and responsibilities for upkeep.
- Asset Disposal
Define processes for the disposal of obsolete, damaged, or no longer needed assets.
Include approval levels, valuation methods, and methods of disposal (e.g., sale, donation, scrapping).
- Asset Impairment
Establish procedures for identifying and accounting for impaired assets.
Provide guidance on valuation adjustments and reporting requirements.
- Asset Transfers
Define processes for transferring assets between departments or locations.
Specify documentation and authorization requirements.
- Periodic Physical Verification
Outline requirements for regular asset audits and physical verifications.
Include frequency (e.g., annually) and the responsible parties.
- Accounting and Reporting
Provide guidelines for recording assets in financial statements in compliance with relevant standards (e.g., IFRS, GAAP).
State requirements for asset reconciliation and reporting.
- Roles and Responsibilities
Identify roles and responsibilities of various stakeholders (e.g., finance team, asset custodians).
Include approval hierarchies for acquisitions, disposals, and transfers.
- Compliance with Regulations
Reference applicable accounting standards and regulatory requirements (e.g., tax laws, environmental regulations for disposal).
- Policy Review and Updates
State the frequency of policy reviews (e.g., biennially) and the responsible parties for updates.
Optional Components:
Asset Security: Guidelines to safeguard assets from theft, loss, or misuse.
Insurance Requirements: Coverage for high-value or critical assets.
Leased Assets: Policies for managing leased equipment or property.
