Auditors demand asset registry accuracy

Fear of litigation increasing pressure on directors

Fear of litigation at leading auditing firms, coupled with new corporate reporting legislation, is cranking up pressure on IT directors to improve their asset management processes, according to providers in the industry.

Keith Dolby, managing director of asset management software specialist Real Asset Management (RAM), argued that many firms are also seeing their profitability and share prices adversely affected as a result of inaccurate asset registries.

"The current inaccuracy of many firms' asset registries means there is real danger of shareholder legal action in the event of bankruptcy or a firm being bought based on inaccurate information," he explained. "In the wake of scandals, such as Enron and WorldCom, auditors are so scared of litigation that they are becoming less tolerant of inaccurate asset registries."

He added that RAM is seeing increased demand for its asset management technology from firms being mandated by their auditors to improve the accuracy of their asset records. "Where we've been called in recently it has often been because a firms' auditor has looked at their registry and said, 'Prove it.'"

His comments follow a survey by the company of 100 finance executives last year, which found over half admitted inaccuracies in their asset registry and a quarter claimed to carry out no physical audit of fixed assets. Dolby said automated asset management processes and tagging of assets is required at many firms to improve the accuracy of records.

He added that inaccuracy also impacts firms' profitability and share prices as most registries tend to be larger than they should be. "Because accounting systems record all assets that are bought, they tend to go on the asset registry, but firms are much less effective at taking them off," he explained. "As a result they are depreciating more assets than they should, leading to lower profits, while sales in relation to the firm's capital appears poorer than it should be."