Accounting Basics 3: Fixed Assets

A fixed-asset register can be a very valuable tool in the management of a charity, says senior accountant Jonathan Lachmann

Jonathan Lachmann
Jonathan Lachmann

Most charities have them. They are a vital part of what they do. Yet many charities overlook them. 

They’re not so much part of the furniture; they are the furniture – and the buildings, computers and electrical equipment.

They are what accountants call fixed assets. It is easy to take them for granted, and many charities have no procedures to monitor either their use or their disposal.

Without a register of fixed assets, items could easily be mislaid or misappropriated without anyone being any the wiser. Regular reviews of such registers would enable the trustees and management to spot whether items had gone missing, or were disappearing regularly.

Replacing lost items can be costly. If laptops are mislaid, there could be more serious consequences. For example, if personal data relating to the charity’s donors or beneficiaries were held on a device that fell into the wrong hands, the charity might find itself in contravention of the Data Protection Act 1998 and liable to a fine - not to mention the possible damage to the charity’s reputation and the potential for putting those individuals at risk.

A register of fixed assets enables a charity to monitor its use of equipment, to assess how long assets are lasting, how much they are costing and whether future expenditure is necessary.

If the charity wants to replace assets after a certain period  – for example, to ensure computers are up to date – a fixed-asset register will inform management of the number and type of computers required. All this helps to inform cash-flow budgets, which are a key forecasting tool.

Such a register would also be valuable when choosing the volume of assets to purchase. For example, an educational charity looking to embark on a new programme of external seminars might wish to purchase extra portable projectors. If a register were in place, the charity would be able to assess accurately how many projectors it had already against how many it would need in the future, thus preventing either an under or over-purchase. This can be difficult without a register if assets are kept at a number of locations.

For accounting purposes, the value of assets is added to the accounting records when they are purchased. If a register is not kept, items that are disposed of are rarely dealt with in the accounting system. This could lead to an overstatement of the value of fixed assets.

Better monitoring of such assets would help with decisions to dispose of or sell unused items, freeing up office space or possibly generating additional resources.

The Charity Commission provides specific guidance on the trustees’ responsibility to safeguard the assets of the charity from loss or damage, and to ensure their proper use. Its recommendations can be found on the Charity Commission website.

Setting up a fixed-asset register and implementing robust monitoring procedures can be time-consuming, but it is potentially a hugely valuable tool in the management of a charity.

Jonathan Lachmann is a senior manager at the accountancy firm HW Fisher & Company

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