Top 4 Benefits & Use Cases of Asset Management Automation in '24
A challenge accountants face whilst preparing financial statements is accurately calculating the real-time value of a company’s assets. That predicament usually arises from the company’s portfolio having too many tangible assets to keep track of and to account for.
Deloitte 1 claims that automation in the asset servicing industry could reduce headcount by 60-70%, and cut costs by 30-40%. Moreover, they also believe that the three technologies of RPA, blockchain, and cognitive technology will spearhead the sector’s digital transformation.
This article explores in more depth how, by automating the asset management process, businesses can increase the accuracy, speed, and efficiency of their accounting teams, in addition to reducing their manual workload and allowing them to tend to more value-driven tasks.
What is asset management?
Asset management is an accounting/financial process for of managing, calculating, and reporting a company’s, or a hedge fund’s, financial assets.
What are the different types of assets?
Assets are usually divided into four main categories:
1. Current assets
These are usually liquid holdings, with their valuation dependent on demand-supply models in competitive markets.
They include, but aren’t limited to, cash (whose value is tied to interest and exchange rates prevalent in an economy), inventory, and short-term account receivables.
2. Financial investments
These are a company’s investments in the financial market. Examples include bonds, securities, stocks, futures, options, and other derivatives.
3. Fixed assets
These assets are usually purchased to be hold for the long term, and thus are harder to liquidate.
They include, but aren’t limited to, machinery equipment, real estate, vehicles, and long-term receivables.
4. Intangible assets
These are assets that are difficult to be valued. Intangible assets include copyright, intellectual property (IP), patents, trademarks, and goodwill. For the purposes of this article, we won’t be mentioning them too much.
What are the challenges of manual asset management?
The following are the challenges of manual asset management:
1. Physical decentralization
The assets of a firm (think vehicles, real estate, and other physical assets) may be spread over multiple locations, subsidiaries, and departments. Without digital asset tagging, creating a list and manually counting the relevant assets at the end of every fiscal period is time-consuming and inefficient.
2. Phantom assets
Phantom assets are those that are usually low in value, but high in volume. Examples could be office equipment and furniture, like computers and desks. Every item should be accounted for and recorded, which can needlessly take up the valuable time of accountants.
3. Over/under valuation
Physical assets undergo wear and tear. So their periodic valuation should be in terms of their incurred depreciation. Accurately calculating how much an industrial refrigerator, for instance, has depreciated in value since the last accounting cycle should be done with respect to every-changing market parameters.
If all fixed assets’ valuation does not include their depreciation, the company might mistakenly overestimate their worth at the end of each fiscal period.
4. Lengthy and erroneous
This is true for all of the preceding points. Keeping track of, accounting for, and reporting all of a company’s assets (of any kind) is a difficult and time-consuming procedure, especially when it needs to be completed on a regular basis. Inaccuracies and miscalculations can occur due to the sheer number of these details.
These inaccuracies will show up on the financial reports and give shareholders and the management a wrong image of the financial health and position of the company.
5. Lack of data consolidation
Asset accounting is part of the broader process of financial closing and reporting. If asset accounting is done manually, then creating the succeeding balance sheet, income statement, and financial reports would also include lots of back and forth and manual labor.
How does asset management software work?
An asset management solution can, thanks to API, orchestration, and master data management (MDM) capability, extract, transfer, and exchange data from various ERP systems’ data silos to use the data in the asset accounting process. This ensures that calculations are accurate and with no missing data.
- The shareholders can be represented with reports on a timely manner,
- And the company stays regulatory compliant and avoids penalization for slow reporting.
What are the use cases of asset management automation solution?
The following are the use cases of asset management solution:
1. Budget management
This is the practice of managing the investment portfolio of a company, in terms of budget allocation and optimization.
The software leverages budgeting functions to help businesses have a real-time overview of their assets-to-budget ratio. The benefit of accurate budget management is it helps businesses not go over budget or be over leveraged.
2. Asset reporting
This is the reporting of said-inventories. The software leverages reporting automation functions, such as RPA and orchestration to generate reports including all the relevant information concerning the reporting of assets in an understandable format, and send it to an employee for verification or to the designated client.
This method is for calculating the present value (PV) of an asset with respect to the equipment’s wear and tear. For instance, assume a company purchases a new fleet of vehicles. Those will be logged into inventory control software. The accountants will also apply a discount rate equal to APR, to account for depreciation.
Thanks to RPA, the accounting automation solution will, on predetermined intervals, extract the real-time number of vehicles from the inventory control software, apply the discount rate, and have the fleet value ready for reporting in the R2R procedure.
4. Asset transfer & disposal
If a company sells and/or forgoes an asset, the asset is said to be transferred and disposed of and needs specification as such on the balance sheet.
Through orchestration and verification, whenever an asset is sold or is disposed of in the inventory list, the software automatically removes it from the “assets” database and inputs it to the “sales” database.
What are the benefits of asset accounting automation software?
The following are the benefits of automating asset accounting:
The solution offers accountants and high-level executives the ability to monitor their assets in real-time and through out the months, not only when they are preparing financial statements. This is a possibility through cloud-based accessibility.
2. Real-time valuation
Once accountants have established the rate of depreciation, the software will take valuate the assets with respect to the rate of depreciation. This will give a more accurate estimate of how much an asset is actually worth.
3. Real-time accounting
Thanks to ERP integration to other systems, any time an asset is sold or lost it will be flagged as such on the software. This will eliminate the need to recount assets again during the next fiscal period.
4. Accuracy and efficiency
Because the reporting and recording of all assets is automated and dependent on downstream ERP systems, the possibility of human-made errors is minimized.
For more on FinTech
If you are interested in learning more about how the use of technology is changing how financial procedures are done, read:
- Top 5 RPA Use Cases & Applications in Accounting in 2022
- Finance Automation: In-Depth Guide for Businesses in 2022
- Increase the Accuracy of R2R With Automated Close Solution
Finally, if you are interested in adopting a FinTech solution for your business, we have a data-driven list of vendors prepared. We will help you choose the one best tailored to your needs:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
To stay up-to-date on B2B tech & accelerate your enterprise:Follow on
Next to Read
Your email address will not be published. All fields are required.