Compliance administration can be complex and costly but the risks associated with non-compliance can prove costlier still when it comes to certifying the accuracy of financial data. For many companies, fixed assets represent a significant portion of the balance sheet.  This means that fixed assets are considered a “material” item for SARBOX compliance, using the  AICPA definition of  “material” as the assumption that a reasonable investor would not be influenced by a fluctuation in net income less than or equal to 5%.This requires the documentation of internal controls and business processes as would be the case for any financial matter that is considered to be “material”.

Without adequate fixed asset accounting practices to track and monitor the use of corporate assets, more than 65% of a company’s fixed asset data could be misclassified, unrecorded or floating in limbo in corporate financial records.Poor data quality presents a major potential SARBOX disclosure risk. Fixed assets constitute a major chunk of the total assets in the case of manufacturing companies, but even service organizations have to invest heavily in furnishings, equipment, and technology to attract and retain customers.  Inventory management software is therefore equally important for these service-based corporations too.Without an accurate method of keeping track of those assets it would be easy for a company to lose control of them and face possible SARBOX penalties as well as haemorrhage cash.

It is possible that an evaluation of internal controls will meet Sarbanes-Oxley compliance requirements, but that in itself will not fix bad data from previous reporting periods.Having a rigorous asset management system process in place is the only way to ensure a material weakness has been repaired.  Conducting a physical inventory and instituting improved business processes, if needed, is the path not just to saving costs and managing resources better, but also to accomplishing the quantitative and qualitative requirements to meet Sarbanes-Oxley compliance.