INTRODUCTION:

The term “Ghost Asset” refers to the physical assets that are accounted for on a company’s fixed asset listing (FAL) but do not physically available at the manufacturing plant or other locations. FAL discrepancies emerges for the variety of grounds, including the sale, decommission, or cannibalization of machinery, equipment and other assets (Bobber, 2017).

There is great prospective for such discrepancies is capital intensive industries such as manufacturing and wholesale distribution, which can lead to either an over or under reporting of assets which would have further impact on the real picture of asset base, profitability and efficiency.

The term “Zombie Asset” is just alarming as ghost assets, but poses a different form of risk. These are the capitalized fixed asset that are in place and in use but are not accounted anywhere in the books of accounts (Peterson, 2017).

Generally, a fixed asset is a long term asset or property which is used in the running business and generating income over the longer and continuous period of time, such as plant, machinery, equipments, vehicles and real estate. Such assets are considered as the most important and largest investment that companies make over the period of time and should be accounted properly in the books of business (Talbot, 2017). In today’s current regulatory and highly competitive business environment, the relevance of fixed asset management is taking leap as compared to the past practices, with closer exploration of return on investment as well as full disclosure of financial asset information. Yet, in many organizations management of assets is the fragile areas of internal control system – leading to increasing cost of ownership, overpayment of taxes and insurance, and altering risk of the non compliance with regulatory mandates (Panda, 2017).

LITERATURE REVIEW:

Bobber (2017):

Found that the fixed assets of the companies need attention to ensure the organization’s records are accurate and its control provides effective oversight of fixed asset management. Otherwise, the mis management and ignorance of the most essential assets will lead to effect the short term and long term profitability of the business. Ignorance will not only increase the various kinds of cost associated with fixed assets but also have adverse impact on the performance of the assets.

Peterson (2017):

Stated that in order to manage a profitable business, management must have information regarding current location, use, state of repair and usefulness of its productive assets. We cannot deny the fact that capital expenditure in the physical assets are irreversible in nature and the long term profitability and returns of the companies primarily relies on the physical assets. Under management of assets results in under performance of the assets.

Talbot (2017):

Explored that if the ghost assets are not identified, the verdict can be loss of productivity and efficiency of the business enterprise. If assets which are no longer in service are not properly written off in the accounting records, companies can continue to spend on property tax and incur insurance expense on them. Initially, the capital cost associated with the assets delay profitability of the business. Later on, the additional operating cost is also the crucial issue which must be addressed timely. Otherwise, the additional operating cost paid on assets which no longer have economical value for the business will consume overall efficiency of the business.

Alfred M. King (2017):

discussed that prime problems of business in context to fixed assets management. The few business houses perform a periodic reconciliation of the property ledger to assets actually on the floor. Therefore, a company really has no way of identifying the accuracy the fixed asset ledger, so auditors really can’t certify that the internal controls over fixed assets are functioning. In other words, the existence of ghost assets and zombie assets define a material weakness in internal control system of the company. Unless or until the companies don’t have the streamlined internal check and control system, these ghost will continue to consume companies profitability and efficiency.

Asset Panda (2017):

state that Approximately 49% of the small business owners or managers admitted that they didn’t know what ghost assets were and another 25% said they didn’t know the impact of ghost assets on their financial books.

Asset Works (2018):

found the fact that approximately 30 % of business enterprises don’t know what items they own, where they are, or who is using them. Additionally, around approximately 70% of the enterprises have at least a 30% of discrepancy between reported fixed inventory and what’ actually available. These figures show that companies are over paying taxes and insurance on items which actually don’t exist and they hold unfavorable implications about company’s efficiency and long term survival.

RESEARCH METHODOLOGY:

Research Objectives:

The present paper is concerned with fulfilling the objectives of reviewing and analyzing the core reasons of fixed assets turning into ghost assets, the adverse impact of ghost assets on overall profitability and efficiency of the business and how to develop a comprehensive internal control system to track and prevent ghost assets.

Need of The Study:

To aware the students, academicians as well as industrialist about the new concept of ghost assets, current state of fixed asset mismanagement and its implications on the long term profitability of the business.

Sources of Data:

The data used in the study is secondary. Data is collected by reviewing various authentic research papers from online databases of peer-reviewed journals, official websites of international accounting bodies who are working on contemporary issues related with accounting, quality books, professional magazines, and newspapers.

HOW FIXED ASSETS BECOME GHOST ASSETS:

Fixed assets can be turned into ghost assets if the company lacks in maintain effective internal control system. Some of the core reasons that how productive assets of the company turns into ghost assets which add more cost rather returns to the business (King, 2009).

· Breakdown of the machinery but it is not written off in the books.

· Lost or theft of the assets left unrecorded in the books.

· The most common way of turning fixed asset into a ghost asset is unrecorded trade. Under valuation of asset can mislead everything from recording, reporting and interpretation in context to business decision making.

· Cannibalization of existing machines in order to repair or introduce new assets.

· Scrapping of “unneeded” units or during the plant rearrangement.

· New Conveyor system replaces old system without being old system written off.

These things transpire all the time with non-assets, such as office supplies like pens and pencil not a huge deal most of the time. But when it happens with fixed and long term assets, and the accountant of firm is unaware about this, a missing asset due to various reasons like breakdown of asset, lost of asset, and theft of asset etc. can become a big blip on the balance sheet radar (SAGE, 2017).

HOW GHOST ASSETS HAUNT THE BUSINESSES EFFIEICENCY AND KILLS PROFTITABILITY:

Manufacturers and wholesale distribution companies often are unwittingly haunted by ghost assets in number of ways. Businesses having inaccurate records due to ghost assets are not just impacted in terms of financial or productivity losses, but also in the variety of ways (Works, 2018). Haunting by ghost assets arises in some of the problems as listed below, when proper tracking of such assets is not done and not eliminated from the ledger books.

1. Magnifying Taxes:

The presence of too many ghost assets in the books of accounts provides misrepresenting information about the amount of inventory that business owns that is actually taxable, results in the significantly over paying of the tax liability. At one end, those inventories are only in the accounting books but in actual they are not contributing towards working capital efficiency and on the other hand, paying more taxes leads to magnifying loss for the business.

2. Inflated Premiums:

In a similar manner, the actual amount of fixed, usable assets business owns are being skewed by the ghost assets. Insurance companies will charge for everything covered for claim of shown fixed assets (which include ghost assets also), which ultimately increase the premium cost for the needed business insurance coverage. The inventory with zero economic value will add more cost in terms of increasing the asset base of the business in the balance sheet of the company. More the asset base, more the insurance premium. Paying premium not zero value added assets is just like serving milk to snake.

3. Enhancing Unethical Measures:

Once the employees realize the loopholes in the internal control system of the business. They will inclined to the unethical behavior discover that business don’t keep accurate record of assets, they might find opportunity of stealing business assets. This is because employees are aware that they won’t get caught possibly until months or years down the road when business sit down and try to eliminate ghost assets and get ledger under control.

4. Avoidable to Unavoidable maintenance cost: Ghost assets will also add up more money for the maintenance cost for the assets which business no longer own them, like a lost printer in the building or lost truck in fleet.

5. Depleting Efficiency:

At first instance, ghost assets might not appear to have anything to business’s productivity but its impact can be felt in long run. Ghost assets reduce productivity and efficiency when employees are unable to produce the desired quantity due to non availability of asset which were earlier marked as available but are really missing.

6. Compliance Concerns:

If businesses aren’t keeping track of ghost assets, business is subject to a variety of non-compliance risks depending upon the industry. The negative impact of ghost assets on compliance can be serious if business is part of a federal or state government agency which is required to main certain budgeting and regulatory standards.

7. Misleading Financial Statements:

The accuracy of company’s balance sheet and finances are affected by the presence of ghost assets. It will not only affect financial reports by overstating operating cost but such inaccuracies will hinder the development of capital expenditure projections and budgeting for coming years.

8. Business closure:

According to market experts, one of the top ten reasons that lead business to fail is the poor accounting. Major reason for the poor accounting is the presence of ghost assets which are haunting the major share of profitability of the businesses.

TRACKING AND HANDLING THE GHOST ASSETS:

Tracking a spirit or ghost is the job of Ghostbusters, Similarly tracing a ghost asset in the book of accounts requires the work of specialist in the area of work. One of the influential reasons for the failure of various companies to keep track of ghost assets includes the disunion between various departments within an (Deloitte, 2010). Even in the era of advance technology, there are still companies that use spreadsheets to record details on assets and equipments. Separate department within an organizations such as finance, IT, Operations, And Maintenance teams keep tab of assets and equipments on separate spreadsheets and registers, this actually makes the process more painful when assets are used interdepartmental and changes in the assets pattern are difficult to show on spreadsheet which arise the deficiency in recording the transaction, which gives rise to ghost assets. And if the case is that they are updated, then these changes are not made in real time and there is high chance of data duplication and wasted efforts (SAGE, 2017).

· Tracking and elimination of ghost assets is the implementation of an integrated asset tracking software within an organization (Inventory, 2017).

· Using a cloud based asset tracking establish a centralized asset register that is accessible to all the members in a company working in different areas within an organization (Peterson, 2017).

· Company must conduct a physical asset inventory on regular basis. This can be done with the help of asset tracking software by tagging all the assets, both physical and digital. Right labels should be used for all assets. This will increase the accuracy of tracking assets and general ledgers (Wapsbarcode, 2015).

· Barcode tagging can dramatically reduce the amount of time spent on asset tracking and provides faster auditing. With the use of proper technology, businesses can track the complete asset life cycle i.e. from acquisition to disposal, thus preventing the ghost assets to haunt the books (King, 2009).

· Effective implementation of asset tracking software, conducting as asset inventory and tagging all assets will only track the existing ghost asset but will not prevent its occurrence in future. In order to ensure that ghost asset don’t pop up again in the books, it is crucial to conduct thorough and regular audit of assets. Assets audit can be easily be done using asset tracking software (Panda, 2017).

CONCLUSION:

The mismanagement of fixed assets changes the nature of assets as well as the economic results of the business. Transformation of productive assets to ghost assets leads to serious implications on the business profitability and efficiency. Some ghost assets are less obvious, and thus easier to overlook, than others. Few business owners are knowledgeable enough about the taxes and finance implications through ghost assets as well as how the process of up gradation, donation, or investment for your business can result in the creation of new ghost assets in proportion to the total asset base of the company. Strong internal control system facilitates in removing ghost assets as well as helps your business by optimizing insurance coverage of assets, streamlining cost of assets, effective capital expenditure decisions, reducing financial liabilities concerned with physical assets and enhancing return to asset ratios for better efficiency and effectiveness.

REFERENCE:

1. Bobber. (2017). Increased Scrutiny: Fixed Assets Control and Reporting. Financial Executive , 323-329.

2. Deloitte. (2010). Fixed Asset Sytem: Why the tax system needs to have the stake in the game. Dbriefs Webcast .

3. Inventory, E. O. (2017, June 1). EZ Office Inventory. Retrieved February 22, 2018, from https://blog.ezofficeinventory.com: https://blog.ezofficeinventory.com/asset-tracking-software-tracks-ghost-assets/

4. King, A. M. (2009). Ghost and Zoobie assets Its Midnight: Do you know where your assets are? Strategic Finance , 35-39.

5. Panda, A. (2017). Ghost Assets: Why could they kill your business. Asset Panda , 1-9.

6. Peterson, R. H. (2017). Accounting for Fixed Assets. Wiley Finance , 61-65.

7. SAGE. (2017). Discover how an optimized fixed asset management solution pays off in savings and efficiency. SAGE FAS , 1-10.

8. Talbot, S. (2017). The Best Practice for data quality in Fixed Assets Management. Asset Management Resources , 56-59.

9. Wapsbarcode. (2015). Wapsbarcode. Retrieved from http://www.waspbarcode.com: http://www.waspbarcode.com/small-business-report-accounting

10. Works, A. (2018). Ghost and Zombie Assets. Asset Works , 1.

Received on 13.02.2018 Modified on 11.03.2018

Asian Journal of Management. 2018; 9(2):929-932.

DOI: 10.5958/2321-5763.2018.00147.6