1. Older Assets: Assets on the PP&E ledger for five, 10, 15 years or more typically do not receive much management attention, as the company chooses to focus more corporate resources on adding assets to the registry than auditing the status of older assets. Such older assets carry less value to the corporation due to annual depreciation charges, and therefore they can go missing (scrapped, lost, missing, stolen, etc.) without much notice or concern for financial statement purposes. Similarly, comparing one year's depreciation to the next will likely produce comparable results, even if both are wrong.
2. Acquisitions: Companies who have made an acquisition but do not have an asset audit performed as part of their due diligence often find that "acquired assets" are never transferred because the seller did not properly maintain their asset registry and the assets do not exist.
Under Sarbanes Oxley, what may be "good enough" for financial statements likely will not pass muster in assessing the adequacy of internal controls. As noted in Paragraph 66 of PCAOB Auditing Standard 2:
"In a financial statement audit, the auditor might not consider the fixed asset accounts significant . . . In an audit of internal control over financial reporting, however, such accounts are significant accounts because of their materiality to the financial statements."
Apart from financial reporting considerations, excess PP&E may be costing your company money. Our analysis has shown that in the typical non-financial company, 15% to 25% of the assets listed cannot be found - ghost assets. The company is likely to be still paying personal property taxes and insurance on these ghost assets. The total dollars saved from writing these assets off the tax rolls and discontinuing the respective insurance coverage can be quite sizeable.
