Can a CPA properly perform a fixed asset accounting review under Sarbanes-Oxley? Picture this. For many, many years accounting firms have been opining on the quality of the fixed asset accounting and information systems of their clients in the auditing process. Just consider, how often auditors have mentioned through exception that the fixed asset accounting control and reporting procedures of the client are inadequate. The word never comes to mind. They just do not do it. Now, due to the requirements of Sarbanes-Oxley, these same parties are being asked to opine on the fixed asset systems, as well as the accuracy and reasonableness of the information reported on these systems. These questions come to mind: • can CPA’s opine on the accounting system; • can CPA’s test and analyze the information contained therein; and • are CPA’s able to recommend procedures and processes to improve such systems and data to the passing grade level of Sarbanes-Oxley? The answer to the question is maybe yes, maybe no, and it depends. This essay will discuss the capabilities of the CPA’s who now may be auditing the systems and data, their shortcomings and necessary training required, appropriate procedures, and system cures. It is important to understand that this writing treats two primary elements of fixed asset accounting, these being the dollar tracking process and the actual data tracking, control and information process. CAPABILITIES OF AN ACCOUNTING FIRM STAFF IN THIS REGARD How deeply, if at all, were accounting students trained in fixed asset accounting in college? Do you remember the course “Fixed Asset Accounting, Systems, Procedures and Applications?” I don’t think so. In the accounting firms how well and often are staff members trained in fixed asset accounting? Likely never to very little is the answer. Is there a fixed asset accounting practice leader in the major or regional accounting firms? No or perhaps. So the accounting profession is in a “fresh start” mode in this regard. It is also fair to address the client company treatment of fixed asset accounting. Compliance chores are usually given to the entry level person in the department. Proper training of the new staff member is usually minimal, with tax and/or financial application awareness and appreciation training being most often non-existent. If it was not for the tax reporting benefits (for property tax, federal and/or state income tax reasons), as well as for possible lender reporting, even less attention would be paid to this subject. So, fixed asset accounting is the “stepchild” of the accounting department. Overall, the answer is that the capabilities of an accounting firm staff, as well as client staff, regarding fixed asset accounting is very lacking. Of interest, generally the more experienced implementers of fixed asset accounting systems are found in the independent appraisal firms, appraisal departments of accounting firms, and the limited number of business entities that appreciate and understand the cost / benefit of a good system. ARE THE ACCOUNTING FIRMS ABLE TO OPINE ON THE SYSTEM A quick word on fixed asset accounting systems (the data processing software). Most systems are add-on modules of general ledger and/or enterprise accounting packages, being poorly structured. Such modules are usually, if not always, inadequate for appropriate fixed asset accounting. Much better are the stand-alone fixed asset accounting packages that have interface to the general ledger systems. The fixed asset accounting opinion ladder for accountants follows: • State that the fixed asset system appropriately tracks the dollar entries into the system. Accountants can usually handle this. • State that the fixed asset system is adequate for the informational and control requirements of Sarbanes- Oxley. The accountant is now developing a severe operational headache. • State that the asset descriptions are appropriate for the assets employed in the business enterprise. Onset of accountant stomach cramps. • State that the assets scheduled on the system properly reflect the assets that are in place and in use by the business enterprise. Called “property ghosts”. Accountants knees weaken, possible fainting soon. • State that the company has properly handled additions and deletions. Onset of accountant’s heart palpitations. • State that the fixed asset records properly reflect the asset values in use and in place, considering the level of economic support, and restating as appropriate values previously entered on the books as a result of a business combination or purchase price allocation. Accountant states “oh….my…..God”. • State that the fixed asset accounting system is overall appropriate for the business accounting and operational reporting needs now, the values are properly stated, and the system is sufficient to meet future requirements of the company and external reporting demands. As Little Richard says “Mercy!” SOLUTION TO NEWLY DEMANDING FIXED ASSET ACCOUNTING “Help” is on the way, or must be developed. The requisite skill level in the accounting firms generally is very lacking. The accounting firms have to set up very sophisticated training programs, but bring in practicing and practical fixed asset accounting practitioners and implementers at the same time. The firms should set up a practice group specializing in fixed asset accounting since audit partners do not have this skill set (and are not interested in this boring subject). Outside fixed asset accounting personnel should be subcontracted to analyze and present requisite information to the audit leader. The entire practice area must be rethought from the ground up. The AICPA needs to set up a practice training and review area. Educational institutions must develop courses. Essentially the skill level is at the nadir, with the only way to go being up. The time to get going on this emerging and newly important practice area is now.