Saturday, May 4, 2013

CIOs as "Chief Investment Officer": The Practices of IT Asset Management

Companies are highly dependent on IT executives who make the proposal to change/ replace the technology based on the need of the business. 

The IT accounting/finance best practices are going to vary somewhat from company to company, from state to state, and from nation to nation- due to standards and guidelines on the depreciation of assets and taxes on assets. It is also going to differ somewhat based on how conservative or liberal the CFO wants to be on depreciation expense and the useful life of a given asset. It is very important that CIO partners with CFO and agree upon a standard depreciation schedule for different asset classes, and manage IT asset & IT investment systematically & flexibly.  

1.   A Tale of Two Sets of Accounting

As many organizations operate on an integrated global basis, they operated with two sets of accounts. The first was local country-based accounts complying with local rules on depreciation etc. The second was global management accounts that applied the policies the Board decided as appropriate for the effective running of the business. Consequently, the depreciation amounts in the local tax accounts and the global management accounts were often different. 
  • Two different IT Finance Planning: Some IT executives do two different finance planning: 1) industrial and 2) fiscal. Matching the two tells the CFO when, for real, some assets will have to be renewed, so it gives the finance department the right information about when to get ready for the money to buy something. While the fiscal plans show up in the annual report, so it tells how much your company owns assets and value. There’s a misunderstanding of different types of accounting. While doing industrial accounting, you should use the actual number of fiscal years you intend to use the asset, both are needed. But the business is actually run on the industrial analysis, the fiscal one, although, are formally and legally needed, If the industrial analysis shows that your business is unsustainable (for instance) it is ACTUALLY unsustainable, even if the financial analysis might show the opposite in many cases.
  • The other refinement some organizations applied is to use consistent "plan" currency exchange rates for the whole financial year so that any over or under-spending was not obscured by exchange rate fluctuations. The Finance treasury department then managed and reported on issues caused by exchange rate fluctuations. Some look at using purchasing power equivalent exchange rates to eliminate distortions due to local currency strength or weakness to avoid distorting decisions upon where to hire people, based on temporary currency variations.


2. Why IT normally depreciates IT Asset in 3 to 5 years? Why not use it more? 

Finance and regulatory requirements don't always match. The more business-critical an element is, the better your understanding of reality needs to be; the less any replacement or updating matters, the easier it is to obey arbitrary regulation or rules. Although you have to always use two measures-industrial planning and fiscal planning. Depreciation from the industrial planning standpoint should always end with the market value of the asset and follow the characteristic function of the specific asset (a computer will lose more value in the first year of use than in the third). The industrial analysis doesn't have an impact on the deduction of income statements. It is only involved in estimating the actual cash flow needed to run your specific business model.

  • There are functional and financial reasons why three-five years is a de facto time frame for IT devices. At the end of a three-year depreciation cycle, end-user devices like PCs will be very considerably below the current market spec both in cost and performance terms. For the same outlay as three years ago, you will naturally get significantly more capability, and the volume of moaning from staff about the slowness of their aging kit becomes a hidden "cost". For servers and storage devices, after three years, most vendors ratchet up the maintenance charges, sometimes extortionately. This is annoying but understandable because the cost to them of sourcing spares the cost to maintain current expertise and the likelihood of actually needing to do repairs all go up over time.      
  • Depreciation is an accounting measure. It is important to depreciate in order to assess the assets market value, but even more importantly, depreciation is used as a deduction on income statements, therefore, lowering the amount of tax a company will pay. Depreciating the asset does not mean the asset itself is useless. So feel free to continue to use it if it drives business growth and/or keeps the business running. 
  • Are In-house Software Assets? The other question IT need to agree upon with CFO is whether or not you are going to treat any software developed for internal use as an asset - in essence, treating these expenses as capital instead of operating expenses. If your CFO wants to do this, then, only using this accounting treatment on major projects that will be used for at least three years, as the last thing you want to do is to put a new asset on the books and have to take a large write-off a year later because the business unit is no longer using it. 
  • IT depreciation life cycle: Depreciation is not always a precise indicator of the useful life of IT asset. Understandably, the accounting department has a job to do and depreciation schedules have to be consistent because that is a big part of what accounting is all about - consistency. In reality, the common policy of three-year write-downs has fed vendor marketing, pricing and support strategy that complements the practice. Combine Moore's Law on cost/capability, accountants and vendors creating a self-fulfilling prophecy, and you will almost certainly be replacing most kit on three to five-year cycle.  

3. IT Budget & Investment Decision

As many companies have multiple book sets due to the growing international nature of the business and the adoption of international accounting rules, they may not make a purchasing decision based solely on depreciation. It might have been a consideration, but if the financial team is worth their salt, they will understand the nature of technology purchases and they will have strategies to deal with the relevant issue.

  • "Bow wave" effect on the IT budget such that an asset that was affordable in year one could cause significant budget problems in year two as there is twice the amount of depreciation on that asset. The solution to this would have been running a budget for the current and following years. Alternatively, it might have been better to have taken full year depreciation in the first year. This treatment may have had to be different in the financial and tax accounts (as opposed to management accounts) to comply with legislation and standards. 
  • How can accounting practices deal with emerging IT service subscription model: such as cloud, mobile, computerization of IT, for example, on Cloud services, the accounting treatment depended on the contract? If IT made an upfront payment for 12 months service, this was shown in the IT financial report as 12 equal charges spread over the term of the contract (even if this went beyond the financial year). Similarly, for other contract periods such as twenty-four months upfront payment split into 24 equal charges. So it had much the same effect as depreciation. 
  • Accounting practices are different from long-term budgeting needs, the practice of assuming a three-year lifespan of IT asset both for accounting and planning purposes are taken for some mature companies and assume that any cost-effective usage beyond three years is a bonus. But, don't focus on the accounting rules when it comes to IT decisions. You can't serve your end users and stakeholders well by limiting your outlook in that way.

3.   What about Product End of Life & End of Support? 

As part of the proposal for any major purchase, IT needs to include the cost of support (which was accounted by charging it in equal monthly installments over the duration of the support contract), work on the basis that if you couldn't afford the cost of support, you couldn't afford the purchase.
  • Support fees are measured upon depreciation, in fact, support cost increases with the aging of the item normally of the same or very similar amount of the depreciation, causing a slight increase in the TCO that should be presented by the IT executives to the board as a good reason to innovate and renew the infrastructure on a planned timeline. 
  • Manage asset value by adding the maintenance costs. For instance, when you buy a server, it's CapEx item only until when its warranty covers the maintenance. Thereafter, when you start paying for the maintenance, an OpEx item appears. The combination of the two items of expense draws a diagram that clearly tells you when would be the right moment to update the asset. 
Companies are highly dependent on IT executives who make the proposal to change/ replace the technology based on the need of the business. Thus, IT should continue to review upon the ROI of existing IT investment, whether the depreciated life cycle is completed or not; whether new technology/ product mature enough in the business market to adopt. Applying the right procedures and policies to asset management allows IT to create a realistic budget with few surprises, and keep best practice to adapt to “continuous changes.”  



22 comments:

Got to learn a lot of things from this article. It can be used for any kind of business. Pegasi Media Group the world's leading database vendor and the most preferred organization all over the globe. Our brand is well-known in the market. The organizations of all the sizes have experienced our services and are quite pleased with it. We perform the activities like data cleansing, data appending, data updating, data validation, and data verification on a regular basis before the final delivery. You have also got the tremendous flexibility to choose the geographical location and reach out to the prospects that you target.CIO Email Lists

Thanks for sharing the valuable information. Your article gave me a lot of information. We at Techno Data Group would like to introduce to you about our organization. We are the leading database providers for b2b marketing across the globe. we provide you with the readymade as well as the personalized email list and connect you with the right client or decision-makers. Please refer our Chief Investment Officer Email List for further details.

Thanks for providing me such a nice information.I hope you will share more information about that. So know it's helpful for my career. Please keep sharing!
Asset Management Software
Asset Tracking Software
Asset Management Software India
Asset Management Software Chennai

Financial Planning is the process of estimating the capital required and determining it's competition. It is the process of framing finance policies in relation to procurement, investment and administration of funds of an enterprise.

I like this fusion of IT and finance. I mean, it had to happen. IT is transforming every single field, and finance is no different. I provide dissertation consulting services, and my work is dependent on IT. My younger brother is a doctor, and his work is too! I think every professional should realize that and make friends with IT.

Really it is a piece of good conversation information, I never see like this blog it's awesome, keep sharing like this, Thank you so much!!!

Best SEBI registered Investment Advisor in nashik

Looking for Accounting and Auditing services in dubai for IT Companies, You can visit this website

allbeauty.com Discount Codes and Vouchers March 2022. Hand Tested Voucher Codes. all beauty discount code

This blending of IT and money appeals to me. It had to happen, after all. Every industry is being transformed by IT, and banking is no exception. I offer consulting services for law essay writing service UK, and IT is essential to my job. My younger brother works as a doctor, too! Every professional, in my opinion, should be aware of this and get along with IT.

I like this fusion of IT and finance. I mean, it had to happen. IT is transforming every single field, and finance is no different. I provide Masters dissertation proposal writing service, and my work is dependent on IT. My younger brother is a doctor, and his work is too! I think every professional should realize that and make friends with IT.

Asset management is one of the top notch skills. I am planing to learn this skill after returning from Hatta tour. My goal is to learn skills to increase my value and brand myself as a high quality professional.

That was a fantastic blog! Really enjoyed reading it!

Your blog was full of great helpful Insight!

The more information the piece includes, the better readers will understand what makes Desert safaris so special.

This blog post highlights the importance of IT asset management for CIOs, who must adopt a strategic "Chief Investment Officer" mindset. It provides best practices such as regular audits, asset lifecycle management, and automation tools to optimize IT investments.But according to these such importance of these management, coursework help services one of the best management in assignments help.

This comment has been removed by the author.

Great post, Found it very useful BI Development is an iterative process. Developers gather feedback from users and stakeholders to improve and enhance the BI system over time.

A dependable 300-Watt power supply featuring a 20-pin connector and Power Factor Correction (PFC) technology is the Delta Electronics DPS-300GB. It's a great option for making sure that your system receives reliable and effective power.


In the world of online shopping, CIOs serve as "Chief Investment Officers" by managing IT assets efficiently. Just as they optimize tech investments, finding the right tools and strategies ensures seamless operations. Explore this mindset when considering to buy iPhone 15 Pro Wallet – investing wisely for enhanced functionality and security.

Brand Reputation: Consider reputable eyewear brands known for quality craftsmanship, durability, and stylish designs. glasses for men Some popular brands for men's glasses include Ray-Ban, Oakley, Persol, and Warby Parker. Sunglasses Price in Pakistan

Career Advantages: Germany is one of the world's leading economies, with numerous job opportunities for those proficient in the language.
Education Opportunities: Germany boasts world-class universities offering tuition-free education, making it an attractive destination for students.
Cultural Enrichment: Dive into the works of Goethe, Kafka, and other literary giants in their original language, and explore Germany's vibrant cultural landscape firsthand.

Are you dreaming of studying abroad, exploring new cultures, and expanding your academic horizons? IGL Foreign Study Consultants in Karachi can turn your aspirations into reality. In this blog, we'll delve into the invaluable services offered by IGL, the benefits of studying abroad, and how you can embark on this transformative journey with confidence.

Post a Comment