United States: Documentation Of Capital Asset Management Policies And Procedures

Many transactions take place over the useful lives of capital assets, from initial capital planning and budgeting to ultimate disposal. With capital assets typically representing the largest line item on an organization's balance sheet, organizations will benefit from creating and maintaining accurate capital asset management policies and procedures.

These policies and procedures enable organizations to establish internal controls, and support accounting and reporting requirements as well as any existing governance policies.

In the following discussion, policy is defined as "the principles or rules that are used to determine decisions and actions." A procedure is defined as "the course of action that must be followed to implement a policy consistently."

Reasoning and Purpose

Traditionally, accounting for capital assets was considered simple - perceived by auditors as low risk and with adequate internal controls, thus attracting only minor audit scrutiny. However, in recent years, internal and external regulatory guidelines, and thus auditor scrutiny, have increased significantly.

Organizations with well-documented and regularly reviewed capital asset management policies and procedures can ensure the institutional memory of prior processes for all transactions in the asset life cycle. This clarifies property management responsibilities and ensures accurate information is produced for financial reporting. Moreover, precise financial data allows for better organizational decision-making and helps mitigate the risks of accounting for assets incorrectly or investing in assets not required.

Maintaining comprehensive capital asset management policies and procedures ensures:

  • Financial statements that are accurate, reliable and produced on time
  • Compliance with accounting standards and asset management best practices
  • Guidance for all transactions encountered through the asset life cycle
  • Assignment of asset management responsibilities and job descriptions
  • Training for new and existing employees
  • Processes to safeguard capital assets
  • Physical verification of capital assets through regularly scheduled inventories

Best practices involve annual evaluation and periodic updates of capital asset management policies and procedures and their corresponding documentation. Changes in policies and procedures that occur between these annual evaluations warrant immediate updates.

Phases of the Capital Asset Life Cycle

Capital asset management policies and procedures should cover all phases of the asset life cycle:

  • Planning and budgeting
  • Acquisition
  • Accounting
  • Management
  • Disposal

Next are some of the critical points to cover in each phase.

Planning and Budgeting

During the planning and budgeting phase, risks include unauthorized asset purchases and/or department managers who consistently overestimate their capital budget proposals. Creating clear and stringent policies and procedures for planning and budgeting review, and establishing a capitalization threshold defining the minimum cost to be reviewed, are critical. The review process should cover pre-and post-installation to see if the approved project or asset has generated the results predicted during budgeting.


Once capital purchases are approved, requisitioning and purchasing begins. This process involves the requisitioning department, purchasing, and finance as well as material management (if the organization has a central receiving area). Interactions between these departments require a clear set of policies and procedures. This will ensure:

  • Capital budget allocation compliance
  • Correct accounting for all acquisition methods (leases, transfers, bulk buy assets, donations, etc.)
  • Capital threshold compliance to capitalize and expense accordingly
  • Purchase order verification at central receiving
  • Nonacceptance of incorrect quantity, incorrect variant and damaged assets
  • Delivery of assets received to requisitioning department

Tagging of assets can take place during this phase, and is further discussed in the subsequent Management section.


Best practices in capital asset accounting involve fully integrating the asset register into an enterprise resource planning system to ensure that any asset transactions are updated on a real-time basis and that data integrity is maintained between the fixed asset register and other systems including:

  • General ledger
  • Purchasing/accounts payable
  • Project management
  • Accounts receivable
  • Asset management systems

Policies and procedures covering this phase of the asset life cycle should include detailed and clear capital asset categories,capitalization threshold, estimated useful life, included and excluded cost for capitalization, document retention and (under certain circumstances) construction and renovation componentization.


The physical management of capital assets encompasses inventory, tagging, transfers, maintenance and capital works expenditure. In addition, it covers periodic evaluation of property review and fixed asset accounting database accuracy procedures. Policies and procedures should cover the use and movement of the assets accordingly to avoid assets becoming unverified due to unrecorded transfers, loss, damage, theft or destruction. If policies and procedures are lacking or incomplete at this phase, auditors will have difficulty verifying that the assets exist.


Disposal, the ultimate phase of the asset life cycle, exposes the organization to significant risk whereby employees may attempt to sell assets, without senior management approval, for personal financial gain. This can have federal-level consequences depending on asset funding. Policies and procedures should have integrated senior management oversight and include an asset management strategy that links the disposal plan into a planning process for new or replacement assets. In addition, the disposal plan should include a performance evaluation to verify whether assets performed as intended.


Organizations receive clear benefits from having a well-documented and structured set of capital asset management policies and procedures, namely:

  • Institutional memory of prior business processes
  • Senior management oversight and integration
  • Auditor approval and trust
  • Consistent and accurate adherence to best practices and accounting standards

It is important to note that organizations must have the resources to implement and adhere to the documented policies and procedures going forward. To maximize benefits, organizations should assess resources and tailor policies and procedures accordingly.


Investing the time and effort to create and implement capital asset management policies and procedures, and following these procedures with discipline and dedication, will help organizations achieve long-term success and minimize capital asset management missteps.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions