There are two categories of ghost assets. One where the asset physically exists but there is no digital record and the second is where there is a fixed digital record of the asset, but in reality the asset does not exist. Ghost assets appear due to various reasons such as theft by company employees, mistakes made during data entry into the fixed asset ledger, loss or unforeseen damage of assets.
Problems associated with Ghost Assets
The existence of ghost assets not only causes problems in accountability and in carrying out company operations, but also has numerous other financial repercussions. Some of the major drawbacks of having ghost assets are mentioned below.
- Inflated Taxation- Due to the presence of ghost assets, there will be a miscalculation in the inventory. This in turn causes miscalculations in the taxable inventory since the number of inventories is inaccurate. This will often result in the company paying more taxes that it should. It has been noted that companies can reduce the amount of tax they pay by 20 to 30% by reducing or eliminating their ghost assets.
- Higher premiums on insurance- Since ghost assets cause irregularities in the number of assets that are to be insured, companies end up paying more premiums on their insurance packages. Insurance companies charge on the basis of the number of fixed assets declared by the company. An inflation of this number will cause an inflation in the premiums that are to be paid.
- Excessive maintenance fee- Ghost assets which are no longer used or owned by the company continue to burn resources and capital. This primarily happens during maintenance schedules when the company is unable to distinguish between its fixed and ghost assets and all the equipment are scheduled for maintenance.
- Inaccurate financial statements- This is probably one of the biggest disadvantages of maintaining ghost assets. A company’s balance sheet and finances are a sign of the overall health of the organization. Keeping the books accurate and up to date not only ensures operational compliance but also prevents complications during various declarations. Added to this, the presence of ghost asserts also affects the bottom line directly as the company is unable to calculate its profits accurately.
A properly established asset tracking and management system that uses automated protocols and cloud database prevent the generation of such ghost assets.
