Southern Housing Group has successfully moved to component accounting for its portfolio of 24,000 properties with software from Real Asset Management. SHG now meets the new SORP requirements and is using its database of 215,000 assets to improve information flow and reduce the cost of its annual audit.
Rai Agostini, financial planning analyst, Southern Housing, said, “We have an asset base with a cost net of depreciation in excess of £1,250 million, and grants of £620 million. The organisation invests over £33 million each year upgrading and maintaining properties, of which a significant proportion is capitalised.”
SHG’s entire property asset portfolio was previously managed using a number of spreadsheets across the four companies which comprise the group, with properties managed at a scheme rather than unit level, with asset cost broken down to include land, building and associated scheme grants. However, the spreadsheets were open to error and SHG’s auditors needed to see greater control over such a valuable asset base. At the same time, SHG realised that adopting a component accounting policy for its property assets and the proposal in the Statement of Recommended Practice (SORP, in draft at the time) would create significant difficulties for asset recording and valuation.
Agostini said, “It was clear that we needed a more robust approach to impose greater control over the asset management process and enable the organisation to meet the obligations of SORP without a massive administrative overhead.”
SHG selected Asset4000 from Real Asset Management; the fixed-asset database and associated application system offers a highly-structured environment with a full audit trail to ensure clarity and control. Agostini explained, “Mistakes can happen with a spreadsheet and it is often hard to pick up those mistakes – errors can be missed for some time. Asset4000 is structured, errors are immediately picked up and, critically, it offers a clear audit trail which gives the auditors far more confidence in the accuracy of the figures.”
Component accounting results in the need to manage many more individual assets. In the case of SHG, this meant the creation of an asset register of 215,000 records. Under the move to component accounting, SHG evolved not just from scheme to unit level but each property now has multiple component records, including land, building, kitchen and bathroom, as well as land and building grant records where applicable. Furthermore, each component is now depreciated separately, creating a much more comprehensive month-end reconciliation process.
An additional challenge is coping with the large number of component replacements that occur each year. Average component life is between 15 and 30 years, resulting in around 300-400 replacements each month; SHG uses Asset4000 to manage component disposals and model the replacement assets.
Asset4000 is used daily by the organisation’s fixed asset accountant to deliver detailed reports. This includes the provision of monthly depreciation information to the finance managers at each of the SHG companies and the delivery of annual reports to auditors. One-off information requests are also supported by the system, including the provision of net book valuation to sales negotiators when a scheme or unit is being sold, with the information downloaded to Excel and emailed to recipients.
Agostini concluded, “Theoretically, a housing association could move to component accounting and meet the SORP 2008 recommendations on a spreadsheet. However, the number of records would be huge – keeping it up to date would be slow and cumbersome and open to errors, which would make the auditors extremely unhappy.”
