A disconnect may occur between the financial and ground operations, especially for companies with manufacturing facilities in other countries far from their incorporated headquarters.
Counting of units
The disconnection may include errors arising from simple counting of units of machines that may have been separately accounted for as “each” in the accounts and a “set” in the ground operations. This is because machines are viewed differently in ground operations vis-a-vis machines from a finance perspective.
After several years, the finance department may be told, for instance, that a CNC machining centre that was classified as “each”/“one” machine does not include a worktable, spindle, chucks, transformer, controller etc. This may give rise to a potential false count and false asset cost that differs from the original cost of the asset when it was first purchased which will affect its value.
Another common error is asset tagging. Such errors are usually not discovered until a valuation is conducted. There have been cases of ground operations showing the same asset to the accountant multiple times and identifying it as different line items within the same asset listing. This can lead to a highly overstated situation in the asset listing.
Discrepancies in assets’ description
Discrepancies in the description of assets from the actual assets on the ground are also common. This gives rise to an artificially inflated value if an inspection was not conducted. One example that I had encountered was a 200T die-casting machine that was wrongly described as a 450T, resulting in an inaccurate statement of the asset’s value. Should such issues occur, a valuation is recommended to be conducted to rectify them and to provide an accurate value of the assets.
You may also be interested in reading PART ONE: Why valuation? and PART THREE: Two successful case studies.