With the impending SoRP deadline looming in April 2012, housing providers are under increasing pressure to implement a model for component accounting that reduces costs and enables them to manage their assets more efficiently to ensure SoRP compliance.
However, component accounting and asset management are often mistaken for the same thing in the housing sector, resulting in many housing providers going for the easy option of using an existing asset management system in the belief that it offers an all-encompassing answer to component accounting; in reality, there is no ‘all-in-one’ solution.
In order to meet the pressing guidelines, housing providers need to work out their fundamental business needs and then determine the differences between asset management and component accounting. Under the new standards, there will be more emphasis on getting finance teams to deliver the reports needed for component accounting. In order to do so, it is necessary for the team to have easy access to a system that can provide the relevant detail. However in our experience, this level of detail is seldom available from either an asset management system or a general ledger.
It is a common misconception among housing providers that SoRP compliance can be achieved using their existing asset management system. Finance departments and asset management teams both need component-level information for each asset but for different operational reasons and therefore at different levels of detail.
The finance team is concerned with depreciating key component costs, generating charge transactions for the general ledger, and statutory reporting. The asset management team needs property component detail for investment decisions and meeting regulatory requirements. This often leads to housing providers buying one system that claims to cover both eventualities. The reality is that component accounting demands a level of detail that is too simple for an asset management system and too in-depth for a general finance ledger.
In order to ensure SoRP compliance, housing providers need to fully understand the protocol of component accounting. Having this knowledge, paired with the guidance of a component accounting provider, will save considerable time for housing providers. In turn, enabling them to use both a robust asset accounting solution as well as component accounting-specific data services to provide a clear and justifiable component-element matrix for senior management and external auditor approval.
The prospect of preparing asset data for component accounting is daunting for many housing providers because it not only involves breaking the data down, but also designing an overarching methodology.
Karen Conneely is the marketing manager for Real Asset Management.
