Ghost asset definition
/What is a Ghost Asset?
A ghost asset is any fixed asset that cannot be accounted for, because it is not physically present within the company or has been rendered unusable. Many organizations have ghost assets – and a lot of them – because they failed to remove fixed assets from the accounting records once they were sold off or otherwise disposed of. Other reasons for the existence of ghost assets are that they were part of an unrecorded trade-in with a supplier, or because parts of existing equipment were used to repair broken units, or because they were shifted to a different department without noting this change in the accounting records.
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Disadvantages of Having Ghost Assets
There are several problems with having ghost assets on the premises, which are as follows:
Ongoing cost. The presence of ghost assets represents a waste of money, because a firm is still paying taxes and insurance premiums on assets that it either no longer owns or uses.
Drag on performance measurements. The presence of ghost assets in the accounting records worsens a company’s return on assets ratio, because ghost assets are being included in the ratio’s denominator.
How to Minimize Ghost Assets
There are several ways to reduce the number of ghost assets on the premises, which are as follows:
Conduct regular physical audits. Perform scheduled physical asset audits to verify that each asset recorded in the accounting system actually exists and is in use. These checks help identify discrepancies between records and reality, flagging missing or non-functional assets. Using barcode scanners or RFID tags can streamline the process and improve accuracy.
Implement an asset management system. Using software to track assets throughout their lifecycle — from acquisition to disposal — ensures better visibility and control. These systems can prompt users to update asset status during transfers, disposals, or write-offs. Automation also reduces the chance of human error and helps keep records up to date in real time.
Establish a clear disposal process. Create a formal procedure for disposing of assets, including documentation, approvals, and system updates. This ensures that when assets are sold, scrapped, or donated, they are properly removed from the accounting books. A consistent process reduces the risk of assets "lingering" in the records after they’re no longer in use.
Assign asset custodians. Designate individuals or departments responsible for specific assets, holding them accountable for keeping asset records accurate. This encourages careful tracking and timely reporting of asset status changes. It also helps create ownership and ensures someone is monitoring each asset’s condition and location.
Reconcile accounting and operational records. Frequently compare accounting records with operational data and asset management systems to identify inconsistencies. Reconciling these sources helps catch ghost assets that might otherwise be overlooked in siloed systems. Any mismatches should trigger a review to verify the asset’s status.