Integrated Asset Accounting: From Good to Great

WHITE PAPER Integrated Asset Accounting: From Good to Great How to Maximize the Value of Assets for Accounting and Tax Purposes

Executive Summary Asset-intensive companies, in industries such as utilities, oil & gas, mining, telecommunications and transportation are different from product-based companies in many ways. These companies must keep their assets humming in order to improve the bottom line. Just as importantly, they need to track detailed cost information for every asset across multiple geographies in order to properly depreciate the asset and maximize the financial value. Most asset-intensive companies have realized some results from their ERP and EAM system investments. But how do they move to the next level from good to great and address their specialized needs for tracking and reporting fixed assets for accounting and tax purposes? ERP and EAM systems weren t designed to track asset information from the same viewpoint and don t address specialized needs, so asset-based organizations build spreadsheets, keep multiple sets of books, use manual processes, and customize their systems to fill the gaps. These time-intensive approaches cost millions of dollars and man-hours, and, even worse, introduce audit and reporting risk. That s why leading asset-intensive companies compliment their ERP and EAM solutions with PowerPlan. 1

This white paper chronicles how hundreds of asset-based companies, in industries where depreciation and tax dominate the Income Statement, have made the transition from good to great by using PowerPlan to connect, improve and extend their ERP and EAM solutions. PowerPlan reshapes the way that companies manage detailed accounting information on every asset. By seamlessly augmenting, integrating and translating the data shared between ERP and EAM solutions, PowerPlan Asset Accounting eliminates the need for the field to do accounting classifications while providing the detailed information required to optimize the value of each asset throughout its lifecyle. ERP PRODUCT CENTRIC ACCOUNTING HR AR Treasury, Supply Chain, General Ledger & Misc. ASSET ACCOUNTING, TAX, REGULATORY ANALYTICS / INTEGRATION PROJECT ACCOUNTING, BUDGET FORECASTING INTEGRATION / ANALYTICS EAM ASSET MAINTENANCE CENTRIC Phyisical Asset Add & Maint., Inventory Purchasing, Mobile Workforce 2

Examples are provided of companies that have moved to superior levels by implementing the following best practices: Leveraging ERP and EAM system investments using certified integration that provides standard data translation with no custom code required. The resulting alignment of detailed cost information with physical assets across multiple geographies more efficiently captures tax benefits, manages costs and free-ups cash flow. Eliminating tedious field efforts to categorize and classify assets financially. The automation of this effort enables more proactive business management through reduced dependence on error-prone spreadsheets and creates fact-based scenarios that help more tightly control governance. Achieving auditable, transparent and compliant tax and asset accounting with a single set of books that simultaneously supports GAAP, CGAAP, regulatory and IFRS requirements in one entry. This unified set of books satisfies multiple reporting needs, reduces the possibility of restatements and provides timely delivery of all new regulatory requirements. Best practices are implemented across the entire organization consistently. What s the end result? Regardless of how many ERP and EAM systems are running in different divisions, companies that combine PowerPlan with those systems to translate data and automate asset tracking and reporting, free up cash and maximize revenue while better managing costs and reducing risk. 3

Tracking and Reporting Fixed Assets: What s Working and What s Not Several years ago Jim Collins authored a widely-read management book called Good to Great: Why Some Companies Make the Leap...and Others Don t. With sales exceeding four million copies, the book was a massive best-seller, going far beyond the traditional audience of business books. Just as Collins identified key characteristics that helped companies transition from Good to Great, this paper will detail three characteristics that have helped asset-based companies transform their ability to track and report fixed assets from Good to Great. In each of those areas we will confront the brutal truth of the situation -- as Collins often recommended -- with a discussion of what s working and what s not with regard to current practices for tracking and reporting fixed assets. 4

Accounting Practices in Asset-Intensive Industries: The Brutal Truth Asset-intensive industries such as utilities, oil & gas, transportation, telecommunications and mining require a different approach from other industries to accurately comply with tax and reporting obligations. The majority of their assets are self-constructed, not bought, and retained instead of sold. In addition, most assets are complex, long-lived and geographically dispersed. These industries spend the majority of their money on expensive capital investments and linear infrastructure -- items whose value depreciates over time as the machines, structures or pipelines age, break down, or are replaced by newer models. For companies which have long-lived assets that may have been created 20 years earlier, this becomes challenging and creates special needs for capital budgeting, retirements and depreciation which includes: Self-construction capital accounting Monitoring of work orders and projects Capital projects and budget allocations Group and individual depreciation methods Income tax minimization Property tax complexities In addition, asset-intensive companies must operate in compliance with a rapidly changing regulatory environment. 5

Often companies have a combination of ERP and legacy systems along with manual spreadsheets they use to make the calculations necessary for tax and depreciation reporting. Even the industry s best ERP and EAM systems weren t designed to address these specialized needs; so asset-based organizations build thousands of spreadsheets, keep multiple sets of books, use manual processes, and customize their systems to fill the gaps. This approach, which involves teams of accountants making tedious redundant entries, requires unending hours of labor and has a high risk of errors. It costs millions of dollars and man-hours, and, even worse, introduces serious audit deficiencies and reporting risk. How are companies addressing these issues? They are minimizing these risks and costs by moving their integrated asset accounting from good to great. Whether you prevail or fail depends more on what you do to yourself than on what the world does to you. ~ Jim Collins 6

Transforming Integrated Asset Accounting from Good to Great: Three Key Characteristics During the last decade, hundreds of asset-based companies have transitioned their asset accounting from good to great, but that transformation required an integrated approach using cradle-to-grave tax and asset accounting software to compliment their existing ERP and EAM/ Engineering systems. PowerPlan provides asset accounting, capital project accounting, income tax, property tax, and analytic software that improves and extends ERP and EAM solutions. Simply put, PowerPlan takes every action involved with a job and auto-generates the necessary accounting rules; essentially moving every dollar into its appropriate place in the asset ledger for all stakeholders without requiring the involvement of field personnel. Since PowerPlan software automatically makes these calculations, the solution ensures that each part of the project is given proper attribution. Similarly, with tax laws encouraging infrastructure investment, asset-intensive companies can often categorize asset investment as repairs on their books to realize current-year deductions. One example would be capitalizing an item for book purposes does not necessarily capitalize it for tax purposes. This would instead provide a current period deduction versus a deduction over the life of the asset which could be 50 to 100 years. Many times during that long period they need to explain what they did. If that information is not automated and stored, it becomes nearly impossible to track the information. 7

PowerPlan uniquely translates naturally present activities in the EAM and work systems into precise and timely settlement rules so that: Operations personnel simply have to know what job they are working on they do not have to understand accounting or tax rules Accounting for capital and capital related expense is more efficient and more accurate Your books are more compliant and withstand audit better The results are more advantageous in minimizing both property and income taxes Think of PowerPlan as a fully balanced sub ledger to your ERP system. It pulls data from your EAM and ERP, automates the accounting processes and settlement rules behind the scenes, and then adds the re-worked information back in via PowerPlan s ERP Adapter which has been certified by SAP and others. 8

BEST PRACTICE: Southern Company As one of the largest electricity generators in the nation, Southern Company serves both regulated and competitive markets in Alabama, Georgia, Florida and Mississippi. With over $55 billion in assets, Southern Company needed to track and report accurate, actual assetrelated costs down to the work order level, but their EAM and ERP solutions were falling short. They implemented PowerPlan to improve project and cost management, forecasting and budgeting capabilities in order to drive operational efficiencies and support more effective decision-making. PowerPlan is now the central tracking mechanism for the majority of Southern Company s assets. With costs at the plant asset level, PowerPlan provides a fully balanced subledger to the GL and actual and projected costs are aggregated in real time. With PowerPlan, Southern Company benefits from: Improved cost management Increased budget compliance More efficient project management Financial optimization of assets By combining PowerPlan with Oracle Financials and Maximo, Southern Company was able to retire 22 systems and an untold number of spreadsheets. 9

So, how do you transition your integrated asset accounting processes from Good to Great? Industry leaders have moved to superior levels by achieving the three best practices detailed below. Asset Information Alignment By adding PowerPlan to your ERP and EAM systems, you can achieve alignment of detailed cost information with physical assets across multiple geographies to more efficiently capture tax benefits, manage costs and free-up cash flow. PowerPlan augments, integrates and translates the data shared between ERP and EAM solutions. Our solution provides standardized ERP and EAM system integration with no custom code required. Spreadsheets just weren t working. We needed a system that calculated the depreciation in an automated and integrated way. ~ Bill Auve, Assistant Controller, Amtrak Minimize Field Accounting Effort Industry leaders are taking accounting out of the field by automating the effort to categorize and classify assets. PowerPlan relieves field operations from the accounting burden, allowing them to focus on operations while still capturing the accurate, detailed information essential for accounting, tax and regulatory compliance. By enabling more proactive business management, they have reduced dependence on error-prone spreadsheets while improving the ability to create fact-based scenarios that help more tightly control governance. 10

PowerPlan currently manages more than $2.3 trillion in fixed assets. Many clients have found that the system pays for itself in less than one year. In fact, one of the largest utilities in the U.S. realized an immediate benefit to the company of nearly $5 million and substantial recurring savings and reduction of risk as well. In addition, clients leverage the system to overcome audit deficiencies and ensure regulatory compliance. Auditable, Transparent and Compliant Accounting Books Only PowerPlan simultaneously supports GAAP, CGAAP, regulatory and IFRS requirements in a single set of books with one entry. PowerPlan helps companies stay ahead of the complex, ever-changing curve of compliance and regulatory requirements by providing timely delivery of all SEC/FASB, FERC, tax and state changes, and requirements from IFRS, GAAP CGAAP and FERC. Imagine entering the data only once and it automatically posted properly to each book. The simplicity of a unified set of books that satisfies all your reporting needs, reducing painful restatements and providing timely delivery of all new regulatory requirements. Working with PowerPlan Over the last 20 years, PowerPlan has developed a sound process to quickly determine the state of a company s asset records and identify missed opportunities. We help remedy slow WIP processing, missed retirements, understated removal/demolition, and overlooked tax deductions or minimization strategies. The PowerPlan system then maintains best practices going forward. Since asset-intensive companies often operate in several states/countries and could be subject to the accounting regulations and policies from several regulatory bodies, automating the integrated asset accounting process is even more valuable. PowerPlan ensures adherence to these regulations; freeing field personnel from the chore of dealing with varying local, state, and federal regulations. 11

PowerPlan Moves Your Integrated Asset Accounting from Good to Great Are you ready to transition from good to great asset accounting? PowerPlan frees companies from the time-consuming and error-prone task of tracking and evaluating how physical asset related activity in an EAM affects the balance sheet. Only PowerPlan automates the calculation and capture of book-tax basis differences; which ultimately minimizes the tax interest capitalized, tracks tax repairs, maximizes the tax loss by mechanically recognizing early retirements, and otherwise helps minimize income and property tax liabilities. For the first time, executives can have complete asset transparency and the flexibility to accurately maneuver the financial levers essential for enabling a culture of cost management, improving cash flow and realizing the full tax benefits across hundreds and thousands of projects and millions of assets. The examples we ve explored in this paper are just a few illustrations of the complex calculations and projects that PowerPlan can handle. Automation of complex processes and tax code calculations hum along in the background in synch with the ERP and EAM systems without having to add personnel. 12

With PowerPlan You Can: UNLOCK CASH TRAPPED IN EVERY ASSET PowerPlan aligns detailed cost information with physical assets across multiple geographies to more efficiently capture tax benefits, manage costs and free-up cash flow. ELIMINATE SURPRISES PowerPlan helps to proactively manage your business and create fact-based scenarios to more tightly control governance, stand up to audits and reduce the possibility of restatements through the timely delivery of all new regulatory requirements and multiple books within a single project and asset record. GAIN A STRATEGIC PARTNER PowerPlan leverages asset centric domain experts with hundreds of years of accumulated knowledge, best practices and decades of expertise to act as an experienced extension of your operating committee to help solve problems and handle unexpected events or shifts in priorities. 13

i PROVE THE BUSINESS CASE: At PowerPlan we are committed to helping you prove the solution value. In fact, our Business Value Study (BVS) provides a fast, high impact analysis to determine potential business value opportunities in tandem with an action plan. This action plan documents your organization s current state, industry best practices, as well as key system integration points and a detailed project plan to achieve the business case. The BVS was designed specifically to minimize disruptions at the company while providing a laser focused summary of the highest priority benefit areas. Key stakeholders are involved throughout the process of validating the benefit areas. The assessment includes a monetized summary of each key benefit area with a calculated expected ROI using a net present value analysis with a payback period. We re ready to help you move integrated asset accounting from good to great. Join the most efficient asset-based companies who combine PowerPlan with their ERP and EAM systems to automate asset tracking and reporting, lowering costs and reducing risk, and ultimately freeing up cash and maximizing revenue. INTRODUCTION Overview PowerPlan Inc. is devoted to building purpose built software combined with domain expertise to help asset-centric businesses optimize their financial performance. This document is constructed to aid Park Water Company in an attempt to organize an effort to develop a business case that would satisfy Park Water s internal business case requirements in an organized time frame. PowerPlan Readiness Plan 1. Acceptance on Value of PowerPlan and Readiness Guide Targeted Date: 2/22/2013 Kyle Hale will present to Park Water Company this plan to be accepted on how to move forward towards a successful implementation of PowerPlan. ASSET ACCOUNTING & BUDGETING SOFTWARE Park Water Company Park Water s input on the timing of events, needed resources, or scope of the inputs can be agreed on and we can execute on the readiness plan together. Resources Needed: Doug Martinet Copyright 2013 PowerPlan, Inc. All rights reserved. CONFIDENTIAL AND PROPRIETARY. The contents of this material are confidential and proprietary to PowerPlan, Inc. Unauthorized use, disclosure, or reproduction is strictly prohibited. 2. Final Presentation of Value of PowerPlan Copyright 2012 PowerPlan, Inc. All Rights Reserved. CONFIDENTIAL AND PROPRIETARY. The contents of this material are confidential and proprietary to PowerPlan, Inc. Unauthorized use, disclosure, or reproduction is strictly prohibited. Confirmed Date 2/22/2013 PowerPlan team to do a final presentation and review of the business case deliverables including Key Value Drivers, Benefits, Expected ROI, Scope, and Associated Costs in the context of the Software Demonstration. Needed resources will include the PowerPlan team, Park Water Executive Management, and the project team from Park Water 3. Contracting and Procurement Target Date 2/25/2013 Work together to formulate palatable contracts and understand procurement checks move contracts through legal departments concurrent to value presentation to ensure minimal procurement lag time after demonstration Copyright 2012 PowerPlan, Inc. All Rights Reserved. 3 CONFIDENTIAL AND PROPRIETARY. The contents of this material are confidential and proprietary to PowerPlan, Inc. Unauthorized use, disclosure, or reproduction is strictly prohibited. 14

About PowerPlan PowerPlan is an enterprise software company devoted to helping asset-centric businesses optimize their financial performance. PowerPlan combines purpose-built software for asset centric accounting, tax and budgeting/analytics with domain expertise to help executives generate cash, mitigate compliance risk and enable a culture of cost management. The world s most demanding asset-intensive companies trust PowerPlan to manage more than $2.3 trillion in assets today. PowerPlan is a privately held company based in Atlanta, GA. For more information, call us at +1 678.223.2800, email us at info@pwrplan.com, or visit us at www.powerplan.com. 15