An important question to ask when we’re trying to stretch IT budgets
What is an asset? Depending on the context, the word “asset” can be defined in many. It’s something we don’t often think about, but it’s important all the same.
The International Financial Reporting Standards (IFRS) defines an asset as “a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. (Framework, paragraph 49)”. Meanwhile, the Financial Accounting Standards Board (FASB) defines assets as “probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. (CON 6, paragraph 25)”.
From these official definitions it is clear that an asset must provide its holder with some form of potential future economic benefit down the line. An asset is also a resource that is in some way controlled by the holder.
There are two questions that still need to be considered:
- Does an asset need to have a physical form?
- Can a service be an asset?
Does an asset need to have a physical form?
The Information Technology Infrastructure Library (ITIL) sheds some light here! The ITIL® glossary states:
“Assets = (ITIL Service Strategy) Any resource or capability. The assets of a service provider include anything that could contribute to the delivery of a service. Assets can be one of the following types: Management, organization, process, knowledge, people, information, applications, infrastructure or financial capital. ”
So, for ITIL, the answer is no. An asset does not necessarily have a physical form. The key point is that it must provide some form of economic value and is controlled by an entity.
That’s one question answered! But the other question remains…
Can a service be an asset?
A service is obviously only beneficial to a user while it is being provided to them. In that event, can a service provide future economic benefits? In fact, it can. You see, as long as the service is used by the user to create lasting works, those effects will be felt long after the service itself ends or is transferred to someone else.
For official purposes though, that’s where that stops. In accounting and legal matters, a service just can’t be defined as an asset. There are three reasons:
- If you’re a service provider, then the service is not an asset. You would expense costs related to providing the service and record revenues from the sale as either sales or service revenue.
- If the service you offer is a warranty or something that you may need to pay out down the line you need to record it as a liability.
- On the other end of this relationship, if you receive a service, then it’s an expense. Here finally, we have a scenario where a service could be an asset. If the service is prepaid, then you can account for it under “assets”. As you can see, it’s a fine, fine line. This makes it extremely complex to define an asset. Even more wrinkles are added when we enter software into the equation. Software actually can be an asset since it can be depreciated over its useful lifetime. But this changes the moment the software is sold as a service. If a software-as-a-service (SaaS) is sold based on an agreement for a set period of time, then it’s an expense. I know that the difference seems minute, but in accounting (and hence legal) terms they are different.
How should the non-accountant view services?
Now, accounting is important. But it’s not the only part of business. How should the other company functions view a service?
Here at Cimpl we feel that everything SHOULD be treated as an asset. By treating everything as an asset, you can account for all your physical and virtual (Including IT services) assets all in a single, easy-to-digest format. This would allow information to be neatly visible and for patterns to become more obvious. What’s important to note is that, at present, established players in IT asset management do not track these services.
At Cimpl we see this oversight as an opportunity lost. Everything that is similar to the accounting definition of an asset within a company can and should be tracked so that the firm can reduce costs and drive revenue. Of course, without a tool in place to do this tracking, the exercise can be extremely hard.
That’s why our signature product, Cimpl, offers a catalogue management module that easily assigns tracked assets into one of four categories united in a single asset space. We call this framework Enterprise Asset Management 2.0 (EAM 2.0), and it makes tracking a vast array of IT and telecom assets easy. With this catalogue mapping, users have unlimited flexibility in adding or mapping new assets for ease of sorting.
Importantly, this quadrant mapping gives users a very clear view into their costs and usage. It gives useful insights into planning IT investments. EAM 2.0 helps companies stretch IT budget. It’s the method for giving users transparency on the technology usage that drives their companies.
What services are you tracking today? Would you like to know just how much you’re spending on IT so that you can stretch your IT budget and work smarter? If so, contact us! We’re a Deloitte Technology Fast 50™ company precisely because we’ve been helping customers get the most out of their IT spend for nearly 15 years! We can help you!