Introduction

The ISO 55000, ISO 55001 and ISO 55002 asset management standards have raised awareness of the importance of improving alignment between an organization’s financial and non-financial functions, and this document provides guidance on how to achieve this. ISO 55001:2014, 7.5 d), states that “the organization shall determine the requirements for alignment of financial and non-financial terminology relevant to asset management throughout the organization”.

As used in this document, financial functions refer to processes and activities such as managerial costing and accounting, budgeting, financing and valuation related to the assets. Non-financial functions are the complementary processes and activities, for providing a product or service from the assets.

The definition of “asset” in ISO 55000 differs from that of the generally accepted accounting principles (GAAP) or the International Financial Reporting Standards (IFRS). The term “asset” as primarily used in this document is defined in ISO 55000 and organizations need to be aware of this to avoid any misunderstanding. For the authoritative GAAP or IFRS definitions of asset, refer to the appropriate accounting standards, internal policies and experts.

In many organizations, the financial and non-financial functions of asset management are inadequately aligned. Often the financial accounting functions are predominantly focused on retrospective reporting of accounting/regulatory financial activities. However, there is a growing awareness in organizations of the need to focus on providing a managerial costing approach in order to support decision-making for the future. At the same time, the non-financial functions are recognizing the need to improve their understanding of the financial implications of their activities. These are examples of initial moves towards better alignment of the financial and non-financial functions with the aim of better decision-making and value realization.

Lack of alignment between financial and non-financial functions can be attributed to silos in an organization, including reporting structures, functional/operational business processes, and related technical data. The United States Government's “Government Accountability Office interviews with asset management experts”^[²³^] advises that “… silos are necessary to allow for the required level of specialization, but if these silos do not communicate, inefficiencies and errors in asset management result” and that “when asset management implementation fails, it is often because asset management staff and senior management are not in alignment”.

Alignment needs to work both “vertically” and “horizontally”. Vertical alignment means that financial and non-financial asset-related directives by top management are informed by accurate upward information flows, effectively implemented across the appropriate levels of the organization. Horizontal alignment means that financial and non-financial information that flows between departments (conducting functions such as operations, engineering, plant maintenance, financial accounting, financial management and risk management) uses the same terminology and refers to the assets identified in the same way.

The aim of this document is to encourage organizations to support alignment between these asset management functions and to provide guidance on how such alignment can be achieved. It also promotes the benefits that can be achieved for an organization and its stakeholders by having alignment of these asset management functions better understood, implemented and improved. This enables an organization’s functional areas to share information and collaborate to achieve its objectives.

This document can assist users in applying the concepts of ISO 55000 and the requirements of ISO 55001. It provides additional advice and guidance over and above the explanations outlined in ISO 55002 on the benefits to be realized for an organization through alignment.

This document can be applied to all types of assets and by all types and sizes of organizations.

It is intended for use by personnel, at all levels in an organization, who are involved in asset management, including:

— top management and decision-makers, to derive the benefits that are achievable by better alignment between financial and non-financial functions;
— those in asset-related multidisciplinary functions who provide information to support decision-making or rely on the outcomes of those decisions;
— a wide range of personnel, including those who have responsibility for the technical planning, design, construction, operation, maintenance and performance of the assets and those with financial responsibilities such as accounting, financial planning, budgeting and financial reporting.

Knowledge and understanding of terminology and common language used by financial and non-financial functions can facilitate discussion, communication and exchange of information between these functions. Clause 3 defines relevant terms. Clauses 4 to 9 and related annexes provide a range of information on financial and non-financial functions in asset management, including information on asset management accounting principles.

Details concerning other International Standards and materials on asset management can be found on the ISO website, as well as on the ISO/TC 251 website at: https://committee.iso.org/home/tc251.

PD ISO/TS 55010:2019

Asset management. Guidance on the alignment of financial and non-financial functions in asset management

Published:

30 Sep 2019

Withdrawn:

17 Jul 2024