Contemporary Issues

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Contemporary Issues Complying with Industry
Standards

• 2006 Asset Accounting Management Conference

David Edgerton FCPA Queensland Audit Office
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Outline

• Key Issues from Seminar
• Key Aspects AASB 116
• Impacts for us as CPAs

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Key Issues from Seminar

• Demographic Change
• Integration of systems and use of data
• Differing perspectives
• Risk Management
• Leadership and Co-operation
• Strategic Asset Management Planning

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Accounting Standards

• AASB 116 Property Plant Equipment
• Key Aspects
• Determining Fair Value
• Depreciation Expense

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Valuation

• Fair Value
• The amount for which an asset could be exchanged
  between knowledgeable, willing parties in an
  arms length transaction
• Active and Liquid Market
• Market Value (MV)
• Observable market evidence
• (eg current market rentals) (NPV / DCF)
• No market evidence
• Depreciated Replacement Cost (CRC)

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Depreciation

• (AASB116 Para 60)
• The depreciation method used shall reflect the
  pattern in which the assets future economic
  benefits are expected to be consumed by the
  entity.

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IFRS - AASB 116 Property Plant and Equipment

• Depreciable Amount (cost or value less residual)
• Depreciation (systematic allocation of
  depreciable amount over its useful life)
• Each significant part of asset to be depreciated
  separately
• Residual Value and Useful life to be reviewed at
  year end
• Method must be reviewed at year end

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Aspects to Consider

• Must Match Pattern of Consumption
• NOT write-off to zero over extended period
• RV UL only used to determine Depreciable Amount
• Complex Assets need to be split into components

This is the wake up call !
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Consider a Road

• Traditional Approach

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Consider a Road

• Traditional Approach

• Components?

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Consider a Road

• Traditional Approach
• Components?

• Residual Value Depreciable Amount ?

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Consider a Road

• Traditional Approach
• Components?
• Residual Value Depreciable Amount?

• Useful Life?

There is no one answer! Depends on design, usage,
climate, government policy, maintenance,
technology, etc
Formation?
Pavement?
Seal?
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Consider a Road

• Traditional Approach
• Components?
• Residual Value?
• Depreciable Amount?
• Useful Life?

Cyclical Maintenance Keeps asset at a level that
meets the communities expectations

• Pattern of Consumption?

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Lifecycle of Road Components
Seal
Pavement
New road on new alignment (Obsolescence)
Formation
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Consider a Road

• Traditional Approach
• Components?
• Residual Value?
• Depreciable Amount?
• Useful Life?
• Pattern of Consumption?
• What about other infrastructure?
• Water, Sewage, Buildings

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Impacts for us as CPAs

• Consider
• Changing Environment Technology
• New Accounting Standards
• Baby Boomers retiring funding implications
• Increased demands on speed and accuracy
• Information needs more sophisticated
• Changed understanding of long term issues
• Clients/Masters want better information
• Community expectations changing

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Impacts for us

• Increased pressure to get better results and more
  meaningful information
• Past practices questionable
• Need to investigate alternative methods
• Issues are far broader than a pure accounting
  issue
• Our information and decisions impact future
  generations
• Greater audit attention
• Increased cross-pollination between professions

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Closing Thoughts.

• Are we leaders within our communities?
• If so are there changes you need to make in the
  way you approach your day to day business?
• Also.
• What will you be doing in 20 years time?
• Will the government be able to deliver the level
  of services you expect?