Contemporary Issues & Complying with Industry Standards

1. Contemporary Issues & Complying with Industry Standards 2006 Asset Accounting & Management Conference David Edgerton FCPA Queensland Audit Office

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

3. 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

4. Accounting Standards AASB 116 “Property Plant & Equipment” Key Aspects • Determining Fair Value • Depreciation Expense

5. Valuation • Fair Value “The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s 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)

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

7. 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

8. 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 !

9. Consider a Road • Traditional Approach

10. Consider a Road • Traditional Approach • Components?

11. Depreciable Amount Therefore: Depreciable Value is often 100% of the Gross Value Sales Price at end of life? Generally $0 or immaterial Consider a Road • Traditional Approach • Components? • Residual Value & Depreciable Amount ?

12. 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?

13. 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?

14. Lifecycle of Road Components Seal Pavement New road on new alignment (Obsolescence) Formation

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

16. 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

17. 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

18. 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?