Tangible Assets - PowerPoint

Document Sample
Tangible Assets - PowerPoint Powered By Docstoc
					Tangible Capital Assets Project
Alberta Regional GFOA Workshops


                     June 2007
    Presentation Overview
       Review PS 3150
       Policies and Guidelines
       Implementation Plan
       Resources Required
       Implementation Budget
       Other “work in progress” information

2
    Why Capitalize TCA?
The principal reason for governments recording capital
  assets is to get a better appreciation of the stock &
  the cost of using these assets, which should lead to
  an improved decision-making process regarding their
  management.

Reporting this capital asset information also provides
  accountability to taxpayers regarding the capital
  resources acquired, used & managed by
  governments.
                           Public Sector Accounting Board



3
    What problems are going
     to be encountered in
          complying?



4
    Current TCA practices
       Some capitalize all assets except roads
       Some only capitalize debt financed
        assets
       Contributed capital is not capitalized
       No asset inventory listing
       Balance Sheet number is a „number
        only‟
5
    Implications for municipalities
       Process – implementation & on-
        going
       Resources required
       Financial reporting
       Budget processes
       Financial statement analysis


6
    What will be gained?




7
    Impacts (stated by PSAB)
   Better asset management
   More transparent to you, the public &
    others
   Increased awareness of a „national‟ issue
   Data supports funding needs
   Explains level of tax & user fees
   Promotes better capital planning

8
   Better asset management
   More transparent to you, the public &
    others
   Increased awareness of a „national‟ issue
   Data supports funding needs
   Explains level of tax & user fees
   Promotes better capital planning


9
     Asset Management Rationale
        Life cycle asset management minimizes total costs
        Poorly maintained assets increase liability concerns
        Provides better and more consistent levels of service
        Assets in good condition provide better and more
         efficient services
        Increased expectations for accountability and good
         stewardship
        Improve compliance with full cost recovery
         regulations


10
     „Better asset management‟ only if:
        Meeting the TCA requirement is taken
         seriously
        A good inventory of assets is developed
        Replacement cost information is added
        There is dedicated sincere analysis of
         the information


11
     GFOA TCA Task Force
        Group One: Asset Classes, Useful Life,
         Thresholds
            Carol Engelking, City of Edmonton
            Don Knutson, City of Medicine Hat
            Carmela Krebes, City of Edmonton
            Joanne Parkins, City of Red Deer
            Dean Screpnek, Parkland County
            Debbie Turner, Town of Gibbons

12
     GFOA TCA Task Force
        Group Two: 2007 F/S Note
            Glen Jarbeau, City of Spruce Grove
            Susan Koch, City of Calgary (previously)




13
     GFOA TCA Task Force
        Group Three: Financial
         Reporting, Balanced Budget Legislation
            Glen Jarbeau, City of Spruce Grove
            Chris Parkins, Alberta Municipal Affairs &
             Housing
            Kim Ordway, City of Lethbridge
            Barry Sawada, City of Lethbridge
            Rick Wojtkiw, Sturgeon County
14
     PS 3150 Overview




15
     TCA Definition
     A significant economic resource
     managed by governments & a key
     component in the delivery of many
     government programs.




16
     TCA Definition cont‟d
       Includes such diverse items as
      roads, buildings, vehicles, equipmen
      t, land, water & other utility
      systems, aircraft, computer
      hardware &
      software, dams, canals, & bridges.
      (.02)
17
     Who Owns the Roads?
        Key words in TCA definition
         Manage and Control; not ownership
        Sections 16, 18 and 22 (MGA)

         All roads, excluding provincial
         highways, are to be recorded as a
         TCA by the local municipality.
18
     And What About Bridges?
     “….bridge structures on municipal roads
      are under the control and management
                of the Municipality,”

                Rural Transportation Funding Option Report, Q & A
                                                        AAMD&C




19
     TCA are non-financial assets that
        are held for use in the production and
         supply of goods and services
        useful lives extend beyond accounting
         period
        used on a continuing basis and
        not for sale. (.05)


20
     TCA should be:
        reported as assets on statement of
         financial position (.07)
        recorded at cost (.09)




21
     Why Historical Cost?
        Reliable – agrees to actual transaction
        Capable of independent verification
        Reasonably free from error or bias
        Provides consistent, verifiable
         foundation
        Consistent basis for stating the financial
         position
22
     Amortization
        amortized over its useful life in a
         rational and systematic manner
         appropriate to nature and use (.22)
        should be expensed in statement of
         operations (.23)
        method and useful life should be
         regularly reviewed and revised when
         appropriate. (.29)

23
     Write-downs
        TCA no longer contributes to
         government services or value of future
         economic benefits decreased (.31)
        Expensed (.32)
        Should not be reversed (.33)



24
     Disposals

      Difference between net proceeds on
      disposal and net book value to be
      recorded as revenue or expense in
      statement of operations. (.38)



25
     Presentation & Disclosure (Notes)
     For each major category of TCA: (.40)
      Beginning and end of period

            Cost, accumulated amortization, net book
             value
        For the period
            Additions, disposals, write-
             downs, amortization

26
     Other information: (.42)
        Amortization method
        Net book value of TCA not being
         amortized
        Nature and amount of TCA received
         during period
        Nature and use of TCA at nominal value
        Nature of works of art and historical
         treasures
        Amount of interest capitalized
27
     Transitional Provisions
        Effective in 2009 (.43)
        Progress report required in notes of
         2007 financial statements (.45)




28
     Existing Asset Valuation
        In the absence of historical cost, other
         valuation methods may be used. (.47)
        Fully amortized assets still in use need
         to be recorded. (.48)




29
          What are the
     recommended guidelines?




30
     Asset Classes
     Major classifications for TCA and minor
     classifications under „Engineered
     Structures‟ should be consistently used by
     all Alberta municipalities for financial
     reporting.




31
     Major Asset Classes
        Land
        Land Improvements
        Buildings
        Engineered Structures
        Machinery & Equipment
        Vehicles
        Cultural & Historical
32
     Engineered Structures
     – Minor Classes
        Roadway system
        LRT system
        Water system
        Wastewater system
        Storm system
        Fibre optics
        Electricity system
        Gas distribution system
33
     Engineered Structures
        Classification exception:
            Buildings and Machinery & Equipment




34
     Useful Life and
     Amortization Methods
        Not greater than recommended
         maximum useful life
        „Straight line‟ method most common
        „Unit of use or output‟ and „declining
         balance‟ also used
        50% of annual amortization in year of
         acquisition/disposal

35
     Capitalization Thresholds
     Definition
     The minimum value of an expenditure
     which meets the criteria of a tangible
     capital asset and will be recorded as a
     tangible capital asset.



36
       PS 3150 TCA Definition
Non-financial assets having physical substance that:
      are held for use in the production or supply of goods
       & services, for rental to others, for administrative
       purposes or for the development, construction,
       maintenance or repair of other tangible capital
       assets;
      have useful economic lives extending beyond an
       accounting period;
      are to be used on a continuing basis; &
      are not for sale in the ordinary course of operations

  37
     Capitalization Thresholds (cont)
        Each municipality determine thresholds
        No threshold for „Land‟
        Value per item not by group purchased
        Same threshold for each major asset
         class



38
     Capitalization Threshold Factors
        Materiality
        Record Keeping
        Asset management
        Rate setting




39
     Capitalization Threshold Principles
        Asset management a key driver
        Accounting policy not the driver
        Manageable
        Good judgment
        Review with your auditor



40
         Suggested Minimum
         Capitalization Thresholds
Asset Description       Cities    Towns    Villages   Rural Municipalities
Land
                          -         -         -                -
Land Improvements       10,000    5,000     2,000            5,000

Buildings               100,000   25,000    10,000           50,000

Engineered Structures   100,000   25,000    10,000           50,000


Machinery & Equipment   10,000    5,000     2,000            5,000


Vehicles                10,000    5,000     2,000            5,000



    41
     TCA Progress Report
        CICA Accounting Guideline PSG-7
        Information on some but not all TCA
         categories (5)
        Indicate categories excluded
        Similar information as PS 3150
        For fiscal years 2007 until TCA
         implementation
        Sample note approved by AICA; provided in
         June, 2007
42
     TCA Implementation Plan
        Absolutely Essential!!!
        Good sample plans available on web
         www.amcto.com/db/assetmgmt.asp
        Complex project
        Important first step to an asset
         management plan
        Multi-year plan

43
     Getting Started
        What is the status of our financial
         records?
        Where are other sources of information?
        What do we own and where are they?
        How will we gather the data?
        What priority is this project?
        How will it be staged?
44
     Initial Departments Meeting
        PSAB requirements overview
        Stress importance and magnitude
        2007/2008 report cards and 2009
         completion
        Must meet audit requirements
        Determine types of TCA
        Establish project team – manager and
         departmental team leaders
45
     Project Schedule
        Multi-year
        Consider staging
        Set target dates




46
     Capital Policies
      Asset definition, single asset vs
      component, valuation
      methods, amortization
      methods, capitalization
      thresholds, useful life, maintenance or
      betterment, additions/disposals



47
     Other Purposes for Recording TCA
        Risk management
        Maintenance
        Security
        Safety




48
     Taking the Inventory
        Identify data sources
        Locations
        Data required
        Develop unique inventory forms
        Future identification
        Data transfer
        Test the process
        Inventory instructions and training
        Verify the data

49
     Value Existing Assets
        All assets must be valued in some
         manner.
        Value can be estimated when historical
         cost is not known.
        Level of precision is less for existing
         assets.


50
     Valuation Method Sequence
        Historical cost
        Reproduction cost discounted
        Replacement cost discounted
        Appraised cost discounted
        Residual value when fully amortized
        Nominal value; i.e. conservative
         estimate of cost
51
     Discounting Process
        Determine year of construction or
         purchase.
        A pre-determined earliest year may be
         established provincially; for
         example, 1949.
        Apply a consistent Consumer Price
         Index to current replacement cost.

52
     Steps Taken to Simplify Valuation
     Process
     Bridge Files
      Alberta Infrastructure and
       Transportation has determined the
       historical cost for most bridge files.




53
     Steps Taken to Simplify Valuation
     Process
     Engineered Structures
      Municipal Affairs is researching the
       potential of developing a manual of
       replacement costs for most engineered
       structures which municipalities can use
       for consistent valuations.


54
     Recording Engineered Structures &
     Systems – Network or Components?

     Network – one unit
          Less detail, easier to manage
          More difficult to value replacements




55
     Recording Engineered Structures &
     Systems – Network or Components?
     Component – major components as
      separate assets
          More accurate, better information
          Better basis for asset management
          More time in maintaining records




56
     Another Consideration -
     Segmentation

     Division of linear systems into
       geographical sections
          More accurate
          Easier to identify replacement costs
          Better information
          Increased recording time



57
     Betterment or Maintenance?
     Network or component approach impacts
      the answer.
          See PS 3150:19-21




58
     Further Information
     MEnet Website with links to
         www.ombi.ca
         www.psab-ccsp.ca




59
     TCA Software
        Financial software provider is key
         stakeholder
        Determine current and future TCA
         software capabilities
        Determine general ledger and subsidiary
         ledger interfaces
        What are the reporting capabilities?
        Software vendor‟s development schedule
60
     Include Your Auditor
        Your auditor needs to review your plan.
        Determine audit requirements – audit
         trail, verification, valuation, asset life
        Auditor should include TCA in 2007
         audit



61
     Budgets and Financial Reporting
        „Full accrual‟ budgets – non cash items
        Revised financial reporting in 2009
        Plan for educating/training elected and
         appointed municipal officials




62
     And After 2009
        Processes for additions and disposals
        Policies for regular TCA review




63
     Resources Required & Training
     Resource    Responsibility
     Personnel      Project planning
                    Policy development

                    Software implementation

                    Recording of assets

                    Inventory and valuation

                    Documentation

                    Audit requirements




64
     Resources Required & Training
     Resource       Responsibility
     Consultants/      Assist staff with additional
                       work
     Specialists
                       Inventory and valuation

                       Engineering

                       IT requirements/upgrades

                       Training
                       




65
     Resources Required & Training
     Resource   Responsibility
     Auditors      Review project plan
                   Review capital policies

                   Audit inventory & valuations

                   Review financial

                   processes/software
                   Audit new reporting

                   requirements


66
     Implementation Budget Factors
        Size and complexity of asset base
        Condition of historical records
        In-house expertise




67
     Implementation Budget
     Components
        Planning and policy development
        Human resources
        Asset inventory
        Software needs
        Engineering assistance
        Audit requirements

68
     Other „Work-in-Progress‟
     Information
        Capital policy guidelines
        Inventory data
        Valuations
        Software
        Financial reporting and budgets
        Balanced budget legislation




69
     Future Information
        Quarterly newsletters
        Toolkit June/07
        Financial statement note, June/07
        Additional guidelines/recommendations
        Western GFOA
         Conference, Calgary, Sept, 2007


70
          This will be an ongoing
        ‘work-in-progress’ project.
          We are interested in your
     comments, questions, experience
            s and suggestions.


71
       Thank you for attending.

     We wish you success in your
             TCA project!

72

				
DOCUMENT INFO
Description: Tangible Assets document sample