Tangible Capital Assets Implementation of Section 3150 New Brunswick Local Governments. October 2010

Transcription

1 Tangible Capital Assets Implementation of Section 3150 New Brunswick Local Governments October 2010

2 Agenda Review of the Inventory template Review of the Guide Identification of assets Costing of assets Components Useful life Amortization Other issues 2

3 Agenda Accounting Policy Documentation Required Disclosure What Municipal Units Should Ensure Internal Control Considerations Tangible capital asset audits beyond 2012

4 Review of Inventory Template The template was developed to allow easy recording of assets For large municipal units, a software package may add value Only a sample included, copies would need to be made

5 What is a Tangible Capital Asset? Assets having physical substance that: are held for use by the municipality in the production or supply of goods and services for the development, construction, maintenance or repair of other tangible capital assets; have useful lives extending beyond a year and are intended to be used on a continuing basis; or are not intended for sale in the ordinary course of operations.

6 Why Recognize Now? To bridge the significant gap between the financial information management and local councils need to manage their capital assets and the information they currently receive. To allow for government to assess it s financial ability to maintain its existing service levels, which requires information about the stock, use and condition of its infrastructure. To understand the financial demands infrastructure places on governments, including the ongoing maintenance and replacement of that infrastructure and the cost of the programs it supports. To allow for the development of comprehensive, cost-based systems for services.

7 Review of the Guide Identification of Assets A complete listing of assets is required Physical location Condition Tracked by functional area Draw on different departments to help

8 Review of the Guide Identification of Assets A capitalization threshold must be set Options were based on population or on revenue Most other provinces used based on revenue Minimum thresholds recommended by the department based on consolidated revenue

9 Review of the Guide Identification of Assets Determination if pools will be used Groups of assets under capitalization threshold, but together make a group over threshold Computers, furniture, hydrants, uniforms Select asset classes Department did research Provided recommendation (Appendix A)

10 Review of the Guide Costing of Assets A costing method must be chosen Historical cost (PSAB recommended) Deflated replacement/reproduction/appraisal cost Consistent approach is needed A deflation rate must be chosen CPI NRBCRI

11 Deflation Example

12 Review of the Guide Costing of Assets Donated assets From other senior governments Developers roads, sidewalks, water or sewer lines Have future expected benefits Controlled by government What value to record at? Fair value may be no active market Consideration given up Not determinable nominal value

13 Review of the Guide Components Very important up front choice Single asset approach or asset disaggregation What level of detail is appropriate? Think of replacement parts, if not identifiable components, will be repairs and maintenance Will likely affect future funding arrangements

14 Review of the Guide Useful life Shortest of an assets life Based on use by the government PSAB handbook does not provide guidance, lots of guidance available on the internet Considerations Present condition Intended use

15 Review of the Guide Useful life Considerations (continued) Construction type Maintenance policy How long will the asset meet service needs Appendix A contains the suggested useful life as determined by the department

16 Review of the Guide Amortization Methods Straight line assets deteriorate at a constant rate over its useful life Usage based assets deteriorate on basis of usage or hours of service Declining balance assets deteriorate more rapidly in the beginning The department recommends using the straight line method Rates should be reviewed periodically

17 Review of the Guide Other issues Residual value Is there any? Determining amount The norm may be that local governments use up their assets Taken into consideration in the amortization calculation

18 Review of the Guide Other issues Timing of amortization charge Month of use gives accurate picture, easy if you have a package to do it for you Beginning of year End of year ½ year Use what best reflects the municipal use of the asset

19 Review of the Guide Other issues Historical treasures Not tangible capital assets Can't estimate the future economic benefit Normally maintained forever Hard to put a value on Costs to maintain are expenses

20 Review of the Guide Other issues Leased assets Operating do not control asset, not TCA Capital control asset, TCA Must pass test to see if capital Own at end of lease term Receive all benefit of asset over lease term Can recover investment and have ROI Very technical but often done, see guide

21 Review of the Guide Other issues Betterments Subsequent expenditures on tangible capital assets that: increase the previously assessed physical output or service capacity cause a reduction in associated operating costs extend the estimated useful life cause an improvement in the quality of output Any other expenditure would be considered a repair or maintenance and expensed in the year incurred

22 Betterment Exercise

23 Review of the Guide Other issues Disposals sale, trade in, destruction Remove cost and accumulated amortization from the records Any resulting gain or loss is recorded in the statement of operations Write downs need to be addressed annually and are not reversed

24 Accounting Policy Documentation Key at beginning of project Sets out all policy choices See sample provided Documentation of process followed in implementation would be very helpful as well for auditors

25 Required Disclosure For each major category of assets disclose: Cost, at beginning of period Additions Disposals Write downs Amortization Accumulated Amortization, beginning and end of period Net carrying amount beginning and end of period Assets under capital lease Assets taken out of service

26 Required Disclosure Tangible Capital Assets are to be classified as non-financial assets Amortization expense is added back on the statement of cash flows Notes to the financial statements should include a complete description of the change and the effect of adjusting prior periods

27 What the Municipal Unit Should Ensure They are in compliance with the standards The approach is reasonable The approach is consistently applied The decisions fall within the range of generally acceptable practice They have retained the documentation for supporting evidence Ensure that other costs are included (carrying costs, fees, betterments)

28 Internal Control Considerations The following is a sample of the types of control activities you should have within a tangible capital asset business cycle once PS 3150 has been implemented. Acquiring Capitalization threshold policies approved and followed Authorization for acquisitions Budget approval checked Disposing Authorization of disposals Regular asset counts and reconciliation to general ledger Amortization Amortization policies approved and followed Independent recalculation

29 Tangible Capital Assets Beyond 2012 After the initial audit of your tangible capital assets has been completed, subsequent years will likely have a much different approach. Areas you may focus on: Planned maintenance schedule Planned replacement schedule Review policy choices Review amortization rates

30 Any questions?