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)
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.
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
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 T h i s i s t h e w a k e u p c a l l !
Consider a Road Traditional Approach
Consider a Road Traditional Approach Components?
Consider a Road Traditional Approach Components? Residual Value & Depreciable Amount ? Sales Price at end of life? Generally $0 or immaterial Therefore: Depreciable Value is often 100% of the Gross Value Depreciable Amount
Consider a Road Traditional Approach Components? Residual Value & Depreciable Amount? Useful Life? Formation? Pavement? Seal? There is no one answer! Depends on design, usage, climate, government policy, maintenance, technology, etc
Consider a Road Traditional Approach Components? Residual Value? Depreciable Amount? Useful Life? Pattern of Consumption? Cyclical Maintenance Keeps asset at a level that meets the communities expectations
New road on new alignment (Obsolescence) Formation Pavement Seal Lifecycle of Road Components
Consider a Road Traditional Approach Components? Residual Value? Depreciable Amount? Useful Life? Pattern of Consumption? What about other infrastructure? Water, Sewage, Buildings
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
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
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?