Tangible Capital Assets ProjectAlberta Regional GFOA Workshops June 2007
Presentation Overview • Review PS 3150 • Policies and Guidelines • Implementation Plan • Resources Required • Implementation Budget • Other “work in progress” information
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
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’
Implications for municipalities • Process – implementation & on-going • Resources required • Financial reporting • Budget processes • Financial statement analysis
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
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
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
‘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
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
GFOA TCA Task Force • Group Two: 2007 F/S Note • Glen Jarbeau, City of Spruce Grove • Susan Koch, City of Calgary (previously)
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
TCA Definition A significant economic resource managed by governments & a key component in the delivery of many government programs.
TCA Definition cont’d Includes such diverse items as roads, buildings, vehicles, equipment, land, water & other utility systems, aircraft, computer hardware & software, dams, canals, & bridges. (.02)
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.
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
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)
TCA should be: • reported as assets on statement of financial position (.07) • recorded at cost (.09)
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
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)
Write-downs • TCA no longer contributes to government services or value of future economic benefits decreased (.31) • Expensed (.32) • Should not be reversed (.33)
Disposals Difference between net proceeds on disposal and net book value to be recorded as revenue or expense in statement of operations. (.38)
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
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
Transitional Provisions • Effective in 2009 (.43) • Progress report required in notes of 2007 financial statements (.45)
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)
Asset Classes Major classifications for TCA and minor classifications under ‘Engineered Structures’ should be consistently used by all Alberta municipalities for financial reporting.
Major Asset Classes • Land • Land Improvements • Buildings • Engineered Structures • Machinery & Equipment • Vehicles • Cultural & Historical
Engineered Structures – Minor Classes • Roadway system • LRT system • Water system • Wastewater system • Storm system • Fibre optics • Electricity system • Gas distribution system
Engineered Structures • Classification exception: • Buildings and Machinery & Equipment
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
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.
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
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
Capitalization Threshold Factors • Materiality • Record Keeping • Asset management • Rate setting
Capitalization Threshold Principles • Asset management a key driver • Accounting policy not the driver • Manageable • Good judgment • Review with your auditor
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
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
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?
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
Project Schedule • Multi-year • Consider staging • Set target dates
Capital Policies Asset definition, single asset vs component, valuation methods, amortization methods, capitalization thresholds, useful life, maintenance or betterment, additions/disposals
Other Purposes for Recording TCA • Risk management • Maintenance • Security • Safety
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
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.