Tangible Capital Assets

Where Are We At? What Next?AAMDC Spring Convention & Trade Show

Edmonton, Alberta

March 18, 2008

Christina ParkinsFinancial Advisory ServicesMunicipal Affairs

Harold Johnsrude, CA

Harold Johnsrude Consulting Inc.

Barb Lyons, CGA

Director of Corporate ServicesYellowhead County

Presenters

2

Provide tools and training

Raise awareness

Mitigate the cost

AMA Project Goals

3

Status Report

TCA Toolkit

On-site example

What’s next

Session Overview

4

angible – can be touched

Definition

5

apital – lasts over time

sset – has measurable value

Global View

6

Australia1998

New Zealand1990

USA2006

Canada & Provinces 2000-2003

Canadian Municipalities2009

Why?

7

Budget and

Reporting Requirements

Long Term Decisions by Short Term Councils

Not New

and Exciting

Aging Infrastructure

Property Tax Rate Sensitivity

Awareness

Out of Sight /

Out of Mind

Outside Contributions

8

Provincial grants Federal grants

Developers

Constructed assets funded from third parties require replacement

Toolkit

9

www.MEnet.ab.ca

Toolkit Overview

10

Section 2 - Implementation

PS 3150Summary of PS 3150Implementation planImplementation budget

Toolkit Overview

11

Section 3Policies & Guidelines

Major Asset Classifications

12

Land

Land improvements

Buildings

Engineered structures

Machinery & equipment

Vehicles

Cultural & historical

Engineered StructuresMinor Asset Classifications

13

Roadway system

Light rail transit system

Water system

Wastewater system

Storm system

Fibre optics

Electricity system

Gas distribution system

Guideline #2 – Useful Life and Amortization Methods

14

Recommended maximum life

Amortization methods

Guideline #3Capitalization Thresholds

15

The minimum value of an expenditure that meets the

criteria of a TCA and that will be recorded as a TCA.

Capitalization Thresholds

16

Factors to consider:

MaterialityRecord keepingAsset managementRate setting

Suggested Rural Thresholds

17

Land $0

Land improvements $5,000

Buildings $50,000

Engineered Structures $50,000

Machinery & Equipment $5,000

Vehicles $5,000

Guideline #5 – Networks, Segments & Components

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Networks

19

Network

20

Segments

21

Components

22

Simplest form

Easier to track

Historically – easier to value

More difficult to• Establish capitalization thresholds

• Determine the value of components replaced

Network Approach

23

Better basis for asset management

More accurate information

Easier to identify costs of assets replaced

More detail requires more recording

Segment Approach

24

Better basis for asset management

More accurate – useful life and amortization

Deals with unique components better

More detail requires more recording

Component Approach

25

Network by road typeGravelChip sealAsphalt

Townships

Intersections

Mile

Road System Networks

26

Initially, keep it simple!

Progressively increase detail.

Network Decision

27

Change in municipal entity

Dissolution

Amalgamation

Annexations

Guideline #6 – Valuation Date

28

Capital Asset Policy

29

1. Purpose & Scope2. Asset Definitions &

Classification3. Asset Recording & Valuation4. Amortization Methods and

Rates5. Review & Write-downs6. Maintaining Records7. Asset Disposal8. Systems9. Reporting & Budgeting

Toolkit Overview

30

Section 4 – Asset Inventory & Valuation

Guidelines to determine asset data

Data to record by type of assetEssentialImportantOptional

Actual Cost

Estimated CostReproduction (discounted)Replacement (discounted)Appraisal (discounted)ResidualNominal

Valuation Approaches

31

Valuation Tools

32

Linear

Roads

Drainage

Water & Wastewater

Bridges

Implementation Example

33

Yellowhead County

Barb Lyons, CGADirector of Corporate Services

Project Overview

34

18 months and still more to do!

Supportive Council

Provided necessary resources

Supports finance staff

Funding provided for

Computer hardware/software

Staff time

Project Principle

35

Benefit of having the information must

outweigh the cost of collecting it.

Benefits Expected

36

Will provide a picture of assets owned with the age and condition.

Will assist in determining future infrastructure requirements resulting in better resource allocation.

Free Resources!

37

Other municipalities

Government Finance Officers Association

Accounting manuals

Workshops

AMA toolkit

Capital Policy

38

Formal approval of a TCA policy is crucial!

Technical Side of Project

39

Data Entry

Verification of historical cost

New software training

Interface with GIS

Asset valuation

Recording amortization

Future Challenges

40

Asset valuation

Meeting the January 1, 2009 deadline

Budgeting for annual amortization

Revised financial statement format

Revised Financial Information Return

Important Points to Remember

41

Keep the project in perspective

Use good judgment and common sense

Take advantage of all the resources available

Don’t re-invent the wheel

Impact to Our Municipality

42

Each municipality will be different.

Factors include:

Age of TCA

TCA’s recorded/not recorded

Donated assets

TCA’s on Balance Sheet will be:

At cost, less amortization and write downs

Amortization and write-downs will be a charge against annual income

PS 3150

43

Brings a non-cash dimension to financial reporting and budgeting

Full Accrual Accounting

This change does not require a change in behavior, but it may cause you to change because there will be more information available

Impact of Recording TCA’s

44

Municipalities will not be required to fund amortization

Legislative Impact

45

PS Handbook 1200Changes to Financial Reporting

Future Changes

46

Summary

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Next Steps• Replacement cost reassessment• Status of reserve fund levels• Asset Management

Benefits• Awareness of problem and magnitude• Better internal information for decision makers • Significant step towards good asset management

Resources• Considerable work is required to implement this change• Resources and expertise will be required •Involve auditors, engineers and facility management personnel early on!

Questions?

48