Tangible Capital Assets Project
Alberta Regional GFOA Workshops
June 2007
Presentation Overview
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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
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What problems are going
to be encountered in
complying?
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Current TCA practices
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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
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Process – implementation & ongoing
Resources required
Financial reporting
Budget processes
Financial statement analysis
What will be gained?
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Impacts (stated by PSAB)
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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
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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
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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:
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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
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Group One: Asset Classes, Useful Life,
Thresholds
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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
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Group Two: 2007 F/S Note
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Glen Jarbeau, City of Spruce Grove
Susan Koch, City of Calgary (previously)
GFOA TCA Task Force
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Group Three: Financial Reporting,
Balanced Budget Legislation
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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
PS 3150 Overview
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TCA Definition
A significant economic resource
managed by governments & a key
component in the delivery of many
government programs.
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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)
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Who Owns the Roads?
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Key words in TCA definition
Manage and Control; not ownership
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Sections 16, 18 and 22 (MGA)
All roads, excluding provincial
highways, are to be recorded as a
TCA by the local municipality.
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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
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TCA are non-financial assets that
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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:
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reported as assets on statement of
financial position (.07)
recorded at cost (.09)
Why Historical Cost?
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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
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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
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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)
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Presentation & Disclosure (Notes)
For each major category of TCA: (.40)
 Beginning and end of period
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For the period
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Cost, accumulated amortization, net book
value
Additions, disposals, write-downs,
amortization
Other information: (.42)
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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
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Effective in 2009 (.43)
Progress report required in notes of
2007 financial statements (.45)
Existing Asset Valuation
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In the absence of historical cost, other
valuation methods may be used. (.47)
Fully amortized assets still in use need
to be recorded. (.48)
What are the
recommended guidelines?
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Asset Classes
Major classifications for TCA and minor
classifications under ‘Engineered
Structures’ should be consistently used by
all Alberta municipalities for financial
reporting.
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Major Asset Classes
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Land
Land Improvements
Buildings
Engineered Structures
Machinery & Equipment
Vehicles
Cultural & Historical
Engineered Structures
– Minor Classes
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Roadway system
LRT system
Water system
Wastewater system
Storm system
Fibre optics
Electricity system
Gas distribution system
Engineered Structures
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Classification exception:
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Buildings and Machinery & Equipment
Useful Life and
Amortization Methods
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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.
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PS 3150 TCA Definition
Non-financial assets having physical substance that:
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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)
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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
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Materiality
Record Keeping
Asset management
Rate setting
Capitalization Threshold Principles
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Asset management a key driver
Accounting policy not the driver
Manageable
Good judgment
Review with your auditor
Suggested Minimum
Capitalization Thresholds
Asset Description
Cities
Towns
Villages
Rural Municipalities
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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
Land
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TCA Progress Report
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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
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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
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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
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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
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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
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Other Purposes for Recording TCA
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Risk management
Maintenance
Security
Safety
Taking the Inventory
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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
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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.
Valuation Method Sequence
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Historical cost
Reproduction cost discounted
Replacement cost discounted
Appraised cost discounted
Residual value when fully amortized
Nominal value; i.e. conservative
estimate of cost
Discounting Process
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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.
Steps Taken to Simplify Valuation
Process
Bridge Files
 Alberta Infrastructure and
Transportation has determined the
historical cost for most bridge files.
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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.
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Recording Engineered Structures &
Systems – Network or Components?
Network – one unit
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Less detail, easier to manage
More difficult to value replacements
Recording Engineered Structures &
Systems – Network or Components?
Component – major components as
separate assets
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More accurate, better information
Better basis for asset management
More time in maintaining records
Another Consideration Segmentation
Division of linear systems into
geographical sections
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More accurate
Easier to identify replacement costs
Better information
Increased recording time
Betterment or Maintenance?
Network or component approach impacts
the answer.
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See PS 3150:19-21
Further Information
MEnet Website with links to
www.ombi.ca
www.psab-ccsp.ca
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TCA Software
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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
Include Your Auditor
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Your auditor needs to review your plan.
Determine audit requirements – audit
trail, verification, valuation, asset life
Auditor should include TCA in 2007
audit
Budgets and Financial Reporting
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‘Full accrual’ budgets – non cash items
Revised financial reporting in 2009
Plan for educating/training elected and
appointed municipal officials
And After 2009
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Processes for additions and disposals
Policies for regular TCA review
Resources Required & Training
Resource
Personnel
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Responsibility
Project planning
Policy development
Software implementation
Recording of assets
Inventory and valuation
Documentation
Audit requirements
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Resources Required & Training
Resource
Consultants/
Specialists
Responsibility
Assist staff with additional
work
Inventory and valuation
Engineering
IT requirements/upgrades
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Training
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Resources Required & Training
Resource
Auditors
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Responsibility
Review project plan
Review capital policies
Audit inventory & valuations
Review financial
processes/software
Audit new reporting
requirements
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Implementation Budget Factors
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Size and complexity of asset base
Condition of historical records
In-house expertise
Implementation Budget
Components
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Planning and policy development
Human resources
Asset inventory
Software needs
Engineering assistance
Audit requirements
Other ‘Work-in-Progress’
Information
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Capital policy guidelines
Inventory data
Valuations
Software
Financial reporting and budgets
Balanced budget legislation
Future Information
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Quarterly newsletters
Toolkit June/07
Financial statement note, June/07
Additional guidelines/recommendations
Western GFOA Conference, Calgary,
Sept, 2007
This will be an ongoing
‘work-in-progress’ project.
We are interested in your
comments, questions,
experiences and suggestions.
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Thank you for attending.
We wish you success in your
TCA project!
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