ID FINANCE
IMPAIRMENT OF ASSETS UNDER
CONSTRUCTION
ID Finance
March 2013
Overview
 What is impairment?
 What are the impairment triggers that apply to
ID Major Capital Facilities Projects.
 Scenarios/Examples of Impairment
 Why we are required to comply
 Financial support and assistance.
What is Impairment?
 Reduction in the capability, or expected capability,
of the asset.
 Impairment may exist where an item is damaged,
defected or restricted in some way which adversely
impacts the performance or operation of the item.
 For Assets Under Construction (AUC) impairment
can be viewed as the inability of the asset to meet its
intended capability requirements and considers
whether the asset is fit for purpose and will meet the
intended requirements of the end user.
 Result – expense part, or whole, of the AUC
Indicators of Impairment
 The asset does not meet/will not meet
expected requirements (i.e. in line with the
project scope).
 Rework has been required on the project.
 Government decision to discontinue project.
Scenario’s – Potential
Impairment
 Reduced capability/capacity of the asset being
developed. For instance:
- Building is/will not able to be occupied as a
result of non-compliance with legislative
requirements;
- Training facilities with major flaws rendering
them unusable.
- Fuel handling facilities cannot be used for the
purpose intended as they do not meet safety
requirements.
Note that there may be no impairment if there are plans
to remediate within 6 months and all re-work is
expensed.
Scenarios – Nil
Impairment
 Cost over-runs due to:
- scope/specification changes;
- changes in compliance requirement e.g.
changes in WHS legislation which
require higher costs of compliance;
 Schedule slippages – delays due to poor weather
conditions, contractor insolvency, budget constraints.
Implications for MCF
AUC
 Should not be an onerous task - the information
required to be presented is most likely already known
by project managers.
 The AUC balance of the project being impaired
does not impact the ability of the project to spend
money, commit funds or continue as intended.
 It does not change the overall project expenditure,
but may impact value of expenditure allocated to AUC
v’s expense lines within the project.
Next Steps
 Finance to provide list AUC balances by Project to
Executive Directors and Directors (if not already
provided).
 Review of AUC balances >$50K (in accordance
with Defence policy)
 Identify which projects may have indicators of
impairment – discuss these with myself/Dianne.
 Provide a consolidated response by Region (sign
off by Executive Director) for projects with nil
impairment (grouped response).
Compliance
 Impairment is a requirement of Australian
Accounting Standards (AASB 136)
 Directed by CFO – all Groups/Services in Defence
required to comply with policy
 Meet requirements for presentation of Defence
Financial Statements (responsibility of $1.3b
AUC balance for Defence)
Further information…
We are here to assist and direct this review to ensure you get the
right advice.
Contacts:
Ariana King
626 68177
Assistant Director ID Finance
Ross Lawler
626 68576
Director ID Finance
Dianne Gillard
626 68110
Business Analyst CFI Finance
QUESTIONS ?