IPSAS 17 PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICIES AND PRACTICES

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1 IPSAS 17 PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICIES AND PRACTICES Executive Summary This paper summarizes accounting policies and recommends practices with respect to accounting for property, plant and equipment. Recommended accounting practices deal with areas where system-wide consistency should be possible. Unless an organization can show that its particular circumstances require different accounting practices in order to be consistent with IPSAS, recommended accounting practices, once approved, should be followed. Each organization is responsible for determining whether or not these recommended practices are consistent with IPSAS 17, given the organization s property, plant and equipment holdings and patterns of usage. Recommended Accounting Practices Capitalization threshold: Up to a maximum of US$5,000 (or equivalent in currency other than United States dollars). Evidence required that the threshold chosen captures at least 95% of PPE value. After two years, each organization reviews and adjusts as necessary. Classes and useful lives: Office equipment PP&E Class Machinery and vehicles Furniture and fixtures Leasehold improvements Buildings Land Useful Life 3 5 years 5 10 years 8 12 years Shorter of lease term and useful life 40 years No depreciation Further classes should be added when further significant material groups of assets exist, for example, infrastructure assets, work-in-progress. An organization may need to amalgamate recommended classes, if a class is not material. Depreciation Method: o Straight line Residual value: o Zero (unless at the end of the asset s usefulness to the organization the residual value is likely to be significant). Amendments Amendments made since the discussion of this paper at the Task Force on Accounting Standards 8 December 2006 video-conference: Recommendations amended to address comments made at 8 December 2006 Task Force meeting. Addition of two new appendices showing the PPE classes suggested by the New York focus group in November 2006, information about the items included in the 04/04/2008 Page 1 of 22

2 classes recommended by this paper, and the useful lives related to the PPE classes suggested by the New York focus group. Addition of Executive Summary and Amendments as a new front page for the paper. Addition of an appendix showing the paper s history and the relevant excerpt from the December 2006 Task Force meeting s minutes. Up-dated references to standards where a new standard or exposure draft has been issued. Minor editorial amendments. 04/04/2008 Page 2 of 22

3 DRAFT: IPSAS 17 PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICIES AND PRACTICES February 2007 These accounting policies and recommended practices are subordinate to the Standard. The final authority on IPSAS 17 Property, Plant and Equipment (PP&E) requirements is IPSAS 17. These policies and recommended practices aim to meet certain requirements of IPSAS 17. If a conflict between the policies or recommended practices and the Standard is identified, then the requirements of the Standard apply. Accounting Policies and Recommended Accounting Practices The accounting policy decisions below address explicit options within IPSAS 17. These policies have been approved by the Task Force on Accounting Standards 1. United Nations System organizations are expected to comply with accounting policy decisions made by the Task Force and endorsed by the Finance and Budget Network. The recommended accounting practices below deal with areas of IPSAS 17 where system-wide consistency should be possible. The recommendations are based on a review of selected governments and international organizations accounting practices. They will be discussed with representatives from United Nations System organizations and then submitted to the Task Force on accounting standards for approval. Unless an organization can show that its particular circumstances require different accounting practices in order to be consistent with IPSAS 17, the recommended accounting practices, once approved by the Task Force, should be followed. In most cases, these recommendations will be appropriate for an organization s particular circumstances. Each organization is responsible for determining whether or not these recommended practices are consistent with IPSAS 17, given the organization s property, plant and equipment holdings and pattern of usage. Accounting Policies PP&E to be carried at cost less accumulated depreciation and impairment IPSAS 17 requires that when measuring property, plant and equipment, subsequent to initial recognition either the cost model or fair value model be applied to PPE classes (IPSAS 17, Paragraph 42). The accounting policy approved by the Task Force on Accounting Standards (Accounting Policy 6-06) is that all classes of PPE be valued at cost less any accumulated depreciation and any accumulated impairment losses i.e. that the cost model be applied (paragraph 43). Heritage assets - do not recognise Heritage assets are assets that have cultural, environmental or historical significance. Examples include historical buildings, monuments, archaeological sites, conservation areas, nature reserves and works of art (IPSAS 17, paragraph 9). The accounting policy approved for United Nations System organizations by the Task Force on Accounting Standards is for organizations not to recognize heritage assets, but to re-consider the 1 These policies are expected to be submitted to the next Finance and Budget Network meeting for the Network s endorsement. 04/04/2008 Page 3 of 22

4 policy when the International Public Sector Accounting Standards Board has done further work on requirements for reporting heritage assets (Accounting Policy 7-06). Recommended Accounting Practices Capitalization Thresholds Establishing a capitalization threshold is a means of reducing the costs of gathering and maintaining data. There is a risk of a material misstatement of PP&E in the financial statements in setting a threshold too high and there is a risk of increasing the cost of gathering and maintaining data in setting the threshold too low. Determining the correct threshold is a matter of balancing the financial reporting requirements with costs and operational efficiencies. It is recommended that organizations establish an initial capitalization threshold of up to a maximum of US$5,000 or, where organizations are reporting in a currency other than United States dollars, an amount in that currency equivalent to US$5,000 as of the date of HLCM approval of this recommended accounting practice and rounded to the nearest hundred. In choosing its actual threshold within this range, each organization must be able to provide reliable objective evidence that the threshold chosen captures at least 95% of the value of the organization s property, plant and equipment. After two years, organizations shall review their established level with the aim of raising or lowering the threshold based on their experience. This recommendation is consistent with public sector and international organizations practice and private sector practice. More information on the basis for this recommendation is provided in Appendix 1. Other Issues of Accounting for Property, Plant and Equipment The following recommended accounting practices address seven further issues relevant to accounting for property, plant and equipment and are particularly relevant to the determination of depreciation. These recommendations are consistent with public sector and international organizations practice and private sector practice. The basis for these recommendations is provided in Appendices 2 and A class of PP&E is a group of assets of a similar nature or function in an entity s operations, shown as a single item for the purpose of disclosure in the financial statements. It is recommended that organizations disclose the following classes of PP&E in the notes to their accounts: Office equipment; Machinery and vehicles; Furniture and fixtures; Leasehold improvements; Buildings ; and Land. If the organization has significant material groups of other assets that warrant separate disclosure and treatment as a separate class of assets (for example, infrastructure or work-in-progress), then further classes of assets should be added to this recommended 04/04/2008 Page 4 of 22

5 list. An organization may need to amalgamate recommended classes, if a class is not material. New York Focus Group Suggestion The recommendation above with respect to classes of PPE is essentially unchanged from that made to Task Force at its December 2006 meeting. This is despite an alternative set of classes being suggested by the New York Focus Group. (The alternative is included in Appendix 4 of this paper.) The alternative set of classes has not been recommended mainly on the basis that the suggested classes are likely to be confusing to users of the financial statements. For example, a class of transportation and related equipment is suggested, which excludes items ordinarily associated with transportation such as roads and runways. The Buildings and Infrastructure class excludes communications equipment commonly treated as infrastructure assets as well as items such as generators and sewage equipment commonly included in infrastructure. The class of Other Equipment and Machinery is very wide and includes assets with vastly different useful lives, uses and natures everything from weapons and medical equipment to ordinary office equipment. While the alternative suggested by the New York Focus Group has not been recommended, the alternative highlights two very important issues for specification of PPE classes. First, the importance of specifying further detail on what should be included in a class, if real consistency of practice is to be attained. Second, the difficulty of specifying classes that adequately address the very wide range of assets held by the different organizations within the United Nations system. 2. A depreciation method is the systematic allocation of the depreciable amount of an asset over its useful life. It is recommended that organizations use the straight line method of depreciation. 3. Useful life is the period of time over which an asset is expected to be used by the entity or the number of production or similar units expected to be obtained from the asset by the entity. It is recommended that organizations use the useful lives set out in Table 1 below. 4. Table 1: Recommended Useful Lives Office equipment PP&E Class Machinery and vehicles Office furniture and fixtures Leasehold improvements Buildings Land Useful Life 3 5 years 5 10 years 8 12 years Shorter of lease terms and useful life 40 years No depreciation 5. Residual value is the net amount which the organization expects to obtain for an asset at the end of its useful life (Table 1) after deducting the expected costs of disposal. 04/04/2008 Page 5 of 22

6 It is recommended that organizations use a residual value of zero, unless at the end of the asset s usefulness to the organization the residual value is likely to be significant. The organization should have some factual basis for expecting a significant residual value. 6. Project assets Many United Nations System organizations purchase assets for use on a specific project. This raises two questions: What is the useful life of a project asset and what is the residual value of a project asset? Project asset will be used by the organization beyond the end of the project At the end of the project, the asset may be transferred to another project within the organization or to the recipient of the project s aid such as a government, or sold. Useful life is the useful life of the asset to the reporting entity not to the project. If the reporting entity expects to continue to use the asset past the end of the project, then the useful life of the project asset must reflect that and is likely to be the same useful life as for similar assets that are not project assets i.e. the normal useful lives listed in Table 1. Project asset will not be used by the organization beyond the end of the project If there is a requirement to transfer a project asset to the aid recipient at the at the end of a project, then the useful life of the asset to the reporting entity is the project s duration, which may well be shorter than the useful lives listed in Table 1. This shorter useful life means that the residual value of the assets cannot be assumed to be zero. One approach to estimating residual value in these circumstances is to use the asset value less the accumulated depreciation that would apply if the normal useful lives in Table 1 had been applied. An example of this approach is provided in Appendix 3. This approach ensures that the cost of using similar assets is the same each year whether those assets are used to support projects or non-project activities. Where another residual value clearly provides a better estimate of residual value than the residual value estimated using this approach, then that value must be used. IPSAS 17 requires organizations to apply a non-zero residual value when the residual value is non-zero. IPSAS 17 also requires residual values to be reviewed annually and adjusted if actual experience differs from expectations (paragraphs 67 to 70). At the end of the project, if the project asset is donated to the aid recipient an expense similar to a loss on sale but more meaningfully described as a donated assets expense will be incurred. The donated assets expense will be equivalent to the book value of the asset at time of donation. The donated asset still has service potential, as represented by its book value, and therefore there is a loss/expense when it is transferred to the aid recipient. 04/04/2008 Page 6 of 22

7 APPENDIX 1: CAPITALIZATION THRESHOLDS Research In researching capitalization thresholds, we examined documentation that was provided by governments including the US GAO, the UK NAO, the European Commission, New Zealand and Australia. We reviewed IFAC Study 14 and UNSAS requirements. We looked at financial statements of a number of public and private sector organizations. We discovered that there was a variety of threshold levels used, $5,000 or less being common. In general, capitalization thresholds were established at levels that would not approach materiality so as to avoid financial statement misstatements and the possibility of audit qualifications yet decrease the cost of gathering and maintaining data. Basis of recommendation Implementation of a capitalization threshold implies that a proportion of asset values will not be included in the Statement of Financial Position. The capitalization threshold, an amount below which assets are not capitalized, of $3,000 is probably an amount that would lower costs but enable United Nations System organizations to avoid misstating PP&E in their financial statements. However, actual practice may show that this amount is inappropriate and therefore the added recommendation is to review that amount after two years with the aim of adjusting the threshold level. Organizations that prefer to use a lesser amount may do so at the risk of incurring a high cost of gathering and maintaining data. Actual Practice Some organizations with excellent asset records and asset register software may be able to determine at what threshold level they are confident that 95% of PPE is reported. This may be considered an acceptable method of demonstrating that a particular threshold is appropriate. When implementing IPSAS 17, organizations are encouraged to use a relatively low threshold 2 until valuation of fixed assets is completed. The threshold used should be applied to gross replacement cost (not net book value). 3 Special care should be given items that might have a tendency to 'sprout legs and walk away' (sometimes referred to as portables). Because their cost often falls below a threshold they are expensed, but control is desired. So an asset sub-register could be developed for such expensed items like fax machines, mobile phones, video recorders, etc (IPSAS Study 14, paragraph 6.50). They can be tagged and bar coded for improved control by management. 4 Alternatively, management may decide to set the capitalization threshold level low enough to capture these items. Certain individual items that may have a lower per unit value than the threshold but may be material as a part of a group such as computer networks, furniture and fixtures, and professional libraries are generally recorded as a single group asset, with one combined value (IPSAS Study 14, Paragraph 6.48). This means that such items would be capitalized into that group of which they are a part. 2 IFAC Study 14 Paragraph U.K. NAO Resource accounts, page 19 4 IFAC Study 14, Paragraph /04/2008 Page 7 of 22

8 If the threshold were set at zero, all items of PP&E would be included in the primary asset register. The resulting myriad of small items in the register would increase the cost of gathering and maintaining data. Each organization must consider the savings in relation to the significance of the data to users of the financial statements (IPSAS Study 14, Paragraph 6.46). Different thresholds will be appropriate for different organizations. Different thresholds may be established for different classes of assets (IPSAS Study 14, Paragraph 6.46). IPSAS neither requires the use of thresholds nor the disclosure of thresholds. Through communication with other organizations, thresholds of from $1,000 to $5,000 are not unusual and some organizations justify using higher thresholds. According to a US GAO survey of 14 federal agencies thresholds for equipment were high in the federal government as compared to a maximum of $5,000 in the private sector companies surveyed 5 5 GAO PP&E Policy Survey page 4 04/04/2008 Page 8 of 22

9 APPENDIX 2: PP&E DISCLOSURES OF ASSET CLASSES, DEPRECIATION METHODS, USEFUL LIVES, THRESHOLDS AND RESIDUAL VALUES Research The following disclosures were extracted from financial statements of public sector organizations and are illustrative only. Australia 6 Sweden 7 World Bank 8 IFAC 9 Classes: Land 1. Buildings 2. Leasehold Improvements 3. Equipment Heritage & Cultura Assets Land 1. Buildings & other real estate, roads & railways 2. Machines& Vehicles 3. Computers 4. Research & development None reported 1. Premises and Equipment None reported None reported 1. Leasehold Improvements 2. Office Equipment 3. Furniture & fittings Methods Straight Line Straight Line or as appropriate Straight Line Straight Line Useful Lives (in years) Lease term No more than Shorter of life or lease term Thresholds $2,000 Not reported Not reported $500 Residual Values Not reported Not reported Not reported Not reported 6 AMODEL Non-Commercial Authority (Australia), page 55 7 Accrual Accounting in Swedish Central Government, page 18 8 World Bank (IBRD) Financial Statements 2004 Audited, page 60 9 IFAC 2004 Annual Report, page 37 04/04/2008 Page 9 of 22

10 APPENDIX 3: BASIS OF CONCLUSIONS - OTHER RECOMMENDATIONS 1. Six classes of PP&E (land, buildings, machinery and equipment, office furniture and fixtures, and leasehold improvements) were selected based on the above four examples of disclosures, review of several other public sector financial statements and UNSAS reporting requirements. UNSAS requires recognition (in the illustrated Statement of Assets and Liabilities) and disclosure of land and buildings (Paragraph 49 (v) and disclosure of equipment, furniture and motor vehicles (Paragraph 50). In our experience with other international organizations and governments leasehold improvements are common. 2. All organizations reviewed (not only those presented in this table) required straight line depreciation as the depreciation method. 3. Useful lives varied between organizations but not significantly, therefore the most common lives represented in this table were selected for recommendation. 4. For conclusions regarding thresholds see Appendix II. 5. Because residual value in practice is often insignificant (IPSAS 17, paragraph 59) an amount of zero residual value for most assets is appropriate. In some circumstances, the residual value may be significant. This may often be the case for project assets. Upon acquisition of a project asset the organization shall compute the residual value by taking the asset cost and subtracting the estimated accumulated depreciation at the end of the project using a useful life from Table 1. That estimated book value of the asset at the end of the project is the residual value to be used. 6. The paper provides guidance on estimating residual values for project assets that will not be used by the reporting entity after the end of the project. A project asset is acquired for use on a particular project or projects. At the end of a project the asset may be disposed of by sale or otherwise, may be transferred to another project, to a government, or to an aid recipient. The useful life of the project asset is determined by reference to how long the reporting entity (i.e. the organization for which the financial statements are prepared) expects to use the asset. If the project life is shorter than the asset s normal useful life and the asset will be transferred to another reporting entity at the end of the project (for example, to a government) then the residual value of the project asset at the end of its useful life is unlikely to be zero. A sale would result in a gain or loss and a transfer to a government or other aid recipient would result in an expense equal to the remaining book value. Residual value can be estimated by applying the normal use (i.e. non-project) depreciation rates. Example: Project Assets Organization A purchases equipment for $10,000 that normally would have a useful life of five years (Table1). The equipment is purchased for a project that is expected to last only two years, after which the assets will be transferred to Government B. The useful life of the asset is only two years. With normal (nonproject) use, accumulated depreciation after two years would be $4,000. Therefore, the residual value is estimated at $6,000 ($10,000 less (2 X $2,000)). For each of the two years of the project the asset s depreciation expense would be $2,000 (straight line depreciation over two years, assuming a residual value of $6,000). At the end of the project the book value would be $6,000. When the asset is transferred to Government B, Organization A will recognize an expense of $6, /04/2008 Page 10 of 22

11 Reference Material Websites The following websites can be accessed for additional information about Property, Plant and Equipment policies and practices: IFAC Study 14 International Valuation Standards Committee US General Accounting Office (keyword GAO-03-42) Australian Government UK National Audit Office Swedish Financial Management Authority ntral+governments.pdf The World Bank The European Commission New Zealand Government 04/04/2008 Page 11 of 22

12 APPENDIX 4: NEW YORK FOCUS GROUP SUGGESTED CLASSES OF PROPERTY, PLANT AND EQUIPMENT Suggested Classes PPE Classes LAND CONSTRUCTION IN PROGRESS N A N A BUILDINGS LEASEHOLD IMPROVEMENTS Shorter of useful life or lease term AND INFRASTRUCTURE ASSETS BUILDINGS 40 years ABLUTION UNITS ACCOMODATION UNITS CONTAINERIZED WORKSHOP 40 years PREFABRICATED BUILDINGS KITCHEN UNITS RUBHALLS/TENTAGE STORAGE UNITS TENTAGE No example found WATER AND SEPTIC TANKS WATER TANKS/BLADDERS Bridges years OTHER INFRASTRUCTURE BRIDGES/ROADS Roads 5-36 years RUNWAYS COMMUNICATIONS AND INFORMATION TECHNOLOGY EQUIPMENT All at 5 to 25 years All at 3 to 5 years TRANSPORTATION AND RELATED EQUIPMENT All at 5 to 10 years COMMUNICATIONS EQUIPMENT DATA-PROCESSING EQUIPMENT OTHER CITS GROUND TRANSPORTATION AND AIRFIELD EQUIPMENT BROADCASTING EQUIPMENT COMPLEMENTARY RADIO EQUIPMENT SATELLITE EQUIPMENT TELEPHONE EQUIPMENT AND NETWORKS/PABX TOOLS AND EQUIPMENT DESKTOP COMPUTERS LAPTOP COMPUTERS MONITORS PALMTOP COMPUTERS PRINTERS SERVERS TOOLS AND EQUIPMENT PHOTOGRAPHIC EQUIPMENT AUDIO/VISUAL EQUIPMENT AIRFIELD SUPPORT EQUIPMENT ARMOURED VEHICLES-CIVILIAN ARMOURED VEHICLES-MILITARY ENGINEERING EQUIPMENT HEAVY VEHICLES LIGHT VEHICLES MATERIAL HANDLING EQUIPMENT 04/04/2008 Page 12 of 22

13 MARINE EQUIPMENT MEDIUM VEHICLES TRAILERS TRANSPORT TOOLS AND EQUIPMENT VEHICLE ATTACHMENTS AMBULANCES BOATS AND EQUIPMENT Suggested Classes OTHER EQUIPMENT AND MACHINERY REFRIGERATION EQUIPMENT ACCOMODATION EQUIPMENT PETROL TANK AND METERING EQUIPMENT REFRIGERATED CONTAINERS REFRIGERATORS AIR CONDITIONER HOUSEHOLD APPLIANCES KITCHEN EQUIPMENT FUEL PUMP FUEL TANK All at 5 to 10 years WATER PURIFICATION EQUIPMENT GENERATORS MISCELLANEOUS EQUIPMENT MEDICAL EQUIPMENT MINE CLEARING EQUIPMENT OBSERVATION EQUIPMENT SECURITY EQUIPMENT FIELD DEFENSE EQUIPMENT MISCELLANEOUS EQUIPMENT PRINTING AND PUBLISHING WATER PURIFICATION EQUIPMENT GENERATORS FITNESS EQUIPMENT MISCELLANEOUS EQUIPMENT MUSICAL INSTRUMENTS WAREHOUSE EQUIPMENT PUMPING EQUIPMENT SEA CONTAINERS SEWAGE EQUIPMENT CONSTRUCTION EQUIPMENT LIGHTING EQUIPMENT ELECTRICAL EQUIPMENT LABORATORY SURGICAL THEATER MINE DETECTORS BINOCULAR NIGHT VISION DEVICE WEAPONS OBSERVATION TOWERS X RAY MACHINES SECURITY LIGHTING SURVEYING EQUIPMENT SECURITY EQUIPMENT REPRODUCTION EQUIPMENT OFFICE COMPLIMENTARY EQUIPMENT 3 to 5 years 3 to 5 years OFFICE EQUIPMENT PHOTOCOPIERS 5 to 10 years SAFES FURNITURE AND FIXTURES OFFICE FURNITURE DESKS, CHAIRS WORKSTATION, CUBICLES CAFETARIA FURNITURE TABLES, CHAIRS, KITCHEN FIXTURES All at 8 to 12 years LIBRARY FURNITURE BOOKSHELFS AND OTHER ACCOMODATION BEDS OTHER FIXTURES/ FURNITURE 04/04/2008 Page 13 of 22

14 APPENDIX 5: ITEMS IN RECOMMENDED AND SUGGESTED CLASSES AND USEFUL LIVES Introduction This further information was prepared in response to questions raised at the New York focus group meeting of November and amended to slightly to make it relevant to all focus groups. It provides further information on useful lives and items within the classes recommended in this paper and the classes suggested by the New York focus group refer Appendix 4. The main questions addressed in this Appendix are: 1. What items fall into the recommended and the suggested classes of property, plant and equipment? 2. What useful lives might be appropriate for the assets listed on the PPE classes schedule suggested by the New York focus group at its November 29 th meeting as an alternative recommendation on PPE classes and included in Appendix 4? Further Information on the classes and useful lives recommended in this paper Recommended classes and useful lives The following classes and useful lives have been recommended in this paper: Office equipment Machinery and vehicles Furniture and fixtures Leasehold improvements Buildings Land 3 5 years 5 10 years 8 12 years Shorter of useful life and the lease term 40 years No depreciation If the organization has significant material groups of other assets that warrant separate disclosure and treatment as a separate class of assets (for example, infrastructure assets, work-in-progress), then further classes of assets should be added to this recommended list. Types of items The types of assets included in the above classes: Office equipment: Fax machines and printers Copy machines Desktops and laptops Audio visual equipment, photographic equipment 04/04/2008 Page 14 of 22

15 Machinery and vehicles: Automobiles, trucks, buses, and trailers; Forklifts, backhoes, loaders; Armoured vehicles; Boats and equipment; Machines used in production and construction, etc.; Air conditioners, appliances, refrigeration, fuel tanks and pumps, etc. Purification equipment, generators and other miscellaneous equipment Furniture and fixtures Chairs, desks, cabinets Tables, workstations, shelves Cubicles, cafeteria and library furniture, etc. Leasehold improvements self explanatory Buildings Structures (including prefab structures and containerized) Storage units Not including land on which they stand Information on New York Suggested PPE Classes Infrastructure assets IPSAS 17, paragraph 21 states that there is no universally accepted definition of infrastructure assets, but that infrastructure assets usually display some or all of these characteristics: a. Part of a system or network; b. Specialized in nature without alternative uses; c. Immovable; and d. May be subject to constraints on disposal. Examples given include road networks, sewer systems, water and power supply systems and communications networks. The following lists further identify infrastructure assets and provide additional data with respect to classes and useful lives. In the following examples, roads have a range of useful lives from 5 to 36 years, depending on the type of surface and bridges have a range of from 25 to 50 years, depending on the type of construction. 04/04/2008 Page 15 of 22

16 Sweden lists PP&E: +Governments.pdf Roads (40 year useful life) Civil airports, electric grids and waterways. (no other useful lives offered) Fixed asset useful lives: Computers 3 to 7 years Machines, vehicles and inventories 5 to 10 years Buildings and roads 30 to 40 years Australian A model financial statements makes no mention of infrastructure assets but lists PP&E: Buildings 60 years Plant and equipment 4 to 9 years Leasehold improvements lease term EC rule 7 lists PP&E classes but does not provide useful lives data: Land Buildings Plant and equipment Computer hardware Furniture and vehicles Other fixture and fittings Tangible fixed assets under construction Deloitte model annual report of a fictitious New Zealand Company The Toy Company : Buildings 50 years Plant and Machinery years Leased Plant 10 years Motor vehicles 5 years Capital work in Progress 04/04/2008 Page 16 of 22

17 GAO for comparison, surveyed useful lives of government organizations and private sector entities: (keyword GAO-03-42) Class Government Private Equipment 2 to 40 years 2 to 25 years Furniture and fixtures 4 to 20 years 3 to 20 years Motor vehicles 3 to 12 years 2 to 10 years Buildings 5 to 75 years 10 to 50 years Other structures 5 to 100 years 10 to 40 years Other 5 to 75 years 5 to 50 years Parsons, an Australian/ New Zealand software provider lists infrastructure assets but does not provide useful life data: Roads Bridges Tunnels Drainage systems Sewer and water systems Dams Airports Power distributions systems Street lighting US State of Oregon lists Capital Assets: Not depreciated: Depreciated: Land Construction in Progress Works of Art and historical treasures Buildings 5 to 100 years Equipment and machinery 2 to 99 years Infrastructure 5 to 99 years The Government of New Zealand classes and lives: 04/04/2008 Page 17 of 22

18 Land Buildings 25 to 60 Electric distribution 2 to 80 Electric generation 25 to 55 Aircraft 10 to 20 State Highways o Pavement surface 7 years o Pavement other 36 years o Bridges 90 to 100 years Spec. military equipment 5 to 25 Other Plant and equipment 3 to 25 years Audit New Zealand Model Financial Statements Te Motu District Council: Model financial statements (PDF, 385kB) Land n/a Buildings 40 to 100 years Landfill post closure 40 years Library books 5 years Plant and Equipment 5 years Motor Vehicles 5 years Work in Progress n/a Infrastructure (Utilities include all items required for networks to function) o Land n\a o Sewage system 10 to 80 years o Water system 10 to 80 years o Drainage system 50 to 90 years o Road networks Not Listed o Land under roads Not Listed o Work in progress Not Listed State of Michigan Lists infrastructure assets: Roads 5 to 30 years Bridges 25 to 50 years Tunnels Not Listed Drainage, Not Listed Water and sewer Not Listed 04/04/2008 Page 18 of 22

19 Dams Not Listed Lighting Not Listed BT plc UK Telecommunications Company Buildings 40 Leaseholds Shorter of lease or 40 Transmission equipment ducts 25 Transmission equipment cable 3 to 25 Radio and repeater 2 to 25 Exchange equipment 2 to 15 Computers and office equipment 3 to 6 Other 2 to 20 AT&T (US GAAP) Land n/a Buildings 35 to 45 Central Office Equipment 3 to 10 Cable Wiring 10 to 50 Other Equipment 5 to 15 Software 3 Construction in Progress n/a AAPT NZ Telecommunications Company Telecommunications equipment and plant Customer local access 3 to 50 Junction and trunk transmission system 10 to 50 Switching equipment 3 to 15 Customer premises equipment 3 to 5 Other network equipment 4 to 25 Buildings 40 to 50 Motor vehicles 4 to 10 Furniture and fittings 5 to 10 Computer equipment 3 to 5 Work in progress n/a 04/04/2008 Page 19 of 22

20 APPENDIX 6: Paper s History PAPER S HISTORY AND EXCERPT FROM TASK FORCE MINUTES First draft provided to focus groups: October 2006 Second draft provided to focus groups: November 2006 Second draft discussed at Task Force Meeting December Excerpt from Task Force Minutes 2 Property, Plant and Equipment Recommended Accounting Practices 2. Ms. Gwenda Jensen, the Accounting Standards Specialist, provided a brief summary of the focus group views on the recommendations in the paper and further proposed amendments arising from comments received since the 16 November cut-off for amendments. The recommendation with respect to initial first time recognition of PPE on adoption of IPSAS has been withdrawn because it did not address the cost-fair value option that exists in IPSAS 17. This recommendation will be amended to address that option and re-submitted. Ms Jensen summary was as follows: The capitalization threshold recommendation of up to US $3,000 was the most controversial issue. Although focus groups had not provided a group view opposing the recommendation, several organizations (IAEA, WHO, ICAO) were definitely opposed and considered either that the upper limit $3,000 was too low ($5,000 was proposed as an acceptable alternative) or that there should be no specification of a threshold. Comments had been received from Geneva and Vienna to the effect that the amount should be specified in euro and Swiss francs. It is proposed to amend the paper to address the different currencies issue. Most focus groups appeared to accept the recommended PPE classes, which allow the addition of further classes where an organization has material other assets such as infrastructure. However the most recent meeting of the New York focus group proposed a different set of classes a list which included infrastructure and communications as two classes of assets. If the classes were changed, this would then require a review of the proposed useful lives to align them with the changed classes. No objections had been received from focus groups with respect to the recommendation of the straight line depreciation method and this recommendation appears to be unproblematic. Focus groups generally appeared to support the recommended useful lives. Rome raised the possibility that the lives may be at the high end. Vienna had recommended that the useful life for Leasehold Improvements be changed to the shorter of lease term or useful life rather than just lease term. It is proposed to amend the paper accordingly, because a useful life that is shorter than the lease hold term is a foreseeable possibility. 04/04/2008 Page 20 of 22

21 Residual value of zero for normal assets appeared to be unproblematic. However, comments expressed concerns with respect to the discussion of project assets. 3. The Task Force then considered the paper and its recommendations. Decisions and comments were as follows: 4. Thresholds Agreement was not reached. Four organizations wanted a higher limit and proposed $5,000. One organization argued in favor of no threshold requirement and for this to be left up to each individual organization. IPSAS does not require a particular threshold. One proposal was to set criteria for determining a capitalization threshold rather than an amount for example organizations should set their threshold to capture at least 95% of the value of their PPE. One comment was that we can t know if we are capturing 95% of assets if we don t know how many assets we have. Beginning with a low threshold helps to reduce the risk of excluding a material amount of PPE the recommendation includes a review and adjustment after two years. Several members commented that a threshold should be expressed in their respective reporting currencies. Swiss francs, Sterling and Euro were three currencies mentioned other than $US. 5. Classes Agreement was not reached. Generally there appeared to be agreement with the recommended classes, but one organization argued in favor of a separate class for project assets and one organization wanted different classes including one for infrastructure and one for communications. When work-in-progress is material it should be included as an additional class. 6. Useful lives Generally there appeared to be agreement with the proposed useful lives. However, two concerns raised were that the useful lives for vehicles were too high and that the ranges needed to be wider. (It was clarified that where organizations found that their useful lives for a particular class of assets were within the range, then they would report the range that was applicable. For example, if lives were 5 to 8 years while the recommendation was 5 to 10 years, then the organization would report 5 to 8 years.) Some organizations still need to review the proposed ranges against their actual experience with assets. 7. Straight line depreciation method Agreed. Task Force members had no problems with the recommendation to apply a straight line depreciation method. 8. Residual value Agreement with the use of zero for normal assets. The recommended approach to determining a residual value for project assets was opposed by several organizations. 9. Project assets Most organizations were OK with the approach described for project assets. One concern expressed was that the treatment would lead to artificial losses when a project asset was transferred. There were also objections to the use of a different residual value for project assets. UNHCR considers that there should not be a separate category of assets for Project assets. For example, UNHCR intends to treat in the same manner a vehicle, be it assigned to a project or be it assigned to the administration of a field office (same time life for capitalization). This approach is also in line with the substance of the concept of "assets". Disposal of project assets when handed over to Gov/NGOs /Partners might be labeled as "charges/expenses" instead of loss. 04/04/2008 Page 21 of 22

22 10. Further comments: These issues will need to be raised and discussed with the auditors. It was generally agreed that it is appropriate to engage the auditors, but not to get their approval, rather to gain their views and comments. Focus groups raised issues with respect to control over PPE and this will be the subject of a separate paper on control. Action point 2 Amend the paper to reflect Task Force views and re-submit to the next Task Force meeting. 3 Organizations to review the recommended useful lives and PPE classes against their actual experience with assets. 04/04/2008 Page 22 of 22