Keeping on Track: Avoiding a Train. Wreck in Accounting for Capital. Assets

Transcription

1 Keeping on Track: Avoiding a Train QR Code Wreck in Accounting for Capital Presenters: Assets Michael M. Nielsen Government Fixed Asset Services, Inc. Long Beach, Indiana (219) nielsen@fixedassetservices.com Date: 5/20/14

2 Today s Presentation o First half to discuss challenges and difficulties in accounting for capital assets o Second half to discuss what can be surprisingly easy in accounting for capital assets 2

3 Challenges and difficulties (first half) o Integrity of existing capital asset information? o What is not a capital asset? o What is a capital asset? o Annual additions and retirements of capital assets o Timeline for annual updating of capital asset information o Property control of minor but sensitive assets 3

4 Integrity of existing capital asset information o Does current property record have integrity? Land parcels Land improvements Buildings and building improvements Furnishings and equipment Vehicles General infrastructure (roads, bridges, lighting systems, drainage systems, rights of way, etc.) Minor but sensitive items 4

5 Integrity of existing capital asset information o Does current property record have integrity? Last asset inventory (and not necessarily a physical inventory) Last verification of existing data Unrecorded assets Unreported retirements Enhancements Increase of capitalization threshold Multiple capitalization thresholds Edit, streamline, adjust data 5

6 Deciding what is not a capital asset o No Increased capacity o No Increased efficiency o No extension of asset s estimated useful life beyond the original expectation o An extended estimated useful life usually involves a significant alteration or structural change o Repairs and maintenance o Specific written example of each can help in procedures documentation o Minor assets below unit capitalization threshold 6

7 Deciding what is not a capital asset o Common expense items for buildings: Painting Roof re surfacing Replace HVAC Re carpet Plumbing repair and replacement Upgrade electrical service Landscaping 7

8 Deciding what is not a capital asset o Common expense items for Roads Re stripe Replace culvert Replace signage Replace guardrail Re surface existing road Bridge joint repair Replace streetlight 8

9 Deciding what is a capital asset o New asset that meets all criteria for capitalization o Increased capacity adding square footage to an existing building o Increased capacity adding new lanes to an existing road o Increased efficiency same size etc., but service provided at less cost o An extended estimated useful life usually involves a significant alteration or structural change and an extension beyond original useful life expectation 9

10 Annual additions o Can be a challenge o Only assets at or above capitalization threshold (a separate and increased amount for building and general infrastructure improvements) o Assets must meet criteria of an improvement o Department must understand capital additions v. repairs and maintenance o No capitalization of groups of minor assets 10

11 Annual retirements o Data may be difficult to establish centrally o Data may be incomplete and include only trade ins but not items scrapped or disposed of at departmental level o Communication problems o Departments unable or unwilling to determine retirements o Often simply report no retirements and over time this can lead to overstated balances 11

12 Annual retirements o Lack of understanding of importance of accounting for capital assets o Departments unable or unwilling to determine retirements o Lack of understanding of process o Lack of interest or motivation o Departments too busy o Not their responsibility 12

13 Timeline for annual update of capital asset information o No schedule can create problems o Assume fiscal year end gather information on additions separate capital and expense update report by department send updated information to departments for retirements update list prepare financial report 13

14 Property Control of minor but sensitive assets o Items can t be controlled centrally o Departments unsure of process, policy, and procedures o Too much information o Too confusing without planned approach o Too time consuming o No motivation or perceived benefit at department level 14

15 What can be surprisingly easy (second half) o Establishing a concise and clear Capital Asset Policy o Establishing and adhering to Capital Asset Procedures o Annually gathering information regarding additions and retirements of capital assets o Accounting and financial reporting for capital assets data elements o Construction in Progress o Property Control of minor but sensitive assets 15

16 Establishing a Capital Asset Policy o Importance of increased capitalization threshold o Importance of multiple capitalization thresholds o Document short and to the point o Importance of examples Asset improvement, capital Not an asset repair, expense Additions new asset, increased capacity, increased efficiency, extended useful life Retirements scrap, sell, traded in, etc. 16

17 Establishing and adhering to capital asset procedures o Establish, communicate, and follow capital asset updating procedures Responsibility Information requirements information source timing 17

18 Establishing and adhering to capital asset procedures o Specifics: Who assignment of responsible person What information to be gathered and maintained Where information source When timing of information reporting How procedures as to reporting of additions and retirements Why financial reporting and property control and separation of both issues 18

19 Establishing and adhering to capital asset procedures o Who central and departmental o What Additions centrally (Purchasing or Finance) Retirements departmentally o Where sources of information o When with reference to timely reporting for financial reporting (so) 6 30 fiscal year end means begin on 3 1 so information is ready for audit in June 19

20 Establishing and adhering to capital asset procedures o How reference large county and centrally doing additions and revising information and sending out to departments for indication of retirements (only) o Why communicating impact and importance of financial reporting 20

21 Asset additions and retirements o Must be an annual reporting process Capital assets only Additions in year of acquisition Retirements in year of disposal Construction in progress capitalized only when asset is officially accepted by administration, used in operations, and providing service 21

22 Asset additions and retirements o Additions centrally (Purchasing) o Retirements send updated list to Departments showing existing assets and current year additions and ask only for indication of retirements make easy 22

23 Annual additions available information o Sources of cost information Invoices, expenditure vouchers, purchase orders Construction contracts, real estate closing documents Recorded of deeds Journal entries, work orders Appropriations Budget documents Bond documents 23

24 Annual additions establishing data elements for financial reporting o Very specific information o Focus only on financial reporting keep things simple o Extemporaneous information to be recorded elsewhere Insurance Planning and forecasting Property control of minor assets 24

25 Accounting and financial reporting necessary data elements o Asset description o Department o Date of acquisition o Historical cost o Estimated useful life o Depreciation calculation 25

26 Construction-in-Progress o Building starts at planning and continues on to include design, architectural fees, site preparation, construction costs, etc. o Bridge starts at planning and continues on to include design, engineering, environmental, and construction costs, etc. 26

27 Construction-in-Progress o Building componentization Keep simple and manageable Perhaps building shell, roof, and HVAC Estimated useful lives will vary years Roof 15 years years 27

28 Construction-in-Progress o Report construction in progress Can be significant Good discipline for future retirement of assets Good discipline for future capitalization of assets Applies to buildings and general infrastructure 28

29 Control of minor assets o Per GFOA Recommended Practice Establishing Appropriate Capitalization Thresholds 1997 and 2001 governments should exercise control over their noncapitalized tangible capital type items by establishing and maintaining adequate control procedures at the departmental level 29

30 Control of minor assets o Per GFOA Recommended Practice Ensuring Control over Noncapitalized Items 2005 Control normally should occur at the departmental level Control responsibility should be assigned within the department Individual responsible should prepare a complete list each year Departments should certify each year that updated lists are available Accounting should periodically verify departmental data 30

31 Control of minor assets Preparing and inventory of minor but sensitive items weapons Police Chief two way radios Public Works Director emergency medical and fire fighting apparatus Fire Chief perishable tools and small power tools Maintenance Personnel etc. cell phones and communication devices Communications Director Laptop computers, ipads, etc. I.T. Director 31

32 The end o Summary o Conclusion o Questions 32