TRANSITION TO THE ACCRUAL BASIS OF ACCOUNTING
6.19
6.20
The development of an asset register (part of Step 3 in the above diagram) will also involve a review of current systems and asset management practices. If the entity has not previously established such systems or practices, it is unlikely that accounting systems will exist. Nevertheless, there may be data available in the entity (e.g., engineering or public works departments) to use as a starting point. An entity will need to: (a)
Decide whether to retain/modify existing asset records/systems or develop new systems. This could include consideration of whether information about some assets should be managed on separate databases and how these databases will link with the financial reporting system;
(b)
Decide whether an asset register is to be integrated with the general ledger;
(c)
Design and implement systems;
(d)
Decide which managers within the entity have responsibility for asset management; and
(e)
Review/develop asset management practices.
The development of the asset register also involves: (a)
Complete identification of all potential assets;
(b)
Determination of asset classes and components;
(c)
Collection of data on assets, including age, condition, remaining useful life, level of use, nature and extent of ongoing maintenance, and upgrades;
(d)
Application of definitions of assets and property, plant and equipment;
(e)
Application of recognition criteria;
(f)
Application of capitalization thresholds;
(g)
Verification of ownership where necessary;
(h)
Identification of restrictions/covenants over ownership;
(i)
Determining useful lives to be used in the calculation of depreciation; and
(j)
Validation of data (ongoing).
6.21
Some entities may use outside expertise and assistance in performing these activities. Where an entity uses external parties it will still need to make sure that it has appropriate documentation of the process and methodology used and the qualifications of the external parties.
6.22
The determination of opening balances (part of Step 3) includes the collation of historic cost data and the valuation of any assets if they are to be measured at other than historic cost, as required by valuation policies. Collation of historic cost data includes the identification of all costs to make an asset operational and the estimation of historic cost where such actual historic cost is not available. The valuation of assets includes: (a)
Deciding whether to value all assets or whether to use a sampling approach;
(b)
The identification of appropriate valuers for each class of asset; 106