SPRING 2014
FMI
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IGF JOURNAL
9
THE INTERNAL ATOMIC ENERGY AGENCY’S PROPERTY, PLANT AND EQUIPMENT (PP+E) LIFECYCLE FRAMEWORK
treatment using a modified cash basis –
and thus begins the IPSAS years.
Steps 9 – 10
The IPSAS Years
While there are accounting implications
with the previous activities, Step 9
was the big change for the IAEA, as it
became IPSAS (17.30-36) compliant.
Costs that are “directly attributable” to
the implementation of the asset need to
be considered as part of the cost of the
asset; examples provided by the standard
include:
1. Purchase Price less discounts and
rebates.
2. Duties, non-refundable taxes, other
purchase price related fees or charges.
3. Estimated costs to dismantle,
remove the item and restore the
site (funding for these estimates is
another matter).
4. Costs directly attributable to the
acquisition of the asset, for example:
• Staff Costs: asset construction
or acquisition employee benefit
costs;
• Non-Staff Costs: site preparation,
delivery, installation, testing and
fees.
Collecting the above costs within
the IAEA is an ongoing effort. To
assess which costs contribute the most
important information, the Agency uses
the IAEA Materiality Framework. For
more on this, please see fmi
*
igf Journal
Spring/Summer 2013 edition, p.5.
Beyond simply being compliant with
accounting standards, direct attribute
costs provide invaluable management
information for an organization. This
information can ask (and hopefully
answer):
•
What is the staff doing and should we be
doing that?
•
Over time, are we getting better, worse or
status quo at what we are doing?
•
Who will do this after I am gone?
•
How much does something REALLY cost
(beyond the invoice price)?
Step 9 - Installation has two special
mentions. Firstly, the step deals with the
activities that result in
“any costs directly
attributable to bringing the asset to the
location and condition necessary for it to be
capable of operating in the manner intended
by management”
(IPSAS 17.30(a)). For
smaller assets, the receipt and installation
steps may occur concurrently. For larger,
more complex assets, or those which
are components of a larger system,
this phase may span days, months, or
in exceptional cases, years (and thus
be recorded via other means such as
construction in progress). If you go back
to the above excerpt from the Financial
Statements (Figure 1), you can see how
the Agency has improved the collection
of this information since 2011.
The second special mention to be
aware of is the tension between capital
and operating budgets and Step 9.
Resource strapped program managers
may see the capitalization of assets as
a way to preserve depleted operating
budgets by moving costs to the balance
sheet. The next year the same program
manager with a looming budget
lapse may want to expense instead of
capitalize the same asset. Mature and
thoughtful accounting policies, systems
and controls can help to manage this
tension (more on this in Governance).
Steps 11 – 12
Asset Management and
Depreciation
Step 11 is when the asset is recognized
and entered into a Fixed Assets system.
Other operational information is typi-
cally collected at this point:
• Asset Category (e.g. used to determine
its useful life and depreciation rates).
• Vendor information (e.g. Make, Model,
Serial Number).
• Asset Parent to Child relationships
(e.g. to help with componentization
or tracking).
• Custodian, asset location (e.g. Asset X
is held by person Y in room Z).
The above information can be a gold
mine in understanding how PP+E is
used in the organization. While it takes
time and effort to verify the information,
the result can be a deeper understanding
of the organization’s business processes.
For more on this, see the Side Bar on
Asset Verification and the Data Mining
Quadrant.
Step 12, the organization’s Fixed Asset
system typically calculates depreciation.
Capturing the cost of depreciation and
calculating the gains and losses on asset
disposal (Step 14) are both central IPSAS
requirements. Two years after adopting
IPSAS, the Agency discovered that
many of its assets were in use for much
longer periods than originally estimated.
In 2012, the Agency’s depreciation rates
were adjusted accordingly.
Step 13
Kicking and Improving Assets
Step 13 examines both the verification
and the need to impair assets. IPSAS
is silent on how and when to verify an
asset because the standard imposes strict
requirements for impairment
(adapted
from IPSAS 21.14-Definitions; An Asset is
impaired if “there is a material loss in the
future economic benefits or service potential
of an asset … beyond normal depreciation”)
.
Thus, a missing or unused asset is an
impaired asset. Also part of Step 13 is
the ongoing challenge of whether to
capitalize or expense an asset upgrade.
If capitalized, the upgrade costs follow
the arrow from Step 13 back to Step
10 so the costs are recognized and
the depreciation schedule adjusted
accordingly.
The IAEA is like many organizations;
the verification and inspection functions
of Step 13 places considerable demands
on its central asset management
groups. To make this effort as efficient
and effective as possible, an Asset
Verification Framework is presented
in a sidebar. On a related note on the
challenges of asset verification, see the
sidebar on how to define an Attractive
Asset.
Steps 14 – 16
Can We Start Again,
Please
Removing an asset from the registry is
done through Step 14 - De-recognition
– the negative doppelganger to Step 11 -
Recognition. The drive to de-recognize
maybe influenced by:
• An organizational business need
(Step 15).
• A vendor offering favourable trade-in
terms (Step 15).
• The asset may be beyond repair and
needing to be scrapped (Step 16).
From Step 16, the asset exits the
PP+E Framework and its replacement
starts the cycle from the beginning. As
discussed above in the IAEA context,
fully depreciated assets that linger on
the asset-register should raise a red
flag for the organization. If still in use,
