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Accounting Problems in Infrastructure Asset Valuation and Depreciation in New South Wales Local Government

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  • Igor Ivannikov
  • Brian Dollery

Abstract

The aim of this paper is twofold: (i) to investigate whether New South Wales (NSW) local government councils comply with Australian Accounting Standards in accounting for revaluation of their infrastructure assets and (ii) to assess any consequences for the reliability of financial reporting in NSW local government. Using road assets as an example, we analyse the results of revaluations of road assets undertaken by 89 NSW councils as reported in their financial statements during the period 2013 to 2016. In this analysis we focus on the effect of a change in accumulated depreciation and impairment loss component of fair value as a percentage of the gross replacement cost of the revalued assets. The analysis reveals that in most cases this effect is significant. However, the accounting and reporting of this effect is strikingly inconsistent between the councils. Based on a critical analysis of the accounting framework and disclosure of the revaluation effects, we conclude that the main reason for the change in the fair value of assets is altered estimates of remaining useful life. Furthermore, we argue that councils did not comply with the requirements of AASB 116 in determining the useful life of the assets.

Suggested Citation

  • Igor Ivannikov & Brian Dollery, 2020. "Accounting Problems in Infrastructure Asset Valuation and Depreciation in New South Wales Local Government," Australian Accounting Review, CPA Australia, vol. 30(2), pages 105-115, June.
    • Handle: RePEc:bla:ausact:v:30:y:2020:i:2:p:105-115
    DOI: 10.1111/auar.12275
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    References listed on IDEAS

    as
    1. Stephen Howe, 2004. "Condition-Based Depreciation — The Engineering Perspective," Australian Accounting Review, CPA Australia, vol. 14(34), pages 48-55, November.
    2. Joseph Drew & Brian Dollery, 2015. "Inconsistent Depreciation Practice and Public Policymaking: Local Government Reform in New South Wales," Australian Accounting Review, CPA Australia, vol. 25(1), pages 28-37, March.
    3. D. J. Johnstone, 2003. "Replacement Cost Asset Valuation and Regulation of Energy Infrastructure Tariffs," Abacus, Accounting Foundation, University of Sydney, vol. 39(1), pages 1-41, February.
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    Cited by:

    1. Michael Bradbury & Bryan Howieson, 2020. "Editorial," Australian Accounting Review, CPA Australia, vol. 30(2), pages 83-84, June.
    2. Makoto Kuroki, 2022. "Impact of Depreciation Information on Capital Budgeting among Local Governments: A Survey Experiment," Australian Accounting Review, CPA Australia, vol. 32(2), pages 201-213, June.

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