Developing accounting guidance for infrastructure assets

There are challenges with existing Standards to account for infrastructure assets

Infrastructure assets are assets that are immovable, that form part of a system or network, that are specialised in nature, and generally do not have an alternative use. Examples include roads, water or electricity networks or sewer systems. Infrastructure assets are used to provide goods or services and are expected to be used during more than one reporting period. Entities therefore apply GRAP 17 on Property, Plant and Equipment to account for these assets. The principles in GRAP 17 are based on IPSAS 17 Property, Plant and Equipment, issued by the International Public Sector Accounting Standards Board (IPSASB).

Globally preparers face challenges in applying the principles in IPSAS 17 to account for infrastructure assets. In response to this, the IPSASB intends to provide guidance on the application of IPSAS 17 in accounting for infrastructure assets.

What challenges are experienced by preparers?

Through consultation with stakeholders, the IPSASB identified the following challenges:

• identifying who controls the infrastructure assets, specifically where these assets are constructed on land that is controlled by another entity, or where the infrastructure crosses more than one jurisdiction or controlled area;
• separating infrastructure assets into its significant parts for purposes of depreciation. This includes determining:

• the period over which each significant part of the infrastructure asset is expected to be available for use; or
• the number of production units expected to be obtained from each significant part;

• determining the appropriate method to reflect the consumption of the infrastructure asset in providing goods or services during a specific reporting period. This is specifically challenging when the long-term nature of these assets are taken into consideration;
• assessing whether there is a loss in the infrastructure asset’s ability to generate future economic benefits or in providing services;   
• assessing whether repairs and maintenance undertaken will improve the infrastructure asset’s ability to generate future economic benefits or its service potential;
• assessing whether spare parts required to maintain or repair the infrastructure assets should be included as part of the asset itself, or, whether these parts comprise inventory as they are consumed in the rendering services; and
• determining a value for the infrastructure assets, initially, and on an ongoing basis, especially in the absence of an active market.

The IPSASB also noted that the current presentation and disclosure requirements in IPSAS 17 might not provide sufficient information to users on infrastructure assets to assess, among others:

• the physical condition of the asset;
• any planned and/or deferred backlog to be undertaken; and
• judgements and assumptions applied in determining a value for the infrastructure assets.

The IPSASB is likely to issue an Exposure Draft that provides guidance on applying the principles in IPSAS 17 to account for infrastructure assets.

As part of the Accounting Standards Board’s ongoing commitment to influence the international standard setting process, the pronouncement on infrastructure assets will be issued concurrently for comment. The comments provided locally will be used to provide input to the IPSASB.  If you are interested in these developments, subscribe to the ASB’s newsletter to receive further updates.

The views expressed in this article are those of the author and is not an official position of the ASB.