Auditor General’s comments
We are all familiar with inconsistencies in the way the value of assets are measured, how condition is assessed and quantifying the backlog in renewals. More often than not it is the contracted valuers that are blamed, as though the local government had no control over the engagement. Local governments need to regain control and consistency of the valuations of their assets and recognise that the annual review of assets can add much more benefit than simply informing the financial statements.
Accounting standards require local governments to review the value of their assets and where evidence suggests values may not be accurately reflecting the assets, a revaluation must be performed. Auditor-General’s across various states have been critical in general of the governance measures that surround asset valuations and the understanding and ability of local governments to review and challenge their valuer’s assessments. The Victorian Auditor-General Office suggested that by improving asset data and asset valuations, local government would be able to use the information for purposes other than just financial reporting, including asset maintenance requirements, capital planning and updating long term financial plans.
A well-planned asset valuation framework integrates and shares information with asset management and financial management stakeholders. The annual process is an excellent opportunity to revise long-term capital works plans, asset risk registers, asset management plans and long-term financial plans, as well as revise the maintenance and operational plans. It makes little sense to revalue all asset categories in the same year, creating a mountain of work and stress – rather a local government should split the cyclical revaluation (including condition assessments) so that asset categories are spread across a 3-4 year cycle. That way each year an asset category is condition assessed, revalued and asset and financial plans updated for that asset category.
The key is to establish good governance framework that includes clear roles and accountability and a valuation policy and plan, endorsed by the Audit Committee and approved by Council. With adopted asset accounting assumptions, a local government should instruct valuers to use the established assumptions, including useful lives that are appropriate for the levels of service the Council has approved. Movement in the valuation reserve and depreciation expense is often due to inaccurate and inconsistent assumptions (including useful life) determined by the contracted valuer – particularly when different valuers are engaged from year-to-year. This can be avoided through an established valuation framework that instructs the contract valuer to use established assumptions and processes.
Local government must be able to challenge the reports provided by contracted valuers. The valuers do not sign off on the financial statements – the Mayor and the Chief Executive Officer do. With good governance established, and well planned and integrated asset management, local governments can take control of the asset values reported in the statements. Now with the advent of cloud based valuation products, local governments can bring back inhouse a majority of the annual process, providing more control over the process and enabling more integration into other planning functions.
To find out more about how CTMG can assist local governments taking control of their asset valuations call Graham Jarvis 1300 500 932 or email grahamj@ctman.com.au.