By Yogi Patwal, Principal Consultant, Brightly
As the end-of-financial year (EoFY) process closes each year and councils breathe a sigh of relief, it seems in a blink, we’re back in the scramble again. With asset accounting front of mind for councils, we reflect on the most common EoFY issues and auditing challenges in FY24. By understanding past challenges, councils can take steps to avoid delays and stress in FY25, while also focusing on Strategic Asset Management (SAM) planning.
Common issues in the asset register and EoFY preparation
Topping the list of issues was not having a complete asset register and leaving the capitalisation process too late in the year, leading to rushed reporting and increased audit risks. Many councils also failed to account for asset disposals within renewals, leading to overstated asset values and inflated depreciation, impacting renewal planning. Meanwhile, some with separate engineering and accounting registers experienced data discrepancies and missing transactions, leading to time-consuming corrections.
Revaluation challenges surfaced as auditors demanded stronger justification for asset valuations. Another issue was the inconsistent application of AASB 116 Property, Plant and Equipment componentisation and useful life requirements, leading to inaccurate depreciation calculations across asset classes, which can potentially affect the sustainability ratio.
A clean start: Tips for a smoother EoFY in FY25
For a smoother EoFY process in FY25, councils should take a more structured approach to asset accounting. This includes:
- reviewing the asset register for duplicate assets;
- ensuring asset attributes are recorded at the appropriate level (size, material, asset type, etc);
- componentising assets appropriately;
- aligning network measurements with GIS; and
- ensuring there is no value attributed to privately owned assets.
A key tool for operational areas includes implementing a decision-making flowchart to help staff differentiate between operational and capital expenditure, leading to efficient and effective capital works processing and disposal activities. These efficiencies allow finance the opportunity to close their register early (e.g. May 31 cut-off date) which allows time for adjustments before audits. Clear communication and collaboration are also key to aligning finance, engineering, GIS and SAM teams.
A well-planned revaluation strategy can help councils maintain accurate valuations and support long-term planning. For example, implementing a cyclical revaluation schedule – including a comprehensive asset revaluation every 3-5 years, with annual desktop valuation updates in interim years – to prevent compliance issues and unexpected adjustments. Ensure proper componentisation so that individual asset parts such as super structure and mechanical components of a building are depreciated separately in line with AASB116. Also, review asset useful life annually, considering aspects like obsolescence, technological advancements, increased demand, legislative changes, and environmental factors.
Integrating Strategic Asset Management planning
Following the revaluation and accounting process with SAM planning can lead to more informed and effective asset decisions. While accounting processes state the value and condition of your assets as of 30 June, SAM can help you understand what the next 10-20 years might look like from a risk, service level or condition perspective under various scenarios.
Accounting and SAM rely on similar inputs – current replacement costs, useful lives, and asset performance and condition information. These processes are typically managed by different parts of the organisation, so bringing them together and considering each area’s requirements can maximise the benefit and minimise the effort across the organisation. An effective starting point is aligning SAM planning to follow the cyclical revaluation schedule, so all asset portfolios are planned for over a 3-5-year rolling cycle using the current, audited asset register.
When evaluating the similar inputs, consideration needs to be given to calculating replacement costs and determining useful lives. Accounting requires compliance with AASB standards, while from a SAM perspective, future renewal needs must align with project delivery. Understanding the differences in calculation methods helps clarify discrepancies between financial expectations and SAM modelling, and supports future improvement programs to close any gaps. Similarly, useful lives apply to both accounting and SAM, but their definition must be clear. For example, does useful life refer to the time until typical renewal work is required to meet the desired service level, or the period an asset is expected to remain usable regardless of its service level.
Effective project planning for condition audits is also essential. When conducting condition audits, consider your engineering and lifecycle planning requirements. Some councils audit only small portions of their networks annually, which can lead to data gaps. Where possible, do a full network audit as part of your comprehensive revaluation cycle. This will ensure you have current performance data and confidence that all assets within your register can be located in the field.
EoFY doesn’t have to be a stressful, last-minute rush
By learning from FY24 challenges and implementing best practices now, councils can better align asset accounting with strategic planning for streamlined EoFY processes, improved reporting accuracy, and more sustainable long-term asset plans – delivering better outcomes for communities in the years to come.
