Beyond GASB 34 financial reporting requirements
Chief Executive Officer
Institute of Public Works Engineering Australia
Member, APWA International Affairs Committee
There will be a great rush of energy spent on complying with GASB Statement 34 to meet financial reporting requirements for assets. This was the Australian experience when changes to the various Australian Accounting Standards (e.g., AAS27) came into effect in the early 1990s.
But the question must be asked: Beyond GASB 34, or AAS27, how far will we have moved from being merely asset owners, to become true asset managers?
There is significant reliance on individuals and organizations to drive asset management in the absence of legislation. There will be pockets of excellence across our nations, but true asset management may still be a challenge for many organizations.
The consumption of assets reported as depreciation can be 25 percent of an organization's total operating budget. Therefore, it is essential to move beyond basic financial reporting requirements to using asset management as a business tool.
In the United States, you have the opportunity to adopt the "modified approach" to meeting GASB requirements. This utilizes asset management systems to monitor infrastructure performance and to estimate maintenance expenditures required to maintain adequate performance.
Taking our assets for granted costs
Our whole society is underpinned by essential infrastructure such as roads and other transport systems, water supply, waste disposal, energy, telecommunications, and recreational networks. Good quality infrastructure is the cornerstone of public health and safety. Yet the condition of our infrastructure is often taken for granted.
The overall importance to a community of its infrastructure should be a sufficient driver for more formalized asset management practices. In real life, however, it is often failures that bring into focus what should have been done all along.
The Institution of Engineers Australia produced "A Report Card on the Nation's Infrastructure" in 1999. Our nation's local roads and bridges scored a poor "D" grading. Railway and wastewater systems scored a "D minus"!
The American Society of Civil Engineers (ASCE) recently released its "2001 Report Card for American Infrastructure." ASCE rated your nation's infrastructure with an overall grading of "D plus". It identified investment needs totaling $1.3 trillion over the next five years.
Public expenditure on maintaining infrastructure is well below the level required. This means that the poor condition of both our nations' assets will decline even further. As all public works professionals know, to let assets deteriorate to the level that they need to be "rebuilt" is an extremely expensive proposition.
The right tools for effective management
Strategies need to be put in place for the cost-effective, long-term management of our infrastructure. The Institute of Public Works Engineering Australia (IPWEA) has partnered with the New Zealand National Asset Management Steering Group to produce the recently-released International Infrastructure Management Manual. This Manual provides the tools necessary to effectively manage our communities' assets. It outlines a systematic process for infrastructure asset management to move beyond basic financial reporting. It includes almost 40 "how to" case studies to illustrate key concepts.
The Manual is not only oriented toward the asset managers within an organization. Because of the multi-disciplinary nature of asset management, executive management as well as financial, information technology, and planning specialists will also benefit greatly from its contents.
It is necessary to be proactive in working with your finance departments when responding to GASB 34, as we with our AAS27. We need to demonstrate the benefits of strategic asset management to our organizations.
The goal of infrastructure asset management is "to meet a required level of service in the most cost-effective way through the management of assets to provide for present and future customers."
The key elements (as identified by the Infrastructure Manual) are:
You may now have an asset register and know the condition of your assets. You may have an idea of their value. But do you know when they need to be replaced, or have maintenance intervention? Have you projected the necessary cash flow required to achieve certain levels of service?
Can you rate the risk associated with different treatment options? How will different levels of expenditure affect the level of service you provide? Do you know the optimum maintenance level to minimize lifecycle costs for your community or organization?
And, importantly, do the politicians understand the importance of good infrastructure asset management?
The degree of complexity of asset management will differ according to your organization's needs-and the benefits it can derive. Setting the right level will take into account legal requirements, customer expectations, the nature of your assets, exposure to risk, and the availability of resources.
More advanced asset management will identify strategies that reduce lifecycle costs through improved practices and use of technology.
Advanced asset management can employ asset deterioration or predictive modeling, risk management, and optimized decision making. These techniques assist in evaluating options and identifying optimum long-term asset management plans.
We have a professional responsibility to identify the lowest long-term cost option (rather than short-term savings) when reporting and making asset management decisions.
If you haven't done so already, it is timely for you to take on the challenges of good infrastructure management when planning your response to GASB 34. You should be planning beyond basic financial reporting requirements. You have the opportunity to develop your asset management systems and reporting procedures into useful business tools.
We must move from being merely asset owners, to being good asset managers.
Case Study: Contents of an Asset Management Plan
The New Zealand Office of the Auditor-General lists minimum criteria for an Asset Management (AM) Plan.
A basic AM plan should:
Source: International Infrastructure Management Manual (2000), IPWEA/NAMS