An asset is an item of value - something that is 'worth having'. Some assets have an expected short life or are readily turned into cash, such as investments or inventory - these are known as 'current assets'. Others have a potential service life longer than one year, and are known as 'non-current assets'.
Non-current assets may be either a physical item
(such as land or buildings) or intangible (such as
computer software or intellectual property). The
relationship between types of assets is shown in
Figure 2.1.
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Figure 2.1
Types of assets
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This series deals only with non-current, physical
assets. Sometimes, such assets are referred to
as 'fixed assets' although that term has not been
used here. In accounting terms, assets in this
category are defined as physical items of
significant value that:
- possess service potential
or future economic benefits;
- are controlled by an entity;
and
- originate as a result of past
transactions or events.
This definition typically includes such items as land, buildings, infrastructure, plant and equipment,
cultural collections, and natural resources.
| Figure 2.2 Assets and
service delivery
| What assets are for
The role of assets is to support the delivery of
a government service to the public. They combine
with other resources of government (such as funding
and human resources) to make the delivery of a
community service possible. (see figure 2.2).
If it does not contribute effectively to such a service,
an asset should not be held in or used by the public
sector.
Decisions about assets must therefore be service
driven. The need for services may vary depending on
such factors as population distribution, and will alter
over time as the characteristics of populations change.
As the need for services changes, the demand for
different types of assets will also change.
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Classes of assets
Assets vary considerably in their size and nature,
and it is useful to classify them into logical groupings for management
control and financial treatment. Classifications
may also be imposed by external reporting requirements. Typical
of these is the classification:
- land;
- buildings;
- infrastructure;
- plant and equipment;
- cultural collections;
and
- natural resources.
This classification is used in the Chart of Accounts
for balance sheet reporting and is normally employed in annual
financial statements. Classes may be broken down even further
for management purposes. For example, the ‘plant and equipment’
class could be divided as follows:
- furniture and fittings;
- information technology
assets
(computing equipment);
- office machines;
- kitchen equipment; and
- vehicles.
Managers need to distinguish between classes of
assets, and exercise judgment and discretion in applying the policies
and practices outlined in this part.
For example, the maintenance approach adopted for personal computers
or a suite of office furniture will be different
to that required for a major item of sophisticated machinery or
a school. Similarly, the planning input required for the construction
of a new hospital would obviously be more comprehensive than that
required for the acquisition of a new vehicle. The accounting
treatment of various classes of assets may also differ considerably
in areas such as applicable depreciation rates, the frequency
and precision of revaluation, and the approach to condition assessment
and stocktaking.
In determining the approach most suited to the class
of asset, managers should consider their responsibility to account
for the effective and efficient management of the item(s) in question,
and the risks and benefits attached to differing levels of record-keeping
and accountability.
