Enhancing Asset Accounting: Insights into Audit Actions & Continuous Improvement 

Hello everyone. Thank you for taking the time out of your busy schedule today to join us for the first webinar in our thought leadership series of twenty twenty six, enhancing asset accounting insights into audit actions and continuous improvement. Before we begin, I would like to acknowledge the traditional custodians of the lands on which we meet today and pay my respects to elders past, present and emerging. I would also like to acknowledge and celebrate our First Nations people around the world and encourage us all to continually learn from their history and teachings in caring for country. Finally, I'd like to extend the acknowledgement and respects to any First Nations people joining us in today's webinar. Today's agenda is on screen. We will run through some housekeeping, introduce the presenters for today, explore how to maintain robust asset register register with updated revaluation and condition data, look at how we can optimise the asset capitalisation process, review the key audit insights and learnings from financial year twenty four-twenty five and then move into questions and answers. As you're taking the time to hear from us, we also want to hear from you and answer any questions you might have on today's topic and anything in general about the webinar series. That way we can make this and future sessions as useful as possible. You can use the Q and A function on the webinar console to drop any questions and comments. We have also allowed time at the end of the webinar for Q and A. Now if we don't get through all the questions we will follow-up after the webinar. And if you want to contact us or request a demo, can do so by pressing the icons. Our presenters today are Yogi, Nicole and myself, and we are from the Brightly Professional Services team. My name is Deb, and I'm a senior asset accountant focusing on accounting and valuations we deliver from Brightly. If you would like to know more about us, you can review our bios on your screen. Now let's get into the topics, and I will hand you over to Nicole. Thanks, Deb. Hi, everyone. My name is Nicole, and I'm also a senior asset accountant here at Brightly in the professional team focusing on accounting and valuation work. Just to kick things off before we dive into our first topic, we are launching our first poll question. I'd love to just get a quick pulse check from everyone about your experience with year end. You should see this on your screen now. So our first question is, which of these challenges most frequently impacts your organisation's ability to finalise financial statements on time. I'm sure we all have challenges with that. So from asset valuations to capital works being left too late, depreciation calculations. So I'm sure all could apply. I should have actually put an one in just all to apply. But I'll give you thirty seconds just to select the answer that resonates with you best. We'll just give a couple more seconds just for everybody to get their answers in. Thank you all for participating in our first poll. As you can see, the answers are quite varied. I missed that one down the bottom there. There isn't all of the above. Definitely a widespread of issues, and that's definitely what we've come across and what we'll be talking more about today. So moving on to our second poll question of the session, you should see this one appearing on your screen now. So in your experience, how often does poor asset data quality lead to delays or inaccuracies in financial reporting? So those incomplete records, outdated condition scores. Yeah, I'll give you another thirty seconds just to select the answer that best suits you. Can see some responses coming through, so just a couple more seconds. Okay. As we can see in these responses, yeah, again, a bit of a variety, but probably more so frequently and occasionally in a few of you who aren't actually directly involved in the process. But, yes, definitely definitely poor asset data quality does impact our year end reporting process and definitely plays a significant part in the in that year end process. And it really highlights the importance of an accurate and complete asset database. So with that, let's talk about the bedrock of effective asset accounting and management, which to me foundationally is about maintaining a truly robust asset register. It's not just about listing your assets, it's about ensuring that your register is dynamic, up to date, and reflects the true value and condition of your assets through consistent revaluation and condition data. So I put three pillars up here. I believe this can be broken down into three key pillars. First, we need to establish a clear asset framework. And this means defining your asset hierarchies, how your assets are categorised and organised. So thinking about your asset classes, their individual components, their network measurements, for complex infrastructure. The key here for me is to use standardized naming conventions and attribute fields. This consistency is crucial for accurate reporting analysis and communication across your organization. And without that clear framework, your data can quickly become inconsistent, error ridden, and really makes it difficult when you wanna implement effective asset management. So next and equally critical is to maintain an accurate and complete asset database. So this goes beyond just the basics. We're talking about comprehensive asset attributes, everything from dimensions, materials, installation year, location, and more crucially, their useful life. And they're just a few. It doesn't stop there. We also need to have robust valuation data, which includes your current replacement cost, your fair value, your accumulated appreciation. But most importantly, capturing the condition scores and maintaining a detailed inspection history is paramount. And for those of you managing complex infrastructure assets, don't forget the importance of component level details. So the more granular the detail and the more accurate your data is, the better your decision making will be. And finally, truly bring all this data to life and ensure its ongoing relevance, we must implement a structured condition assessment program based on a revaluation cycle. And as you will be aware, this isn't just a once off task. It's a wonderful continuous process. Regularly updating condition scores at the component level is vital. This comprehensive reevaluation driven by accurate condition scores directly influences the fair value of your assets and helps you determine that remaining useful life. High quality condition data isn't just an input for part of your reevaluation process. Having that accurate condition data is a powerful driver for your CapEx renewal modeling. It informs your maintenance planning strategies and will also significantly enhance your risk assessments. So by understanding the true condition and value of your assets, you can then make smarter and more strategic investments and mitigate potential risks effectively. So I'll just finish with a quote on the importance of a robust asset register. So for me, that is a robust asset register with updated revaluation and condition data is your strategic compass guiding you towards optimized asset performance and financial integrity. So to really illustrate what we mean by granular detail, we've got some examples here from our aesthetic system. And what you'll notice in this first snapshot is how the system organizes your assets. So it clearly defines the asset hierarchy and provides dedicated fields for essential information like your asset class, sub class, the asset type and subtype, giving you a clear and full picture of each asset at a granular level. Beyond the core asset details, the aesthetic system takes recording the granular details even further. And as you can see in this next snapshot, assets are broken down at the component level, allowing for detailed information to be recorded precisely at this stage. So the system captures specifics like your network measurement, the type of measurement unit and critical dimensions for each component. And the aesthetic system also allows for the assignment of specific component attributes as well. It facilitates the recording of an overall condition index score, as you can see on the right hand side there for each individual component. And this means you're not just tracking what an actual component is and its particular detail, but also its current health and its performance as well. So before I pass back to Deb to discuss the topic of optimizing cap asset capitalization, We just wanted to do another quick poll and get an understanding of how the key teams are responsible for inputs into the asset reporting process integrate at your organization. So here's the question. So how well integrated are your project management, finance, and asset teams when it comes to asset capitalization and handover? I'll give you another thirty seconds just to select the answer that best resonates with you. You can see some responses coming through. Okay. Okay. And you can see that largely it's moderately integrated. So the communication's there, but there's still a few gaps and improvements that can occur. And I think regardless of where your organization falls on that spectrum, whether it's seamless or whether it's more siloed or in the middle, this question highlights a fundamental challenge that many of us face. The degree collaboration between the project finance and asset teams directly impacts the efficiency and accuracy in asset capitalization. So I'll pass over to Deb now to discuss this in further detail. Thanks, Nicole. Okay. So let's turn our attention now to optimising the asset capitalisation process. This is a critical area that directly impacts our financial statements, regulatory compliance and our ability to make informed investment decisions. To achieve this optimisation, we'll focus on two main pillars. Firstly, it's essential to establish clear capitalisation criteria. This forms the foundation of accurate asset accounting. We need well defined capital versus operating expenditure thresholds ensuring we consistently know when an expense should be capitalised as an asset versus treated as a routine operating cost. Equally important are clear useful life and residual value guidelines as these directly influence our depreciation calculations and the assets recorded value over time. We must also have precise project costing allocation methods to ensure that all costs associated with creating or enhancing an asset are correctly assigned. And finally, robust componentisation rules are vital, especially for complex assets, allowing us to accurately track and depreciate individual components. On the screen, you will see an example of the renewal capitalization input on Brightly's platform Aesthetic. Here you can see that this view comes directly from the system and highlights the incredible level of detail captured. Notice how this information will sit as a crucial valuation record against a specific component of an asset. And here you can clearly see the treatment details recorded alongside the valuation date and project code complete with descriptive and comment fields. The system also meticulously records the value of the renewal and what's more it provides the flexibility to update the network measurement and date built if required. Finally, it allows you to adjust the disposal percentage for any portion of the asset disposed of and even update the condition of the asset through its valuation pattern ensuring a holistic and up to date financial and physical record. Once these criteria are firmly in place, the next crucial step is to standardise data capture at project closeout. This is where the theoretical meets the practical, ensuring that all necessary information is collected consistently and accurately when a project concludes and an asset is brought into service. This standardisation begins with regular and consistent communication and templates between project managers, finance and the asset teams. This collaborative approach is key to a smooth transition, and building on that, we advocate for the use of a standardised project or asset handover template to ensure nothing is missed during this critical phase. This template acts as a comprehensive checklist guaranteeing that all essential data points are captured. These data points include detailed dimensions, which for some assets might involve network measurements along with precise information on materials and components. We also need to accurately update the installation date and commissioning date as these dates are fundamental for triggering depreciation schedules and tracking asset age. Also, need clear process to perform partial disposals on the existing values based on renewal projects. This ensures that when components of an asset are replaced or upgraded, the old parts are properly derecognised from our books. And we also need the capability to change the aesthetic of an asset or component, updating attributes like its condition or remaining useful life as these evolve throughout its life cycle. And finally, for a truly complete and robust asset record, it's essential to upload supporting documentation. This means including as constructed drawings, relevant photos and precise GIS coordinates directly against the asset. This rich verifiable data provides invaluable context for future audits, maintenance planning and strategic asset management. And by focusing on these areas, we can significantly enhance the accuracy, efficiency and reliability of our asset capitalisation process. On the screen, there's an example of a capitalisation form, a tool that's designed to unite the asset project and finance teams. So this collaborative approach has already proven to be successful with clients, ensuring that everyone is on the same page expectations are perfectly aligned. It's structured to enable input from each team, but just as importantly, it provides a clear framework for the expected level of detail. This shared understanding of information requirements helps to eliminate any guesswork and also streamline the entire process into one spreadsheet. Now I will now pass you over to Yogi, who will take you through our final topic of the webinar today. Thanks, Deb. Hello, everyone. Thanks for tuning in. Myself, Yogi Patwal. I'm one of the principal consultant with Brightly Aesthetic. To start with, I have a poll question for you as well. So the first poll question is, which of the following asset related issue has most frequently been raised by auditors in your authorization? Now you have thirty seconds to reply to this poll question. Alright. Couple of more seconds. Alright. So as you can see, we have twenty two point six percent in the first one, which is the inaccurate or outdated asset valuation. And we have thirty four percent in incomplete or inaccurate asset register, missing asset or incorrect details. The highest percentage, for the issue in the work in progress, capitalized or the clearance. I have a, second poll question for you as well. The second poll question is how often do the asset related findings appear in your own organization annual reports? A, every year, b, most of the years, c, very occasional, b, rarely or never, e, not applicable or unsure. Alright. Few more seconds, and we will discuss the poll result. Alright. So again, as expected, twenty four point two percent every year, twenty two point six percent occasionally, but yeah. So sometimes, you know, as per our experience, there are some African native findings appear in your, annual reports as well, but it's not the case of every year. Glad that, you know, there is a the the pool results are, less than twenty five percent, which is good. Now, let's jump into the, the first slide, which is the audit insights and learning from twenty four twenty five. Right? And this is purely based from other experience. So last year, many councils started to complete their financial statements on time, impacting asset accounting processes such as valuations, with clearances, and depreciation. In Queensland, out of seventy seven councils, sixty four met the statutory deadline with most finalizing statements in the last two week week of October, indicating indicating process weaknesses and in insufficient preparation time. Delayed financial reporting was also highlighted as a problem in Victoria, where several council statements were still outstanding. Council needs stronger governance around valuation inputs, useful drive reviews, and data condition data and documentation. With the recent change in Victoria as well, especially to ASB thirteen, and Vago and other independent auditors have increasingly highlighted delays in the financial reporting as well. They have also advised council to center their internal controls over the asset valuations, asset management oversight, pointing to a systematic need for improvement. Similarly, in NSW councils were advised to adopt early financial reporting procedures, which included through asset valuation and ensuring that completeness and the accuracy of assets source data. Interestingly, regional MSW councils like we have Mike, our client in the North Coast of the Sydney, their revolution pushed back last year due to the flood impacts. That highlights how natural disasters can significantly influence condition and revolution requirement, adding another layer of complexity. Key issue identified, from the last year audit. The first one was the recurring challenges related to the to the deposition and useful life assessment. Getting these right is a fundamental to accurate financial reporting. In a comprehensive revaluation in a comprehensive revaluation and condition audit that it is clear that the asset condition drives the return on value and it determines the remaining useful life as well. This linkage is often overlooked but overlooked or poorly managed by the clients. Another audit issue we identify across the councils last year was the source of indexation rates. Specify specifically, we noted that the inconsistent in the use of reval in in the Rolling Stones, Austrian Bureau of Status data or GCPI percentage. Age. Specifically in Victoria, we saw a number of questions from the auditors on the application of ASB thirteen and also in ASB one one six regards to the unit rate calculation and the inclusion of disruption cost, site prep cost, and the third party cost allocation as well. Now, the next slide is just the example of an auditor query that was received this fund last financial year twenty four twenty five. As you can see there in one email, the auditor has asked the question around the indexation rates we use from the various sources. And have you done the comparison the indexation rate as well? So that was their follow-up question on the indexation. And on underneath, they have asked another question regarding the unit rate calculation whether you have included site prep cost, overhead cost, and traffic maintenance allowance as well. What are the key learnings from the last year audit and the improved practices? First, we must review useful life and the deposition more rigorously. Best, basing them on the actual condition and revolution moments, this moves us away from the arbitrary timelines to data driven assessments. Second, robust check and balance are needed to confirm that fair value and remaining useful life are appropriately derived from the value condition scores. This ensures integrity and accuracy in valuations. This is a very, very important point, because that is again, highlighted in the ASB accounting standards as well. Not too sure about the paragraph. I think it lies between the paragraph from twenty eight to thirty two, which talk about now the order to want to see the condition based given fair value and the remaining useful life. Third point, is simple yet powerful learning, Start valuation early and ensure thorough documentation of all assumptions. Proactive planning can prevent last minute rushes and improve transparency. And finally, continuously improve the completeness and accuracy of asset register through the systematic data cleansing. Make sure council will do the asset stock stock exercises. Clean data is the backbone of the reliable financial statements and effective asset management. As Nicole and Deb mentioned about the few completeness of the asset information in the asset register, they talk about the materials and the dimensions and other bits and pieces regarding the asset is very, very important. We can maintain that robust asset register as well. On that note, I will now open the floor for question and answer. If you have any questions, I would like you to put up in a, in a q and a chat. The first question is can I get a copy of the capitalization spreadsheet or form? Yes. We are happy to share the best practices with you guys. So if you would need a capitalization spreadsheet, used by different councils and we can share the back best practice with you as well. The second the second question is, is there a way in which we can extract our assets database from aesthetic to note the missing gaps? It's a very interesting question. So we have over the past, last few years, we have developed two processes within the Brightly Aesthetic. The first one was it the first one the both the processes is given from the from the IT team. So we require some APIs which can sit on your database, Brightly Aesthetic database, and we can suck out all the data and we can do that analysis for you. So there are two ways right now. So first, on the customer request, we can what we can do is we can create these search profiles in Brightly aesthetic in the advanced search where all where all the fields are populated. So you can have those search profiles and you can analyze your data by category. Second, our client success team in Brightly has developed a process with for every client. That's called DAR, d a r, data active activity review. So if you if you would like to discuss that data activity review testing on your environment and find those missing missing gaps, we are I'm I'm happy to share your details so you can send me the email. I can I can start those conversations with our customer success team as well, and we can look for those gaps and fill those gaps as we go forward? There was another question. For the update of condition data, have you seen a formal evaluation process by an external consultant being undertaken every time? What about an operation that is resource poor? Again, a very, good question. But that that update on the condition data and the formal valuation process, I think every client is doing their own checks and balance in terms of the data. So for example, if you are using that's my recommendation by the way. So for example, if you are using a brightly aesthetic environment and you need to provide the updated data to your to the valuers, what you can do is you can simply download the moment report detail report. You can set by asset category. It has that asset class, subclass type, subtype component material as well, plus with the network measurement, and you can join dots with the advanced search well. So that will can can, you know, that will make your, you know, a complete data set or data, you know, data space especially for the valuers, and they can provide the values from that. And you can you can repeat the same regime on the other asset classes as well. Any other questions? One more question, how can we export that data into a setting once the evaluation is complete? Very simple. We have few channels, you can use. One is the, slice and dice approach, from the data exchange. So you can populate the information in the in the internal Brightly template that is under sitting under components and the external valuation. You will populate the information there, make sure you have the correct unit rate, assigning that unit rate to the correct SRID and making sure that condition is given by from given from the valuer is populated in the VPI as well. And you can upload and you can use that channel to upload or to bring that evaluation figures into the into the product. Or simply you can use the internal revalue as well if you have that condition score or if you have that those upgraded unit rates. So there is an internal channel as well, which we refer as an internal valuation. You can use that channel as well to bring your eval data. One more question. Do you use conditions code to revalue assets or do you ever you, use age based approaches to work out WDV? Very good question. So if you have received the condition score from your, from your valuer, I will go ahead and use the condition score. Right? But before putting that into the software, what I will be doing is as a as a as a user, what I will do is I will do my checks and balance on the condition score. So let's say, Valyr has given me the condition of three and age based condition, which is already your VPI in the system is two, then I will check why they haven't given me three or two. Right? So I can do those checks and balance before putting the revaluation into the system. But yes, when you are when you are, you know, applying those conditions scores, make sure you will do those checks and balance and you can drive your return on value and remaining useful life. So system can, adopt both, which is your physical condition score, as well as it can also adopt, you know, the eight ways as well. And with the internal evaluation, you have the option to to choose from, from the best option as well. So I don't know how many clients have used the internal evaluation, feature of a charity within the software, but it it has a it has a, option to calculate your, return value and remaining useful life. First, it was go and see the service criteria. Second, it will choose the age base. Third is the comparison method. We choose the highest and the best method to bring your return on value and remaining useful life. One more question. From a facility's perspective, how far should one go to capitalize a building components? Again, it's a very, good question. And when client often ask, Yogi, how many components should building have? I think it depends on the type of the building. Right? So for example, if it's the council admin building, as a asset manager practitioner, I would like to see at least ten to twelve components. Why? Because I don't want to like to see evaluation on a just one component, which is the main component. I want to break down the component as per the asset management plans, as well as it will surface the requirement of the ASP one one six as well, which normally talks about composition, the importance of the composition and the deposition on those components as well. So for example, if you have just one component for buildings, which has a useful life of hundred years, if you break down your component into ten different components, every component has their own useful life, you can depreciate the component on their on you you can depreciate the component as per their useful life. Right? That will avoid that will also streamline your renewal modeling as well for the future. What are the audit implications if useful life reviews and indexations are undertaken internally rather than by a consultant? See, it's a it's a good question as well. There are no implications. So what we have found out over the period of time is if you have the if you have the backing of your indexation rates and your unit rates by, you know, by science or by paperwork within the councils, depend on the your practices, what you follow in your renewables as well. If you have come up with your own unit rates and indexation percent, let's say, for example, you have your own internal unit rate library and you always update that library in house, you can you can show that to the auditor than it is fully accepted by the auditors. If another question. If we are doing the revaluation by council staff, what inflationary rate will be used for each asset class? Again, it's a good question, but it depends. Right? So as I mentioned in my in my key insights as well, there are three two or three sources or four sources of the indexation rate as well. One, if you are maintaining maintaining your unitary library from Rawlingsons every year, let's say last year, the unitary was hundred dollars, now is hundred five dollars, you will apply that five percent increase in you can apply that five percent inflation rate as well. Right? Vice versa, I have seen so many councils, they adopted the unit rate not not the unit rate, the indexation percent from the ABS website as well. Right? So there are few options you can choose of your CPI percentage for your indexation. What is the most used method to determine remaining useful life, remaining useful life and useful life of an asset? I I believe that every council has their asset capitalization policy. And in the asset capitalization policy, they have defined the useful life. But given the fact now the way that climate changes are coming up, I think everyone, every council they are trying to review their useful life as well depending on the, you know, the material of the asset. I have seen councils, they use just one single approach, let's say storm water drain regardless of the material, every component will depreciate two hundred years. Right? But some now the way the industry is moving, probably they will they need to look at the other factors such as material as well. So for example, concrete last for eighty years, PVC might last for hundred years as well. So doing those, you know, comparison and, you know, you can update your asset capitalization policy and your useful life as well, in that in that policy. With the with the remaining useful life, as a practitioner, for, as per my experience, I always determine the remaining useful life based on the condition score. So for example, let's assume there's a condition score from zero to five zero means brand new five weeks end of life. So at conditions condition three on a scale of on the scale of three condition, that three condition should drive my fair value and the return on value based on the replacement cost. Alright. So we have last question. We are working on the asset value review. Does anybody solution exist like a report or analysis module that can identify change between the two points in time? We have found that that data we needed like a lot of change log of changes to asset attributes since the last version has been hard to extract. Does any I I'm not too sure, but, in Brightly Ascetic, especially in aesthetic environment, we record, the changes to an asset on several places. First for first and foremost, let's say, as an example, you have a you have a road condition, you try to renew that road in the in a given financial period. The the previous material used on the road was spray seal. Now you're putting a road treatment, which is asphalt, which is a good good, you know, material. We can create the treatment and you can update those, you know, you can you can do you can you can renew the asset via that particular asphalt with the current treatment on. In brightly aesthetic, yes, you can you can have the you can download the all the historical treatment data on on an asset in any at any given point of time. But I'm not too sure about the other products in Brightly, how they how how we can extract the information. Any other question? Thanks, guys. Thank you for attending. And if you'd like to have a copy of this, PowerPoint slide, and if you have any questions, you have my email you have our email address, we will respond to you directly. Thank you.