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New Asset Ratio - Not Helpful

June 2016

There have been some significant changes in infrastructure reporting this year, with an updated Special Schedule 7 (SS7). The changes include the introduction of a new ratio – ‘cost to bring assets to agreed service level’. What are the implications? Will it be useful for council operations? This will require a level of community engagement and recalibration of long term asset planning.


As the end of the financial year approaches and the reporting season starts to kick in, Fit for the Future has shown over the last couple of years, reporting on infrastructure plays an important role in determining whether your organisation is sustainable. Changes to SS7, prepared as part of the Local Government Final Code of Accounting Practice and Financial Reporting - Update 24 creates an additional reporting requirement.


A further indicator has been added to the schedule for this year, the ‘estimated cost to bring to an agreed service standard’. Implicit in this indicator is that each council has useable service levels for assets, and that they have engaged and agreed with the community on acceptable service levels.


We have always encouraged councils to engage with their community in relation to assets. If this indicator is to be used to identify councils that cannot meet community service levels, will they be considered unsustainable? As a result we think the development of aspirational service levels will be a thing of the past and will not drive service improvement, especially in rural areas where upgrading of the asset network is essential.


The major risk now is that councils adopt service levels that make them sustainable, and upgrading of the network becomes opportunistic rather than strategic in nature. Councils must look closely at their current service levels and engage with their communities to ensure those service levels are sustainable.


The update to SS7 has also taken on board industry feedback on the breakdown of asset condition. Previously this breakdown was based on written down value, it is now based on gross replacement cost or current replacement cost which is considered, by most, to be a better guide to the condition of assets.


Morrison Low has adopted a standard approach to preparing SS7, which is logical and repeatable. We are updating our model to reflect the current changes and to calculate the new indicators. We have also worked with a number of councils to adopt service levels which drive performance improvement and lead to improved service delivery.


If you need any help preparing the updated Special Schedule 7 please don’t hesitate to contact Tim McCarthy at t.mccarthy@morrisonlow.com