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C o n t r o l S t r u c t u r e
Planning
4097 WANAO cover 31/8/98 2:21 PM Page 1

A s s e t
M a n a g e m e n t
H a n d b o o k

P r e f a c e
This handbook will help asset managers interpret and implement the asset management principles developed
as part of the recent Financial Control and Administration Audit on Asset Management (The Auditor-General,
Audit Report No. 27 of 1995-96).
The principles are not definitive but are consistent with current thinking on, and trends in, improving asset
management in the public sector. They are common-sense and inter-dependent. Each principle is simple
enough and reflects a fundamental notion of good practice, although they are not, collectively, widely practiced
today in the Commonwealth sector.
The challenge of making the principles work is not to be under-estimated, not least because there is a need to
exercise judgement in their application. For example, the approaches adopted for maintenance of personal
computers or a suite of furniture will be different to those required for a major piece of machinery. Similarly,
planning for the construction of a building will be more comprehensive than that required for the purchase of a
motor vehicle.
A number of agencies contributed to the development of this handbook. In particular the advice and assistance
of the Australian Valuation Office and the Department of Administrative Services is acknowledged. Thanks are
also extended to Coopers & Lybrand who assisted in writing the handbook and to officers of various State
treasuries who provided valuable information on their asset management frameworks.
P.J. Barrett
Auditor-General
June 1996
Asset Management H andbook

C o n t e n t s Asset Man age me nt Han db oo k
PA R T 1 :
What’s it all about?
Everything you wanted to know, but..
Paradigms lost
Where do we go from here?
PA R T 2 :
Setting the scene
Laying better plans
To buy or not to buy?
For whom the bell tolls
Trash and treasure
Revenge of the bean counters
PA R T 3 :
O V E R V I E W
1.1 Introduction 2
1.2 Basic Concepts 3
1.3 Management Principles 10
1.4 Suggested Methodology 16
B E T T E R A S S E T M A N A G E M E N T
2.1 Management Control 21
2.2 Integrated Planning 27
2.3 Acquisition Decisions 32
2.4 Operations 40
2.5 Disposal 46
2.6 Accounting and Valuation 49
A P P E N D I C E S
3.1 Case Studies
3.2 Glossary
3.3 References & Further Reading

O V E R V I E W
1-1 Introduction
1-2 Basic Concepts
1-2-1 Assets Defined
1-2-2 Planning Framework
1-2-3 The Asset Life-Cycle
1-3 Management Principles
1-3-1 Integrated Planning
1-3-2 Acquisition
1-3-3 Accountability
1-3-4 Disposal
1-3-5 Management Control
1-4 Suggested Methodology
1-4-1 Determine Asset Needs
1-4-2 Evaluate Existing Assets
1-4-3 Demand and Supply
1-4-4 Management Strategy
Asset Management H andbook
PA R T 1
This Part provides an overview of asset
management principles and the underlying
concepts employed in management of non-
current physical assets.
It should be read by all levels within the
organisation.

2
O v e r v i e w Asset Man age me nt Han db oo k
1 . 1 I n t r o d u c t i o n
The Commonwealth is asset ‘rich’ in
comparison to other levels of
government and to the private sector.
The consolidated value of Commonwealth
physical asset holdings is $66 billion, of
which $16 billion is held by general
government and some $29 billion are
defence-related assets. These figures exclude
a significant number of cultural assets and
heritage estate, which are difficult to value.
The replacement cost of all assets is
significantly higher than the current value.
Many assets are held by Government
Business Enterprises which operate with
commercial imperatives. However, a
significant amount of land, buildings, plant
and equipment is controlled by non-
commercial agencies which operate cash-
based funding and accounting systems.
This handbook is directed primarily at assets
held by non-commercial agencies. However,
the principles discussed are relevant to all
managers of government assets.
Asset Management involves processes of planning and monitoring physical assets during their useful lives to
an agency. Managing effectively requires an appropriate level of management interest and concern be
maintained well beyond the ‘ribbon cutting’ stage of acquisition.
The objective of asset management is to achieve the best possible match of assets with program delivery
strategies. This is predicated on a critical examination of alternatives to the use of assets. The expectation is
that ‘non-asset’ solutions will enable delivery of the program at a lower cost.
With pressure on resources available to deliver programs, it is important asset managers understand that
asset consumption is a real and significant cost of program delivery. The application of life-cycle costing
techniques and the establishment of appropriate accountability frameworks are integral to achieving this
understanding. Effective implementation of the principles of asset management will address program costs in
terms of:
• reduced demand for new assets by adoption of ‘non-asset’ solutions;
• maximising the service potential of existing assets;
• lowering the overall cost of owning assets through the use of life-cycle costing techniques; and
• ensuring a sharper focus on results by establishing clear accountability and responsibility for assets.
Asset Management is a systematic, structured process
covering the whole life of an asset. The underlying
assumption is that assets exist to support program delivery.

W h a t a r e A s s e t s ?
The common understanding of an asset is that it is something of enduring value. A sound appreciation of the
two elements of this definition - value and ‘useful’ life - is fundamental, if agencies are to identify and record
all assets.
We will explore these elements by considering the forms an asset may take. Consideration of the accounting
treatment of assets is not critical at this point but is considered later (refer to Part 2-6).
T h e A s s e t M a n a g e m e n t F r a m e w o r k
Having defined assets it is important we view them in their proper perspective within an organisation. Assets
should only exist to support program delivery. The key starting point, to ensure this is the case, is to establish
a link between program delivery and assets. Corporate objectives are translated into program objectives,
delivery strategies, outputs and outcomes. Assets held by an agency are one program input and should be
aligned with programs to the extent practical.
T h e A s s e t L i f e - C y c l e
The extended life of an asset has important implications for program managers. An acquisition decision based
on the lowest purchase price but which ignores potential operating costs, may result in a higher overall cost
over the asset’s life. It is important to understand the phases of an asset’s life-cycle and the impact of each
phase on total program costs and outputs.
3
O v e r v i e w Asset Management Hand bo ok
1 . 2 B a s i c C o n c e p t s
Any discussion of asset management
presupposes the participants
understand what an asset is - not just
in an accounting sense - but what it
represents to an agency and how it
contributes to program delivery.
It is important asset managers understand
the inter-relation between the asset strategy
and other strategies, which together form
the operational or business plan of an
agency.
It is essential managers treat assets from a
life-cycle perspective.

4
1 . 2 . 1 A s s e t s D e f i n e d
Assets take a variety of forms.
This handbook deals with non-current
assets that are physical in nature.
Assets have service potential.
Assets may be financial, physical or
intangible. They may be current or non-
current.
Non-current assets have useful lives
greater than one year.
There is a need to distinguish between
physical life and useful life.
For something to be categorised as an asset it must have a value. This does not necessarily imply dollars and
cents: however the ‘value’ of an asset is measured in monetary terms so it is able to be recognised in financial
statements.
In the public sector it is perhaps often more important to appreciate the non-monetary aspects of an asset’s
value. The term ‘service potential’ is used to describe the utility of an asset in meeting program objectives and
is a useful concept to employ where the asset does not generate income. It is also referred to as the expected
‘future benefit’ to be derived.
Assets take a number of forms. One distinction made is between financial assets (cash being an example) and
non-financial assets. Non-financial assets may have a physical (or tangible) form such as buildings, machinery
and motor vehicles. They can also be intangible - computer software is an example, as are the legally
enforceable rights associated with copyright and patents. They also can be a combination of both tangible and
intangible, particularly where these elements operate as integral parts of a whole - a security system in a
building may be combination of physical equipment such as cameras, computers and alarms; and a suite of
software which controls and monitors the equipment.
Assets may have a short life due either to an inherent feature (perishable goods for example) or because they
will be converted into some other asset or consumed within an agency within a short time frame (deposits, raw
materials and debtors are examples). These assets are generally referred to as ‘current’ in accounting parlance.
By contrast, non-current assets have an extended life, which may reflect their physical life in the case of
tangible assets or, in the case of a patent, its legal life.
The physical life of an asset needs to be distinguished from its useful life to an organisation. The useful life is
the period over which the benefits from the use of the asset are expected to be derived.

The following diagram summarises the various categories and classifications of assets.
F i g u r e 1 - 1 Po s s i b l e C l a s s i f i c a t i o n S y s t e m f o r A s s e t s
Source: Asset Management Series, 1995, Victorian Government, Melbourne
5
1 . 2 . 1 A s s e t s D e f i n e d c o n t d . . .
Statement of Accounting Concepts
No. 4 (SAC 4) discusses the definition
and recognition of assets in depth.
‘Current’ means to be consumed or
converted to something else within the next
twelve months
Financial assets may also be' non-current’
and intangibles may be ‘current’
financial physical
intangible
current
non-current
allassets
i

6
Asset management decisions should not be made in isolation. They should be part of the overall framework of
decision-making in an organisation.
Asset planning must be considered equally and concurrently with the other resource requirements used in
achieving program objectives. It requires organisations to convert program delivery strategies into specific
asset strategies. It provides an opportunity to identify methods of improving asset performance, to alter the
mix of assets used and to explore solutions which do not require asset ownership.
F i g u r e 1 - 2 A n A s s e t M a n a g e m e n t F r a m e w o r k
1.2.2 Planning Framework
The asset management strategy is not
simply a summation of the individual
plans developed for each phase of the
asset life-cycle. It must be consistent
with Corporate objectives and
integrated with other key
management strategies.
The features of an asset management
framework are:
• it is service or output driven;
• it employs a structured,
systematic approach; and
• it is based on ‘whole-of-life’
concepts
• Government Policy
• Corporate Plan
• Environment
Strategic/Business Plan
Program Strategy/Outputs
Information System Strategy
Human Resource Strategy
Financial Strategy
Asset Strategy
Non Asset solutions:
• demand management
• outsourcing
• alternative use
Acquisition Plan
Disposal Plan
Capital and Recurrent Funding Plan
Operation & Maintenance Plan
Standard & Level of Service
Maintenance
Plan
Budgets
Organisation Systems

The fact that assets have a life-cycle distinguishes them from other program resource inputs. Typically, those
responsible for acquisition decisions (and costs) in an organisation, differ from those responsible for operating
and maintaining assets; and both groups often differ from those responsible for their disposal. Problems may
arise as a consequence of this fragmentation of management over the asset life-cycle.
F i g u r e 1 - 3 A s s e t L i f e - C y c l e
7
1.2.3 The Asset Life-Cycle
The physical life-cycle of an asset or
group of assets has three distinct
phases - acquisition, operation and
disposal. We add a fourth phase -
planning - which is a continuous
process where the information
outputs from each phase are used as
an input to planning.
Acquisition
Operation
Disposal
Planning

8
Understanding the phases of an asset’s life-cycle and the attendant costs is an important first step toward
managing assets on a whole-of-life basis.
The use of life-cycle costing techniques allows a full evaluation of the total cost of owning and maintaining an
asset prior to acquisition. This creates the opportunity to determine the most cost-effective program delivery
solution (this may be a non-asset solution). Estimating life-cycle costs prior to acquisition also establishes a
standard which is the basis for monitoring and controlling costs after acquisition.
Life-cycle costs consist of capital and recurrent costs. Capital costs are the cost of acquiring an asset. These
include not only the purchase price but all associated fees and charges, and the delivery and installation costs
incurred putting the asset into operational use. They may also include planning costs such as those incurred
for feasibility studies and in tendering.
One significant capital cost not routinely recognised by budget-dependent agencies is the ‘finance’ cost
associated with the funds ‘locked-up’ in the value of the asset. An exception to this is the situation where
agencies borrow against future appropriations as part of the running cost arrangements and are charged
interest. However, this reflects finance costs at the margin and generally does not extend over the life of the
asset.
The Commonwealth incurs a ‘finance’ cost on capital funds either directly, as the interest expense on public
borrowing; or indirectly, as interest foregone on funds that would otherwise have been available to the
Commonwealth. When evaluating non-asset solutions and alternative acquisition strategies it is important this
‘cost’ is recognised by agencies. This is particularly important when considering private sector alternatives, in
context of the need to establish a reasonably ‘level playing field’ for competitive products.
1 . 2 . 3 A s s e t L i f e - C y c l e c o n t d . . .
Life-cycle costing is an essential component
of asset planning.
Capital costs are the costs of acquisition
and may also be incurred in later upgrades
or refurbishment.

Recurrent costs include energy, maintenance and cleaning costs. They may also include employee costs where
specialist staff are dedicated to the operation of the asset. Planned refurbishment and enhancements over the
asset's life, while ‘capital’ in nature, may also be included as part recurrent costs for planning purposes.
Disposal costs should also be included, particularly if they are expected to be significant. This may be the case
where the asset, processes associated with it, or its outputs, produce undesirable effects requiring rectification
or remedial work. Environmental considerations may be significant in this regard.
The relative significance of capital and recurrent costs as a proportion of total life-cycle costs will depend on
the nature of the asset. The Victorian Commission of Audit, in 1993, estimated the cost of holding the State’s
stock of assets (ignoring finance charges and employee costs) was 4% of the value of assets held.
The cost of operating and maintaining an asset over its useful life can often be greater than its acquisition cost.
In such cases the use of full life-cycle costing in evaluating alternatives is imperative to ensure overall program
costs are recognised and minimised.
9
1 . 2 . 3 A s s e t L i f e - C y c l e c o n t d . . .
Recurrent costs are also referred to as
operating or running costs.

10
1 . 3 M a n a g e m e n t P r i n c i p l e s
Principles of asset management
derive from common sense and are
based on the life-cycle approach. The
assumption upon which the principles
are based is that assets exist only to
support program delivery.
Asset Management Principles
The importance of asset plans becomes apparent where management recognises that physical assets are a vital
corporate resource. Effective application of the principles of asset management will ensure this resource input
is at the lowest overall cost.
Principles of asset management apply to all assets - they do not, however, apply equally. The characteristics of
the assets will dictate the extent and degree to which a particular principle is applied. One gauge of the
relative importance of each management principle to particular groups of assets is the amount outlaid at each
stage of their lives. For example, the ubiquitous furniture and fittings (typically high volume, low value items)
provide an essential service and their contribution to an organisation needs to be recognised. By their nature
however, they are typically low maintenance items. It may suffice simply to monitor their condition in lieu of a
costed, preventive maintenance plan. However, if they constitute a relatively large percentage of the total
value of total assets held, acquisition and replacement planning assume greater importance.
The five principles of asset management used in this handbook are not definitive. They represent current
thinking and sound practice. They are:
• asset management decisions are integrated with strategic planning;
• asset planning decisions are based on an evaluation of alternatives which consider the ‘life-cycle’ costs,
benefits and risks of ownership;
• accountability is established for asset condition, use and performance;
• disposal decisions are based on analysis of the methods which achieve the best available net return within
a framework of fair trading; and
• an effective control structure is established for asset management.

Product
An Asset Strategy which complements the Information System, Human Resource and Financial Management
Strategies in the Operational or Business Plan of an agency.
Success Factors
• Asset functions are assessed against and matched with program delivery standards or service delivery
strategies.
• Asset Strategy time-frame equates with the corporate planning horizon, and ideally, extends over the life of
longer lived assets.
• Asset Strategy incorporates capital and recurrent (operating) costs which link with budgets in the financial
management strategy.
Outcome
Integration of asset strategies into operational or business plans will establish a framework for existing and
new assets to be effectively utilised and their service potential optimised.
11
1 . 3 . 1 I n t e g r a t e d P l a n n i n g
Decisions on asset acquisition or
replacement, use, maintenance and
disposal should be integrated with
strategic planning. This is achieved by
linking assets with program delivery
standards and strategies.

12
1 . 3 . 2 A c q u i s i t i o n
Effective asset planning frameworks
incorporate evaluation of the
alternatives to the acquisition of new
assets and to the replacement of
existing assets. The evaluation includes
a comparison of life-cycle costs.
Product
An acquisition plan which details the rationale for acquisition or replacement of assets. It documents the
consideration of alternatives and life-cycle costs. Where appropriate, it includes the method of acquisition and
timing and amount of capital flows.
Success Factors
• Management has established that existing assets are fully utilised, meet functional requirements and
perform at optimal levels.
• Genuine consideration of ‘non-asset’ solutions such as use of the private sector or ‘demand management’.
• All costs, express and implied, are included in consideration of ‘life-cycle’ costs. Implicit costs may include,
for example, a notional interest cost on funds used to acquire assets. Express costs will include direct and
indirect operating costs.
Outcome
A more economic, efficient and cost-effective asset acquisition framework which will reduce demand for new
assets, lower program costs and improve delivery of services or products.

Product
An operation and a maintenance plan which establish standards for the level of use, condition, maintenance
and performance of assets. The plans also document the resources required to operate and maintain assets.
Success Factors
• Control of, and accountability for, assets is established at the program level.
• Financial responsibility for assets is established through the budget process and by cost
allocation/attribution.
• Condition, use and performance measures are established.
• The standard of performance of assets is an input to the next planning cycle.
Outcome
Effective accountability mechanisms will establish a culture where assets are adequately maintained and
protected and, through optimisation of performance, maximise their output or service potential.
13
1 . 3 . 3 A c c o u n t a b i l i t y f o r A s s e t s
Effective accountability frameworks
identify those responsible for assets.
This responsibility encompasses all
phases of the life-cycle. Mechanisms
establish ownership, control and
responsibility for use, security,
condition and performance of assets.

14
1 . 3 . 4 D i s p o s a l o f A s s e t s
Effective asset disposal frameworks
incorporate consideration of
alternatives for the disposal of
surplus, obsolete, under-performing or
unserviceable assets. Alternatives
should be evaluated in cost-benefit
terms.
Product
A disposal plan which establishes the rationale for, the anticipated time and method of, and the expected
proceeds on, disposal. The plan is reviewed and refined, if necessary, prior to disposal, to take account of the
market and physical condition of the asset.
Success Factors
• Under-utilised and under-performing assets are identified as part of a regular, systematic review process.
• The reasons for under-utilisation or poor performance are critically examined and corrective action taken to
remedy the situation, or a disposal decision is made.
• Analysis of disposal methods has regard to potential market or other intrinsic values; the location and
volume of assets to be disposed of; the ability to support other government programs; and environmental
implications.
• Regular evaluation of disposal performance is undertaken.
Outcome
Effective management of the disposal process will minimise holdings of surplus and under-performing assets
and will maximise the return to the Commonwealth on such assets.

Product
A policy and procedure manual which details the requirements for effective governance of assets is
complemented by an information system, based on an asset register, which provides the financial and non-
financial information necessary to manage assets.
Success Factors
• The policies and procedures address all aspects of the asset life-cycle; are promulgated to all relevant staff
and are updated regularly.
• Staff involved in asset management receive training commensurate with their responsibilities.
• The asset register contains data on acquisition, asset identification, accountability information,
performance, disposal and accounting.
• The asset register is integrated with the financial and budgetary systems.
• Asset information is readily accessible to staff who are accountable for assets.
Outcome
An effective internal control structure provides the framework within which improvements to asset
management are effected. Without it there is limited scope for informed decision making or implementing
management’s intentions.
15
1 . 3 . 5 M a n a g e m e n t C o n t r o l
An effective internal control structure
will establish and promulgate asset
policies and procedures and use an
information system which provides
reliable, relevant and timely data with
which to make informed asset
management decisions.

Non-asset
solutions
Asset Demand Profile
Asset Supply Profile
Capital works - programmed
acquisitions and commitments
Program Delivery Strategy
Asset needs to support
Strategy
Supply-Demand Comparison
Existing asset holdings
assessment
Inventory and condition
Dispose
Refurbish
Key Asset:
• poor condition
Create or
Acquire
Operate and
Maintain
Key Asset:
• good condition
New asset
requirement
Asset:
• non functional
• surplus
Acquisition
Operations & Maintenance Plan
Disposal Plan
16
1 . 4 S u g g e s t e d M e t h o d o l o g y
Forward-looking asset management
strategies are required. The planning
process should match the prospective
demand for assets with the current
asset supply profile to develop the
asset strategy.
The diagram illustrates a 4 step approach:
• determine asset needs by
reference to the program services
to be delivered;
• evaluate existing assets in terms
of their capacity to support
program delivery;
• undertake a ‘gap analysis’
between existing assets and
assets required; and
• develop an asset strategy
comprising an acquisition,
operation, maintenance and
disposal plan.
I n t r o d u c t i o n
One process for developing an asset strategy is outlined in the diagram below.
F i g u r e 1 - 4 S u g g e s t e d M e t h o d f o r I m p l e m e n t i n g a n A s s e t S t r a t e g y

The reason Commonwealth agencies acquire, operate and maintain assets is to support program delivery.
To ensure this occurs in practice, as a first step, agencies should develop program delivery strategies which:
• define the scope, standard and level of program services to be delivered;
• assess the methods of delivering these services;
• identify the resources, including assets, required to deliver the services; and
• determine, where appropriate, methods of containing the demand for the services.
When identifying resource requirements agencies should consider ‘non-asset’ solutions. These are solutions
which eliminate, reduce or constrain the need for the agency to own assets. They include:
• redesign of the service;
• increased use of existing assets; and
• use of the private sector.
Having defined the program services to be provided, and after considering non-asset solutions, those services
which require asset support are then identified.
17
1 . 4 . 1 D e t e r m i n e A s s e t N e e d s
By incorporating asset planning into
the strategic planning framework the
long term implications of corporate
level decision-making on assets can
be identified and appropriate
responses developed.

18
1 . 4 . 2 E v a l u a t e E x i s t i n g A s s e t s
Assets should be evaluated in terms of their:
• physical condition;
• functionality;
• use; and
• financial performance.
The effectiveness of existing assets in supporting program delivery should be determined. This process pre-
supposes appropriate condition and performance standards are set for assets.
F i g u r e 1 - 5 Pe r f o r m a n c e M o n i t o r i n g
The results of the evaluation should be included in an
integrated performance report (refer Part 2.4.3).
Asset
Physical condition
Utilisation
Integrated
performance report
Functionality
Financial
performance

At the strategic level, planning will provide a comparison between the assets required to support program
delivery and those assets currently available and/or programmed for acquisition. In this manner the agency is
able to identify:
• existing assets that are required and are presently capable of servicing program delivery needs;
• existing assets that are required but are below the necessary standard and need refurbishment to meet
program delivery needs;
• assets which are surplus to program delivery needs and can be disposed of; and
• assets which must be acquired to meet program delivery needs.
Following an evaluation of life-cycle costs, benefits and risks associated with each option, the strategy will
identify the most appropriate approach for meeting program delivery needs.
An acquisition plan is required which defines the assets which need to be acquired or replaced in the planning
period and which establishes the sources and cost of financing acquisition (refer 1.3.2).
An operational plan defines the policies for use of existing assets and may include matters such as hours of
operation, access, security, cleaning and energy management (refer 1.3.3).
A maintenance plan establishes the standard to which assets are to be maintained, how this standard is to be
achieved and how the maintenance services are to be provided (refer 1.3.3).
A disposal plan will identify key assets to be disposed of in the planning period, the preferred method of
disposal and expected proceeds on disposal (refer 1.3.4).
19
1.4.3 Compare Demand and Supply
1.4.4 Asset Management Strategy

20
Asse t Man ageme n t Han dbook
B E T T E R A S S E T M A N A G E M E N T
2-1 Management Control
2-1-1 Policies and Procedures
2-1-2 The Asset Register
2-2 Integrated Planning
2-2-1 Elements of the Asset Strategy
2-2-2 Aligning Assets with Programs
2-3 Acquisition Decisions
2-3-1 Alternatives to Asset Ownership
2-3-2 Establishing Life-Cycle Costs
2-3-3 Methods of Acquisition
2-3-4 The Acquisition Plan
2-4 Operations
2-4-1 Accountability Principles
2-4-2 Financial Accountability
2-4-3 Performance Accountability
2-4-4 Maintenance Policies
2-4-5 Operation & Maintenance Plans
2-5 Disposal
2-5-1 The Disposal Decision
2-5-2 Alternatives to Disposal
2-5-3 Methods of Disposal
2-6 Accounting & Valuation
2-6-1 Accounting Definitions
2-6-2 Recognition of Assets
2-6-3 Valuation of Assets
PA R T 2
This Part of the handbook provides
detailed guidance on the application of the
principles and concepts discussed in the
Overview.
It contains a number of practical examples
which demonstrate how the principles of
asset management may be implemented.

This part of the Handbook commences with a discussion of the control structure needed within an organisation
in relation to asset management. It is the logical starting point, as the control structure is an essential element
of good corporate governance and is a necessary precursor to effective implementation of asset management
principles.
This section focuses on the policies and procedures which need to be developed and promulgated, and on the
management information which is required to make timely, informed asset management decisions.
T h e I n t e r n a l C o n t r o l S t r u c t u r e
The systems, processes and procedures established within an organisation to ensure that management’s plans
and intentions are implemented are referred to as the internal control structure. This structure extends beyond
those matters that relate directly to financial reporting and comprises:
• the control environment – including management's philosophy and operating style, and the polices and
procedures;
• the information system -– financial and non-financial information; and
• control procedures – internal accounting controls, management controls and asset security.
Each element is important to effective asset management.
Management must establish appropriate policies and
procedures, and adequate controls. It must ensure policies
and procedures are in place and that controls are operating
effectively. Only then can management be assured that the
information with which it makes decisions is reliable.
21
B e t t e r A s s e t M a n a g e m e n t Asset Management Hand bo ok
2 . 1 M a n a g e m e n t C o n t r o l
Effective implementation of asset
management principles can only be
achieved within a framework of
appropriate control and monitoring
by management.
.

22
B e t t e r A s s e t M a n a g e m e n t Asset Man age me nt Han db oo k
The development and promulgation of comprehensive asset policies and procedures are important elements of
the internal control structure of an organisation. They reflect management’s operating philosophy and style.
Their content is one indication of management concern with maintaining adequate control over its resources.
The absence of asset policy and procedure manuals, or the existence of outdated manuals, is generally an
indicator that internal controls are less reliable and effective. The primary reason for this is that policy and
procedure statements are the principal means by which management’s intentions are communicated to staff.
They are also an initial reference point for new staff. In their absence staff must rely on ‘word of mouth’ and
'on-the-job' training to divine policy. In the ANAO’s experience this is unsatisfactory, as what is practiced
quickly diverges from what is preached.
Good policy and procedure manuals are:
• integrated - policy statements and procedural guidance are combined;
• consolidated - all relevant policy and procedures are located in one source;
• cross-referenced - references to legislative requirements, government policy pronouncements, and
supplementary instructions are supplied ; and
• formatted for ease of update - preferably in electronic format.
Asset policy and procedure manuals should include more than operational aspects, such as recording assets,
stock take and write-off procedures. They should also address strategic issues such as planning for acquisition,
accountability arrangements, maintenance and operating policies and strategies. The following checklist has
been developed to provide an indication of the contents of a comprehensive policy and procedure manual. It is
suggested that it be copied and completed as a starting point for reviewing current instructions.
2 . 1 . 1 Po l i c y a n d P r o c e d u r e s
Asset policies extend beyond
accounting policies. They should be
comprehensive, covering all phases of
the asset life cycle, and should
address principles of asset
management.

Good practice for stock-take includes:
• cyclical coverage of assets based on
their risk profiles and degree of
physical security
• automated stock take of IT equipment
attached to a Local Area or other
Network.
The Attorney-General’s
Department has developed
software for this purpose. (refer
Case Study in Appendix A)
23
F i g u r e 2 - 1 Po l i c y a n d P r o c e d u r e C h e c k l i s t
M a n a g e m e n t R e v i e w C h e c k l i s t - A s s e t Po l i c y a n d P r o c e d u r e M a n u a l
P h a s e S e c t i o n E x i s t s C o u l d B e M i s s i n g D a t e A c t i o n B y
I m p r o v e d C o m p l e t e d
Planning • Definition of assets
• Role of assets in program delivery
• Non-asset solutions
• Asset life-cycle
• Life-cycle costing approaches
• Accountability and responsibility
• Elements of the asset strategy
Acquisition • Analysis of alternatives
• Developing an acquisition plan
• Receipt and acceptance of assets
• Establishing ownership and control
Operation • Establishing performance indicators
• Operation & maintenance plans
• Monitoring condition and use
• Maintenance scheduling
• Tracking assets: - transfers, loans,
off-site repairs.
• Safeguarding and protecting assets
◆
◆ stock-take
◆
◆ physical security
2.1.1 Policy and Procedures contd...
i
Good practice on acquisition includes:
• nominated officer responsible for
acceptance
• central delivery point: secure &
segregated from assets in-use
• assets bar-coded by supplier and
computerised listing supplied (for large
volume/value purchases)
• condition of assets inspected prior to
acceptance
• assets tagged after acceptance

24
F i g u r e 2 - 1 c o n t d
M a n a g e m e n t R e v i e w C h e c k l i s t - A s s e t Po l i c y a n d P r o c e d u r e M a n u a l
P h a s e S e c t i o n E x i s t s C o u l d B e M i s s i n g D a t e A c t i o n B y
I m p r o v e d C o m p l e t e d
Disposal • Identification of surplus, obsolete
& under-performing assets
• Replacement strategy
• Evaluation of disposal alternatives
• Write-off of damaged or missing assets
• The disposal plan
Accounting • Definition of assets:
◆
◆ Criterion of ‘control’
◆
◆ Capitalisation threshold
◆
◆ Enhancements & upgrades
◆
◆ Portable, attractive assets
• Valuation of assets:
◆
◆ Recognition criteria
◆
◆ Valuation methodology
• Depreciation of Assets:
◆
◆ Method
◆
◆ Useful life
• Treatment of repairs & maintenance
• Recording assets on acquisition,
transfer and disposal
i
2.1.1 Policy and Procedures contd...
The manual should make reference to
the DAS Guidelines on ‘Disposal of
Surplus Assets’ issued in 1992.

The size and complexity of an asset register will depend on the number and type of assets held by an
organisation. The volume of purchases, transfers and disposals in a year is also an indicator of the degree of
sophistication required for asset recording and reporting.
With this in mind, the features of a good asset register include:
• integration to the extent practicable with purchasing and payments systems and the general ledger;
• asset data is:
◆
◆ updated as transactions and events occur (ie on an accrual basis);
◆
◆ regularly reconciled with acquisition data and the general ledger;
◆
◆ readily available to asset managers, preferably in ‘on-line’;
◆
◆ structured to allow different classifications of assets to be distinguished;
• financial data on assets is maintained down to the level which is important to decision-makers; and
• clear identification of the individual, or organisational unit, responsible for the asset.
The asset register should contain non-financial data on acquisition, identity, accountability, performance and
disposal in addition to the financial data necessary to discharge statutory reporting obligations. This data is
able to be used as an input to an ‘Integrated Performance Report’ which deals with the various performance
measures established for assets (refer section 2..4.3).
The following diagram (Figure 2-2) summarises the data that should be maintained on assets.
25
2 . 1 . 2 A s s e t R e g i s t e r
An adequate asset register is integral
to effective asset management. It is
the basis of an asset management
information system and should
contain relevant data beyond that
required for financial reporting.

Accounting
Acquisition
• Date
• Supplier
• Reference
• Amount
Identity
Accountability
Performance
Disposal
• Description
• Model
• Manufacturer
• Serial Number
• Unique Asset
Number
• Location
• Program
• Custodian
• Conventants or
restrictions
• Heritage or
cultural
‘Identifier’
• Capacity
• Condition
• Useful Life
• Residual Value
• Warranties or
Guarantees
• Measures
• Capacity
• Condition
• Useful Life
• Residual Value
• Historic Cost
• Replacement
Value
• Depreciation
Rate
• Accumulated
Depreciation
26
2 . 1 . 2 A s s e t R e g i s t e r
Outline of basic information necessary for
good asset management.
It may be supplemented for certain types of
assets. For example, additional data may
be required on planned and actual
maintenance expenditure. This may include
accounting data on a provision for major
maintenance, if condition-based
depreciation is used (refer section 6-4).
F i g u r e 2 - 2 C o m p o s i t i o n o f A n A s s e t R e g i s t e r
It is important that assets of cultural or
heritage significance are ‘flagged’ as such
and their special maintenance needs and
disposal considerations are made known to
asset managers.

Corporate planning horizons typically range from 3 to 5 years for most Commonwealth agencies. They rarely
exceed 10 years due to the uncertainties inherent in forecasting past that period. Fixed asset lives, in contrast,
may vary from two, to in excess of, sixty years.
Integrating asset planning into the strategic planning processes using a ‘whole-of-life’ approach presents a
challenge, particularly for assets with a long life. It is important the projections of capital and operating costs
of owning and using assets extend at least to the corporate planning horizon (the same holds for other resource
inputs). These projections are then able to be included within business or operational plans.
This section discusses each of the elements of the asset strategy, their derivation and content. It also provides
guidance on how to ensure assets are aligned with program delivery objectives and strategies. 27
2 . 2 I n t e g r a t e d P l a n n i n g
Asset management decisions should
be integrated into strategic planning
processes. The asset strategy is one
element of the Strategic Plan of an
agency which complements the
Human Resource, Information
Technology and Financial Strategies.

28
2.2.1 Elements of the Asset Strategy
The elements which together contribute to the development of the asset strategy are summarised in the
diagram below.
F i g u r e 2 - 3 E l e m e n t s o f a n A s s e t S t r a t e g y
Acquisition Plans
Operations Plans
Maintenance Plans
Funding Plans
Disposal Plans
Asset
Performance
Condition
Functionality
Utilisation
Cost
Policy &
Procedures
Systems
Training
Strategic
Asset Management
Plan
Service Delivery Method
In-house Out-source

Each stage of the life-cycle needs to be planned to identify what needs to be done to ensure that assets
effectively support program delivery. Individual plans consider the needs of the other stages of the life-cycle to
ensure an integrated approach is achieved.
Management plans are dynamic - regular reviews of asset performance should be undertaken and the plans
modified accordingly.
The service delivery method provides the mechanism for delivering the asset management plans. It is based on
a needs analysis and an examination of how the plans are currently being delivered; and is reviewed against
relevant financial, socio-economic and environmental factors.
The two major options for service delivery are ‘in-house’ and ‘out-sourcing’. Various combinations of these
options are available.
Periodic reviews of asset performance are an essential element of the asset management framework. They aim
to provide factual and quantitative information on the performance of the asset in meeting program delivery
needs. Performance monitoring forms the basis of management of the asset throughout its life. It facilitates
adjustments to the various plans, ensuring program delivery needs are met and providing increased
efficiencies.
Procedures support consistent application of definitions, standards and efficient work practices. It is essential
they are disseminated throughout the agency. The management information system is more than an asset
register. It should support budgeting, planning and management of assets and provide an effective means of
reporting asset performance.
Training programs need to be tailored to the needs of staff. Program managers require an understanding of the
principles of asset management and the associated budgeting and accounting processes. Staff with
responsibility for operation, maintenance and disposal require more in-depth training.
29
Asset Management Plans
“What” needs to be done.
The Service Delivery Method
“How” it will be done.
Performance Monitoring
“How well” assets meet program needs.
Procedures, Systems and Training
The “where-with-all” required for effective
asset management.

30
2.2.2 Aligning Assets with Programs
It is important that assets be aligned to an agency's programs to the extent practicable. This allows the full
cost of program delivery to be more readily determined. The process also provides the opportunity whereby
program delivery needs and outcomes are able to be compared with the assets currently used in delivery of
that program.
The outcomes of this process include:
• identifying assets that do not have the necessary capacity or functionality to adequately address program
delivery standards;
• identifying assets that have capacity or functionality in excess of program delivery standards; and
• identifying assets that do not support program objectives and should be disposed of.
Difficulties encountered when undertaking the process of alignment generally result from:
• conflict between organisational structure and program structure;
• centralised control and ownership of ‘corporate’ assets such as buildings, major IT equipment, fit-out and
furnishings; and
• assets being used by more than one program.
There may be sound management reasons for the above approaches. It was noted that a number of agencies
retain centralised control of IT equipment to ensure uniformity in purchasing. It is acknowledged (and
encouraged) that there should be some form of central oversight, particularly in a decentralised or highly
devolved organisation. However, this should not be held out as an obstacle to correctly aligning assets with
programs.

The process of alignment of assets with programs may be undertaken concurrently with the allocation of
capital and recurrent budgets for assets to program areas, and/or the allocation or attribution of ‘corporate’
costs to programs (if these have not already been done).
Cost attribution is an effective means of retaining central control or responsibility for assets and at the same
time aligning these assets with programs. This is particularly effective for assets employed by a number of
programs (for example, a headquarters building). One example of the benefits of aligning assets through a
resource allocation exercise was given by the Joint Committee of Public Accounts in Report 338 on Accrual
Accounting (August 1995) in relation to the CSIRO (page 118). In this case a major asset was identified as
being used by only one program. It was previously treated as a Divisional overhead. Distribution of the full
cost of the asset to the program led to a re-prioritisation of the program activity. The asset was disposed of and
leasing was subsequently employed as the need arose.
31
2.2.2 Aligning Assets with Programs
contd...

32
2 . 3 A c q u i s i t i o n D e c i s i o n s
The decision to acquire an asset is
made after consideration of the
alternatives to asset ownership. It is
based on a comparison of the life-
cycle costs, risks and benefits of each
alternative. The alternatives include
both ‘non-asset’ solutions and the
various methods by which assets may
be acquired.
Alternatives to Asset Ownership
Establishing Life-Cycle Costs
Methods of Acquisition
The Acquisition Plan
The planning process identifies the gap between existing assets and the assets required to deliver programs. It
also identifies assets which require replacement, refurbishment or upgrading to meet program delivery needs.
However, the ‘new asset’ requirement for the planning period will be moderated by consideration of
alternatives to asset ownership. Once established, the capital costs, developed as part of the asset strategy, are
able to be translated into estimates of expenditure and operating budgets.
While assets may be needed to deliver programs, it is not essential that an agency own these assets. Use of the
private sector for service delivery is one means by which the risk of ownership may be transferred. Redesign of
the delivery strategy may also eliminate or reduce the need for assets. Another possibility is to moderate the
demand for the program where this is appropriate (refer 2.3.1).
Life-cycle costing is a process which recognises the concomitant nature of capital and recurrent costs. There is
little scope to avoid operating costs once an asset is acquired, if program delivery standards are to be met.
Avoiding or deferring operating costs such as maintenance may run-down an asset, shorten its working life
and/or reduce its output (refer 2.3.2). However, there are often trade-offs that can be made between the capital
cost of an asset and its operating costs. Life-cycle costing is used to evaluate these choices.
The principal choice in ‘general’ government is whether to lease or buy an asset. Leasing presents a choice
between ‘operating’ and ‘finance’ leases. The latter option substantially transferring the risks and benefits of
ownership to the agency, the former providing greater flexibility (refer 2.3.3).
The above processes and considerations should be documented in an acquisition plan, as part of the
accountability framework (refer 2.3.4).

Successful ‘non-asset’ solutions can reduce or defer the requirement for new assets with advantages in terms of
reduced management effort and the release of capital funds.
The consideration of non-asset solutions is becoming increasingly important as:
• the current stock of Commonwealth assets is growing and steadily ageing;
• changing expectations and technologies can prompt proposals for new assets where existing assets could
continue in service unchanged;
• asset requirements change over time with changing program requirements; and
• expenditure on fixed assets constrains expenditure in other areas.
These trends have encouraged a number of public and private sector organisations to divest themselves of
assets, moving to less asset intensive styles of operation. This approach provides greater flexibility in the face
of change.
Considerations in the search for non-asset solutions include;
• contracting-out the function to a service provider which will provide the assets itself;
• redesign the service to reduce demand on assets - for example, use of telephone-based services;
• reduce demand for the service itself - for example, by implementing user-charging regimes; and
• increase the utilisation of existing assets - for example, sharing facilities between programs and agencies.
An agency must have a clear understanding of the strategic
significance of its assets for its service delivery obligations
prior to considering ‘non-asset’ solutions.
33
2 . 3 . 1 A l t e r n a t i v e s t o A s s e t
O w n e r s h i p
An integral part of effective asset
management is consideration of
program delivery options which
reduce the need for ownership of
assets by the Commonwealth.

34
2.3.2 Establishing Life-Cycle Costs
Life cycle costing is a logical,
systematic process for estimating the
total cost of an asset from its
conception to its disposal.
Better practice has shown that life-cycle
costing should include an assessment of the
cost of:
• planning;
• acquisition;
• operation & maintenance;
and
• disposal.
Life-cycle costing should blend all of the known costs over an asset’s life into a coherent view of the true overall
cost of the asset to the agency.
Actual costs should be continually measured. This will provide a baseline to estimate costs for future
acquisition projects and also provides the data with which to analyse the performance of existing assets
against predicted life-cycle costs.
F i g u r e 2 - 5 L i f e - C y c l e C o s t s
Asset Life Cycle, Years
PlanningCosts Acquisition Costs Operation and Maintenance Costs Disposal Costs
Not to scale
Mid-Life
ReburbishmentCost
Asset
Cost,
Dollars

Planning Costs
The costs associated with developing the asset solution to a stage ready for acquisition. These may include
elements such as:
• scientific studies;
• environmental impact statements; and
• feasibility studies.
Acquisition Costs
The costs associated with the initial acquisition of the asset and may include:
• building or construction costs;
• commissioning costs; and
• installation and delivery costs.
Operational and Maintenance Costs
Recurrent expenditure on the day-to-day operation of equipment. In addition to energy, cleaning and
maintenance costs, they may include the cost of specialist staff required to operate the asset.
Disposal Costs
May include the financial loss on an asset disposed of prior to expiration of its expected useful life due to
circumstances beyond the agency’s control, such as becoming environmentally unacceptable. Conversely, they
may take into account the potential gain on sale of assets such as land or artworks.
Life-cycle costing provides a profile against which alternatives,
including non-asset solutions, can be examined.
35
contd...

36
contd...
Finance Circular 1992/3 set the 8% rate as
a benchmark for cost-benefit analysis.
In this example the asset with the lowest
acquisition cost does not have the lowest
total life-cycle cost.
E x a m p l e o f C o m p a r a t i v e L i f e - C y c l e C o s t i n g
1. Establish cost profile:
Option A Option B
Capital (purchase price) $9,600 $10,500
Recurrent (over 10 years):
Operating (power) $150 pa $80 pa
Major Maintenance $210 after 3 yrs $150 after 3 yrs
2. Calculate Cost using Net Present Value:
• Select discount rate - presently 8%
• Compute Present Value of costs over asset life
3. Compare Present Values
• Option A = $10,794
• Option B = $10,735
•
• Option A 1996 1997 1998 1999 2000 •
•
•
• Capital 9600 •
•
•
• Recurrent: •
•
•
• • Maintenance 210 •
•
•
• • Operating 150 150 150 150 •
•
•
• Total 9600 150 150 360 150 •
•
•
• Discount Rate 1.0 0.926
•
• DCF 9600
•
• NPV

Once it has been determined an asset is required, the three basic options are to buy, build or lease. Variations
on this theme, for infrastructure and large construction projects, include ‘build, own, operate and transfer’
(BOOT) schemes.
L e a s e v e r s u s B u y
The decision to lease or buy an asset is an issue where the market can provide generic assets to meet agencies
service needs. There are two principal types of lease available to agencies - the ‘finance’ and the ‘operating’
lease.
As the name implies, the former is effectively a vehicle for financing the purchase of an asset. The lessee takes
on most, if not all, the risks and benefits of ownership of the asset. From this viewpoint the use of a finance
lease is not significantly different to ownership. The major point of distinction between outright purchase of an
asset and the use of a finance lease to ‘acquire’ the asset is that the ‘capital’ cost is able to be spread out over
time. This is argued as a benefit of the finance lease.
For budget-funded agencies there are two arguments against this ‘benefit’:
• the implicit interest cost in the finance lease will generally be higher than the cost of funds to the
Commonwealth - the use of a finance lease may therefore have adverse value-for-money consequences; and
• agencies are able to use the running cost arrangements to spread the cost of large capital outlays over a
number of years by borrowing against future appropriations or accumulating savings prior to acquisition.
37
i
i
2 . 3 . 3 M e t h o d s o f A c q u i s i t i o n
The National Public Works Council
Inc. published a ‘Total Asset
Management’ guidebook in May 1996
dealing with infrastructure assets.
The Commonwealth Department of
Finance issued a Circular, (No. 14 of
1993) which discusses Finance Leases.

38
2.3.3 Methods of Acquisition contd..
Where a lease is used, it is necessary to
record the details in an appropriate
register. In the case of a finance lease, this
is the asset register. Additional details
which should also be recorded include:
• lease start and completion dates;
• first instalment date;
• asset fair value on acquisition;
• implicit interest rate; and
• present value of lease payments.
Operating leases also have an implicit interest cost. The main benefit of these types of lease is that the lessor
retains the risks of ownership. As they are generally short-term, they also provide greater flexibility to adapt
to change.
In summary, the advantages of leasing include:
• increased flexibility to change ‘asset solutions’;
• reduced need for large, lumpy capital outlays; and
• isolation from short-term fluctuations in market supply and values.
These advantages have a flip-side:
• penalty clauses for early termination of finance leases;
• higher implicit interest costs in leases compared to cost of funds to the Commonwealth; and
• dependence on the market to supply assets may lead to long-term exposure to market cycles and values.

The acquisition plan is developed during the planning phase and prior to actual acquisition of the asset.
As a minimum it should address:
• the program delivery requirements - including service strategies and standards;
• the non-asset solutions considered - including utilisation of existing assets;
• an analysis of the alternative methods of acquisition - using discounted cash flow techniques where
appropriate;
• the personnel involved with acquisition and their
responsibilities;
• the time-frame for the acquisition process;
and
• the timing and amount of capital outlays.
The plan will encompass all major asset
acquisitions (including replacement of existing
assets) anticipated over the corporate
planning period.
The extent and depth of documentation and analysis in the acquisition plan will depend critically on the
importance of the assets in program delivery. One measure of this is the relative value of the assets to
the total asset values held by the agency. Asset values may also be compared with the program expenditure,
although a more appropriate base in this case would be the ‘annualised’ whole-of-life costs of ownership.
39
2 . 3 . 4 T h e A c q u i s i t i o n P l a n
For major acquisitions better practice is to
establish an ‘acquisition history register’
which details major decisions, times met
and not met, cost targets met/overrun,
and so on.
Acquisition Plan
Rationale
Analysis
Personnel
Timeline
Funding
History

40
Agencies should establish effective accountability mechanisms which ensure the use and ongoing maintenance
of assets remains relevant to program needs and service standards as defined in the acquisition plan.
Recent reforms in the public sector have been directed at establishing accountability, with responsibility, at the
program level. The program manager is responsible for the controllable inputs and outcomes of each program.
Difficulties are encountered when treating the costs associated with the use of assets on a program basis. Some
of these costs are not apparent (for example, the ‘finance’ cost discussed in the previous section); some are not
recognised as the asset’s service potential is consumed (for example depreciation and provisions for
maintenance); and generally, total capital and recurrent costs are not fully allocated or attributed at the
program level.
To ensure effective utilisation of assets, it is important program managers are made responsible both for the
cost of using assets in program delivery and for the performance of those assets in achieving program
objectives.
This section explores mechanisms by which financial and performance accountability may be established. It
also provides practical guidance on implementing appropriate condition assessment and performance
monitoring regimes.
2 . 4 O p e r a t i o n s

The MAB/MIAC publication, Accountability in the Commonwealth Public Sector (Report No. 11), deals with the
recent public service reforms which have increased the focus on programs and performance. Part of the reform
framework is a move to greater devolution and increased decentralisation.
As the report states “...the quid-pro-quo for the devolution of authority has been the expansion of accountability
mechanisms”. However, accountability for asset use has been blurred. This is mainly due to inherent features
of non-current assets, such as their long-life, which makes it difficult to ensure that the management of life-
cycle costs is not fragmented.
Better practices in asset management call for the management (and hence responsibility and accountability) of
assets to be on a ‘whole-of-life’ basis. In practice, this translates to making program managers accountable for
all of the life-cycle costs of the assets which they consume in delivering their programs. Mechanisms to achieve
this will be directed at making all asset costs transparent to the program manager.
Accountability extends beyond cost, to making program managers responsible for performance and
safeguarding of the assets they control and consume. An integral part of achieving this accountability is a
management information system that provides data on asset condition and performance.
Notwithstanding this accountability model, there remains some scope for central oversight and control of
assets. Centralised reporting facilitates the monitoring of overall asset usage, repairs and other costs. It
permits the development of overall replacement policies and, with regard to purchasing, provides the
opportunity for enforcement of common standards and taking of optimum discounts.
Agencies need to strike a balance between devolution and delegation of authority on the one hand, with the
need to ensure a consistent, coherent approach to achieving all program objectives on the other.
41
2 . 4 . 1 A c c o u n t a b i l i t y P r i n c i p l e s

42
Accountability for the ‘cost’ of using assets has traditionally been effected in government through the
budgetary system. As this is a cash-based system, it is possible that it can create distortions in asset
management decisions.
The separation of capital and recurrent costs for budgeting purposes militates against a whole-of-life approach
to asset management. Assets purchased with capital funds, once approved, are treated effectively as ‘free’
goods in subsequent years, so that there is little ongoing incentive to ensure service potential is optimised. The
separate bidding for recurrent funds on an annual basis ignores the concomitant nature of capital and
operating costs. It also provides the opportunity to defer necessary maintenance expenditure, as the impact of
such a decision is not felt, in a cash-based system, until later in the asset’s life.
The ‘ideal’ solution in terms of some of the above problems is to operate on a full accrual accounting basis for
budgeting, recording transactions, and reporting. On this basis the impact of decisions, such as deferral of
essential maintenance, are able to be reflected in the asset’s carrying value or its useful life (through
depreciation charges) when the decision is made.
In a cash-based environment it is suggested that agencies require program managers to establish whole-of-life
costings for assets and use these as internal budgets, at the program level, to track and control expenditure.
Significant deviations from the plan would then need to be explained in terms of their impact on asset
performance and condition.
It is recognised that for certain assets (information technology equipment and building fit-out are examples)
some agencies adopt a centralised approach to purchasing. Capital and recurrent budgets for these items are
not established at program level. In order that the full cost of program delivery is made apparent to program
managers, it is necessary in these cases to devise some method of routinely allocating or attributing costs to
the program level on a timely basis.
2 . 4 . 2 F i n a n c i a l A c c o u n t a b i l i t y
Identification of the full costs
associated with assets and their
attribution to the relevant program is
essential to establish accountability at
the program level.
Internal charging of users of assets is one
approach to cost allocation. The
advantage is that charges can be based
on ‘accrual’ costs providing a proxy for a
full accrual system.
The Australian Bureau of Statistics has
developed a sophisticated internal
charging regime of IT assets (refer to
Case Study in Appendix A).

Asset
Physical condition
Utilisation
Integrated
performance report
Functionality
Financial
performance
Agencies should establish systems and procedures which monitor and report on the performance of assets.
A useful reporting format is the Integrated Performance Report which captures and consolidates this
information by type or class of asset.
F i g u r e 2 - 5
43
2.4.3 Performance Accountability
Better practice suggests program
managers be made responsible for the
physical condition, use, functionality
and financial performance of the
assets they consume in delivering
programs.
Requires regular inspection
and assessment of required
maintenance costs.
How effective is the asset?
Indicators include user
satisfaction, and level of
availability when required.
How intensively is the
asset used? Hours of
operation, kilometres
travelled, floor space
occupied, are examples.
Indicators may include the
cost of operating the asset,
or of maintenance, as a
ratio of capacity (eg $/km
or $/m2
).

44
2 . 4 . 4 M a i n t e n a n c e Po l i c i e s
The maintenance policy derives from
consideration of several factors
relating to the needs of the
organisation and the risk and
consequences of asset failure.
The significant policy questions which need
to be answered include:
• what are the maintenance
standards (the desired
condition of the asset)?
• what is the appropriate mix
of approaches?
• is management of maintenance
to be devolved?
• how will the service be
delivered (in-house or out-
sourced)?
The maintenance policy provides the basis for determining why an asset is maintained in a particular way. It
has direct linkages to, and underpins, the maintenance strategy.
The policy will address necessary maintenance standards, which should be performance based, and which
define the desired condition of the asset with respect to its functionality, level of amenity, compliance with
legislative requirements, and economic performance.
Selection of a maintenance strategy involves consideration of the appropriate mix of procedures and the
capacity to undertake minor modifications and enhancements when required. It is unlikely that any one
approach will be suitable. The main approaches are:
• corrective - no maintenance is undertaken unless, or until, the asset no longer functions to the required
standard;
• preventive - undertake programmed maintenance to reduce the likelihood of failure to an acceptable level.
An important consideration is the nature of the asset itself. Certain categories of assets require little or no
regular maintenance (furniture and fittings for example). It is valid to exclude such assets from a formal
maintenance program and rely instead on regular, periodic inspection of condition. This could be undertaken in
conjunction with the stock-take program.
Risk is also an important consideration in determining appropriate maintenance policies. Risks associated with
the operation of the asset in terms of occupational health and safety standards need to be considered. The risk
and consequence of failure of the asset is also an important consideration.
A planned approach to maintenance will ensure the delivery of
maintenance services, such as routine inspections and servicing,
are undertaken in a manner which minimises disruption to the
users of the asset, and ensures maintenance resources are used
in the most cost-efficient manner.

The objective of operational and maintenance plans is to ensure assets remain appropriate to program
requirements, are efficiently utilised, and are maintained in the necessary condition to support program
delivery at the lowest possible long-term cost.
Operational plans establish the means to ensure that assets are efficiently and effectively utilised in
supporting program delivery. Under-utilisation will increase the unit costs of program delivery and may
prompt the purchase of new assets when they are not required. Over-utilisation can have adverse affects in
terms of deterioration in asset performance and condition, shortening productive life and increasing recurrent
operating and maintenance costs.
The operational plan should cover:
• responsibility for, control of, access to, and security of the asset;
• the level and standard of performance required of the asset;
• arrangements for collecting, monitoring and reporting performance data;
• training staff in use of the asset; and
• estimates of operating costs.
In developing a maintenance plan an initial assessment of the condition of existing assets against the
desired standard is undertaken. This establishes the corrective maintenance necessary to meet the standard
and defines a base-line for determining the adequacy and effectiveness of future maintenance. The plan should
allow for the rectification of existing defects; an annual program of routine preventative maintenance; and a
long-term program for major repairs and maintenance.
Both plans are dynamic and should be reviewed regularly to ensure they remain appropriate to program
delivery needs.
45
2.4.5 Operational & Maintenance Plans
Set out the approaches to be used, and
what needs to be done, to optimise
performance and asset life.
•
• Maintenance Schedule for Location •
•
•
• Component Planned Maintenance Replacement/refurbishment - Year •
•
•
•
Backlog Routine 1 2 3 4 5 6 7 8 9 10
•
•
•
• •
•
•
•
•
•
•
•

46
The Commonwealth Department of Administrative Services published ‘Guidelines for the Disposal of Surplus
Assets’ in 1992. They are a prime source of information for asset managers deciding between alternative
disposal methods and to gain an understanding of the policy framework for disposal.
Reasons for disposal action are generally well understood (surplus, under-performing and unserviceable assets
are examples). The methods of disposal, their pros and cons, are not as well comprehended. An area which is
given less attention is the alternatives to disposal. This section will not re-state the Guidelines. It will draw
out some key points in relation to the above issues together with some additional matters for consideration.
T h e D i s p o s a l D e c i s i o n
The disposal decision cannot be taken in isolation. While disposal is viewed as the final stage in asset
management, it is common for disposal action to trigger the acquisition of a new asset or a replacement asset.
The underlying assumption is that management has the necessary information to be able to determine which
assets need to be disposed of, and when.
The asset register is a starting point for this analysis as it records the useful lives of the class of assets and is
able to provide an indication of the timing of major replacements in the normal course of business. It is self-
evident that, to be used in such a way, the assessments of useful life must be as realistic as possible.
i
2 . 5 D i s p o s a l
The Accounting Standards (AAS4)
require that the useful lives of asset
classes be re-assessed annually.

The actual life of individual assets will vary from the ‘average’ life established for that class of asset in the
asset register. Therefore, it is important that condition monitoring and performance assessment are
undertaken, with the results linked to an appropriate management information system.
A l t e r n a t i v e s t o D i s p o s a l
Where assets have been identified as under-performing, or no longer functionally suited to program delivery
needs, thought should be given to the possible alternatives to disposal.
A factor to consider is whether utilisation can be increased by adapting the asset to another function or using
it in another program. In large devolved or decentralised organisations it may be worthwhile circulating lists of
assets flagged for disposal to other program heads prior to commencing disposal action. For assets such as
property or large IT installations, consideration may be given to renting or leasing surplus capacity to other
agencies.
Refurbishment or an upgrade of the asset may also be viable. The cost and benefit of such alternatives should
be included in the costed disposal plan (refer below).
M e t h o d s o f D i s p o s a l
The DAS Guidelines discuss the primary methods of disposal including sale by public auction or tender, sale by
private treaty, trade-in and write-off. One method which is often overlooked is the sale or transfer of assets to
other government agencies.
Whatever method is chosen it is important, not least for accountability and transparency, that a properly costed
evaluation of relevant disposal options is prepared. This should take into account both the costs associated
with each method of disposal and the likely benefits (including possible proceeds).
47
2 . 5 D i s p o s a l c o n t d . . .

48
2 . 5 D i s p o s a l c o n t d . . .
Better practice suggests, in addition to
undertaking the cost-benefit analysis of the
methods of disposal, asset managers be
required to compare actual life at disposal
with the expected useful life and to explain
significant variations.
A s s e s s m e n t o f Pe r f o r m a n c e
The whole-of-life approach to asset management and effective strategic asset planning requires that the
outcomes and outputs of each phase of the asset life-cycle become inputs to the next planning cycle. While more
attention is being given to operation and maintenance it is still uncommon for agencies to evaluate their
disposal performance.
At the very least a comparison of the actual timing and proceeds on disposal should be made with the standard
established for the class in the agency’s accounting policies. This is a means of confirming that the useful life,
estimated proceeds, and therefore the depreciation rates used, are valid. It also provides the opportunity to
identify causes where assets are routinely not meeting the service life expectations or their estimated proceeds
on disposal.
A higher level review also needs to be undertaken at regular intervals to ensure that the Government’s
disposal goals and aims, as set out in the DAS Guidelines, are being met.

This Section discusses a number of aspects of the recording and valuation of assets. It also discusses the
allocation of asset values over the periods of their use. This allows the full cost of the various programs of
activity undertaken by an entity to be identified.
W h a t i s a n a s s e t ?
The accounting definition of an asset is somewhat removed from its everyday meaning. In accounting there are
tests of control which over-ride considerations of ownership and formal rules which establish when an asset is
created or otherwise comes into existence.
H o w d o y o u r e c o r d a s s e t s ?
It is not as simple as entering the amount paid for the asset in the books of account. Materiality reigns
supreme in accounting which in turn necessitates consideration of thresholds for financial recognition. The
distinction between what an asset is, and the threshold at which you report that asset in financial statements,
is a major source of confusion. Related difficulties arise when you have a large number of assets which are
individually immaterial but that, when taken together, are material. And what about when you have
individual components of assets that function together but which are each immaterial...?
H o w d o y o u v a l u e a s s e t s ?
Strange things can occur when you value some of your assets looking backwards in time and some of them
with the future in mind. The accounting profession permits this uneasy mixture. So what should be the
preferred valuation method for effective whole-of-life asset management?
And what is ‘depreciation’?
49
2 . 6 A c c o u n t i n g a n d Va l u a t i o n
Assets are recorded and valued to
allow performance to be measured:
internally for management purposes
and externally for accountability.

50
2 . 6 . 1 A c c o u n t i n g D e f i n i t i o n s
Consistent definitions are essential to
good management and good reporting.
Formal definition
Three essential elements
The Statements of Accounting Concepts (SACs) issued by the accounting profession in Australia provide a
framework for reporting. Australian Accounting Standards (AAS) lay down detailed requirements for certain
aspects of financial reporting.
SAC 4 Definition and Recognition of the Elements of Financial Statements defines an asset. AAS 29 Financial
Reporting by Government Departments contains the same definition:
“Assets” are future economic benefits controlled by the entity as a result of
past transactions or other past events.
The definition has three elements, which must all be satisfied for there to be an ‘asset’ in an accounting sense.
They are relevant to all forms of asset be they financial, physical or intangible:
• future economic benefits;
• control by the entity; and
• a past event giving rise to that control.
F u t u r e E c o n o m i c B e n e f i t
Will the ‘asset’ provide any benefit to the agency that controls it? Does it have potential to support program
delivery? Does it have a resale value? Can it be exchanged for something else that is useful to the agency?
Will it save you some money in the future? If you answered no to all of these questions you probably don't
have an asset on your hands. If it's currently in your asset register you should remove it (before the auditors
find it).

Yo u a r e u n d e r m y c o n t r o l
How can you control an asset without owning it? The key point to understand is that it is control of the
economic benefits of the asset rather than ‘physical’ control which is important. Do you enjoy the benefits of the
asset and can you prevent others from sharing those benefits?
Legal title and physical possession are good indicators of control but they are not infallible. A ‘finance’ lease
(discussed in section 4) is one example where the legal ownership rests with the lessor yet the benefits are
enjoyed by the lessee. An agency may be required to have legal title to some asset under legislation but it is
used by another agency - that asset is controlled by the other agency and so should be reflected in their
records.
Pa s t E v e n t s
Accounting establishes time periods (usually 12 months) at which it measures the position and performance
of an entity . It is possible to recognise an asset for accounting purposes only after it has come into existence -
there is nothing prospective about recognition. What we are looking for is some event or transaction which
transferred control to an agency - it is from that point that you recognise the asset.
Good indicators are when you pay for the asset, when you take possession of the asset or when you create
the asset.
In some instances, an entity may be certain it is going to gain control of an asset - this is not enough of itself.
There may be a number of events associated with an item becoming an asset. It is essential that the event
giving rise to control is identified. This is not always an easy exercise (ask any accountant).
51

52
Passing the first test of ‘definition’ does not automatically mean an asset should be reported in the financial
statements. Accountants need you to answer some questions first.
The criteria, from SAC 4, for recognising an asset in the financial statements are:
“... when and only when:
(a) it is probable that the future economic benefits embodied in the asset will eventuate; and
(b) the asset possesses a cost or other value that can be measured reliably.”
M o r e o r L e s s
Accountants define ‘probable’ to mean more rather than less likely. This does not imply certainty or a high
probability and can range down to a 51% chance. If the probability is more rather than less (greater than 50%),
but not high, some explanation may need to be provided in financial reports, but the item would still be
included as an asset. So, if an accountant tells you that it is probable that a particular horse is going to win a
race, you may want to think twice before you gamble.
i
2 . 6 . 2 R e c o g n i t i o n o f A s s e t s
The different methods of recognising
assets can either make reports
informative or meaningless.
SAC4 and AAS 29, for government
departments, have Asset Recognition
Criteria

Tr u s t m e , I ’ m a n a c c o u n t a n t
If you are buying an asset it is a fairly straightforward process to measure its cost. However, in some cases you
may need to estimate this cost (or value). For example, an asset may have been donated, you may be
recognising it for the first time and have lost its transaction history, you may not have had systems in place to
capture all costs (internally developed software is an example). It is important in these cases the estimates be
soundly based. The use of a professional valuer is strongly recommended.
It may not be possible to obtain a reasonable estimate of the cost or value of the asset. The question that needs
to be put is whether including an asset in the accounts, at a value that is questionable, will mis-lead the users
of those accounts? Will the accounts be made more meaningful by the inclusion or exclusion of the figure?
S e t t i n g T h r e s h o l d s
Now it has been determined that an asset exists and its cost is able to be reliably measured it is included in
the financial statements, right? Wrong! Financial statements do not need to report every transaction or event
that affects an agency. The approach that accountants use is that it is only necessary to capture and report on
‘material’ or significant amounts and events in the statements. This is an attempt to weigh the cost of
gathering data against its usefulness or significance to the readers of the financial statements.
Using this criterion it is not necessary to include the value of every asset in the financial statement balances.
Note the subtle distinction. We are not talking about whether you need to record the existence of an asset in
the underlying registers - that is an asset management decision based on the importance of the asset or group
of assets to an agency, and accountability criteria. We are talking about whether you need to report the assets
that you do record, in your financial statement balances.
53
2.6.2 Recognition of Assets contd...
You should refer to AAS 5 for a discussion
of Materiality.

54
2.6.2 Recognition of Assets contd...
Some agencies also set a ‘recording’
threshold - only assets which are valued
over a certain amount are recorded in the
registers of the agency. The recording
threshold is based on cost-benefit
considerations in terms of accountability,
probity and management of assets.
The common example is ‘portable and
attractive’ items which are generally below
the ‘reporting’ threshold.
The way this is decided is to establish a monetary reporting threshold. A threshold commonly used by
departments is $2000. This is largely out of habit as this was an amount historically prescribed. It is possible
however that the application of a uniform threshold across all asset classes will not be cost-effective and will
send the wrong signals to asset managers.
As a rule accountants set a threshold so at least 95% of total non-current assets by value are reported in the
financial statements. This rule provides significant scope to set different thresholds for different classes of
assets. It may be possible to ignore an entire class of assets for reporting purposes where they are
immaterial when compared to total non-current assets. Alternatively, it is possible to decide to report all of a
particular type of asset.
The hard part comes where you have a lot of assets with very low unit values (possibly below the value at
which you normally record assets in the registers) but which in aggregate are material to total non-current
assets due to their sheer volume. It is appropriate in this case to record these assets as a single group, with one
combined value, so that you are able to satisfy reporting requirements. Examples include the creation of
group totals to record different types of furniture or fit-out, or the contents of professional libraries.
One word of caution: if these low value assets are never-the-less important to an agency in supporting the
delivery of programs, it may be necessary to establish a subsidiary system to be able to track their movement
within the organisation or to monitor and control necessary maintenance, for example. The counter-point is
that it is not necessary to capture and record financial information at this lower level. A good example of
such a subsidiary system is a librarian’s catalogue. Similar systems may be established for low value, portable
and attractive items which need to be tracked but not necessarily reported.

We have established what assets are. We have established that not all assets are included in the financial
statements. The criteria used to determine this is the asset value and the reporting threshold. But how do we
arrive at the asset value?
Asset values are generally recorded at the original purchase price (historic cost) of the asset. They may later be
re-valued on some other basis (deprival value being the predominant approach). These values are referred to as
the Gross Book Values of assets. They are not however the end of the story. The carrying value of an asset in
the financial statements (its Written Down Value) is arrived at by deducting an annual depreciation charge
(which accumulates over time). Deductions other than depreciation may also be made from asset values to
reflect some other factor which diminishes the asset’s present value to an agency (deferred maintenance is one
example).
Va l u e s o n i n i t i a l r e c o g n i t i o n
Accounting standards require the initial recording of an asset to be at cost. “Cost” includes necessary, ancillary
expenditure such as transport of the asset to the site. For items where there is no cost to the entity (eg. gifts or
transfers without cost) the standards require that they be recorded at their fair value (ie. the amount that a
willing buyer and willing seller would agree on).
The Department of Finance has determined, for transfers between departments, on a restructure of functions,
assets should initially be recorded at the value at which they were carried in the books of the transferring
department. In this instance, both the gross value and accumulated depreciation should be recorded.
55
2 . 6 . 3 Va l u a t i o n o f A s s e t s
Initial recording of assets at
acquisition is at cost except in special
circumstances.
AAS 21 Accounting for the Acquisition of
Assets (Including Business Entities) refers.
For assets under finance lease, the initial
value recorded depends on whether the
asset is expected to remain with the entity,
or eventually be returned to the lessor.

56
Accounting for asset revaluations is
dictated by AAS 10 Accounting for the
Revaluation of Non-Current Assets and, for
departments, by AAS 29
A commonly used set of rules for valuing
assets in the public sector is the deprival
value method. This is really a set of rules
for applying different valuation techniques
based on the circumstances applying.
A brief outline of these rules is included in
the Department of Finance Guidelines for
Financial Statements of Authorities.
S u b s e q u e n t v a l u a t i o n
Initial valuations of assets on an historic cost basis will become increasingly irrelevant over time both for
management decision making and external reporting. It is possible to update the value of almost all assets and
it is increasingly recommended that this should be done.
Many businesses, including Government Business Enterprises, are required to re-value land and buildings
every three years. This is also recommended for departments and is likely to become mandatory. While it is not
compulsory for this valuation to be taken up in the accounts, omission of this step is generally
counterproductive in terms of obtaining a measure of the real costs consumed by, and current value of the
investments in, programs. Better practice in asset management suggests, for planning purposes, management
should have an indication of the future call on resources for replacement of existing assets. The regular
revaluation of assets is one method of achieving this.
The cost of revaluation can be a major expense. This cost is ameliorated to a large extent when the agency has
established an adequate asset register (in the form discussed in section 2.1.2) and has maintained it by
ensuring that all asset movements (acquisitions, disposals and transfers between locations!) are recorded in
a timely manner.
Agencies should also consider the use of appropriate indices which may be used in conjunction with a cyclical
program of revaluation, in order to lower the cost of the revaluation exercise. This approach coincides nicely
with the accounting profession’s decision to allow revaluation of parts of a class of assets provided it is part of a
systematic revaluation process undertaken over no more than three years.
The revaluation of assets is normally an exercise best left to experts whether they are from an independent
organisation, such as the Australian Valuation Office, or internal officers with the necessary qualifications and
experience.

D e p r e c i a t i o n
Cash accounting shows asset purchases as expenditure in the year in which payment is made. This overstates
program costs in that year as it fails to reflect that the asset is used over a number of years. Accordingly the cost
of the asset should be spread over that period. Accrual accounting, and in particular the process of depreciation,
allow the actual cost of programs to be seen, as and when an asset’s service potential is consumed.
It must be emphasised that accounting ‘depreciation’ is not saving up for new assets and is only partly a
reflection of the “wearing out” of assets. Other factors, such as technical obsolescence and any residual value of
the asset, must also be considered.
Depreciation is based on allocating the asset value over the useful life of the asset. It is necessary to remember
that this useful life is estimated in the context of “normal” maintenance being undertaken on the asset as and
when required over the period that it is in use.
The assumption of a particular level of maintenance is integral to the calculation of useful life. Maintenance
which is part of this assumed level, and which is insignificant to the total asset value, is generally recognised
as an expense in the year that it occurs. Assumed maintenance, which is significant (or ‘major’), and which is
not carried out when required, may reduce the useful life of the asset, lower its disposal value at the end of its
life, or impair its functionality and reduce its output.
One means of signalling such ‘additional’ deterioration to asset managers is to institute a ‘condition-based’
depreciation regime. This requires recognition of the actual condition of the asset prior to maintenance being
effected. This approach is reflected in the following diagram (figure 2-6). The ‘depreciation’ for the condition of
the asset is separate from, and additional to, the normal depreciation provision. It is generally referred to as a
provision for diminution of value or a provision for major maintenance and is also deducted from the gross book
value of the asset.
57
Depreciation is the allocation of the
value of an asset to the periods in
which it is used.
• Depreciation is not a method of
financing replacement assets.
• Depreciation is necessary even where
assets are re-valued every year. The
two processes are independent.

58
This model may also be applied to major
components of assets that have a separate
useful life less than the life of the entire
asset. For example roofs of buildings and
carpets. In these cases the component is
fully depreciated over its (shorter) life.
F i g u r e 2 - 6 C o n d i t i o n - b a s e d D e p r e c i a t i o n R e g i m e
The extra ‘provision’ is generally determined by reference to a costed maintenance program developed for the
asset or asset class. When maintenance is carried out the expense is charged to the provision, restoring the
asset value to its depreciated value. If the maintenance is not carried out when required the provision for
maintenance remains. This provides a direct signal to managers of the impact of their decision to defer
maintenance.
time
$ cost
depreciated value
useful life
diminished values
5 10 15 20 25 30

A P P E N D I C E S
3-A Case Studies
3-A-1 Bureau of Statistics - Internal Charging
3-A-2 Attorney-General’s - Monitoring of On-Line Equipment
3-A-3 National Library - Utilisation of Photocopiers
3-B Glossary of Terms
3-C References and Further Reading
A p p e n d i c e s Asset Management Hand bo ok
PA R T 3
Appendix A provides details of the case
studies introduced in Part 2 of the
handbook.

A p p e n d i c e s Asset Man age me nt Han db oo k
3 - A - 1 I n t e r n a l C h a r g i n g
This study illustrates a method of
allocating life-cycle costs on an
accrual basis to the users of assets.
It demonstrates how the principle of
accountability for consumption of
assets is able to be effected.
The Australian Bureau of Statistics
implemented a ‘user-charging’ regime in
1989 for IT equipment and support services.
An IT Bureau was established.
Its responsibilities include installation and
operation of ABS central computing
equipment, mid-range equipment and
communications networks; and installation
and support of small-scale technology.
The IT bureau is effectively ‘self-funding’,
relying on the ‘revenue’ from its internal
lease charges. It is also able to ‘borrow’
from the department for major capital
acquisitions.

A p p e n d i c e s Asset Management Hand bo ok
3-A-2 Monitoring On-Line Equipment
An example of tracking high risk
assets by use of technology.
The Attorney-General’s Department has
developed a system which records
electronically the ‘polling’ of IT equipment
attached to a LAN.
The system logs the existence and location
of these assets. Defining appropriate time-
periods for high risk assets makes it
possible to alert IT staff to the potential
loss of equipment. The resulting data can
be used in a risk-based stocktake process.

A p p e n d i c e s Asset Man age me nt Han db oo k
3 - A - 3 U t i l i s a t i o n o f A s s e t s
An example of the application of life
cycle planning leading to optimisation
of the acquisition decision.
The National Library of Australia
instituted a review of the utilisation and
functionality of its photocopiers in 1993.
Devolved purchasing had led to a variety of
makes and models of photocopier with
disparate service agreements. At the time
there was no requirement to consider the
cost of maintenance and service when
evaluating the acquisition.
There is now central monitoring of
purchases by the Services Branch to ensure
that standards for brands and service
agreements are met.

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