Preparers often ask us why they need to include assets on municipal, public entity, and departmental statements of financial position. The most common argument for not including assets on the statement of financial position is that government assets have no value because they cannot be sold or pledged as collateral for debt. While this may be factually correct for some government assets, there are so many other reasons why information about assets on government’s statement of financial position and elsewhere is important.

Governments (generally speaking) are not in the business of “making money”. Applying a narrow view that assets are only held for their economic value is misplaced in the public sector. Assets are important for the value they provide to those who use and rely on government’s services. Assets should be recognised on public sector entities’ financial statements so that government is held accountable for the public funds used to acquire, maintain and operate assets, and informed decisions can be made about asset management. Lenders are interested in the revenue that can be generated by entities. If revenue generation is linked to particular assets, they are interested in how well assets are being maintained and otherwise operated.

While the full picture about assets and their management requires comprehensive information to be provided in the annual report, recognising assets in the financial statements provides relevant information about:

• The investment in new assets or the upgrade of existing assets, which is demonstrated by additions and work-in progress in the note disclosures.
• The utilisation and maintenance of assets through depreciation and impairment. Changes in useful lives could indicate that maintenance is insufficient to maintain the previously planned rate and period of use, while impairment indicates a decline in the asset’s service potential or damage.
• The classification of assets as investment properties; property, plant and equipment; heritage assets; etc. indicates how assets are used by entities. It indicates whether value will be recognised by an asset’s economic value or service potential.

There are other key decisions that could be made from the financial statements; these just illustrate a few examples.

While it is important to recognise assets on the statement of financial position, it is important to only recognise assets that are material. Materiality means considering whether the information about assets in the financial statements could affect users’ decisions. As government’s activities are focused on the provision of services, it is important to consider both quantitative and qualitative materiality.

Assets will no doubt be a key focus ahead of the 2024 National Elections. Citizens should demand information on assets so that the right questions can be asked about the key tools available to government to provide services. Equally, preparers have a responsibility to provide relevant, understandable information to citizens, lenders and others.