Fixed Assets, especially Property, Plant and Equipment (PPE), is the biggest number on any municipal balance sheet, and represents the means for the municipality to deliver services to the inhabitants in its area of jurisdiction.

Accounting for fixed assets at municipalities have gone through some drastic changes over the past 40 years. It included the realisation that the physical management of assets has a direct result on financial results.

The British Rail System, with its “Fund accounting” was utilised up to the 1980’s. The focus was on the Investment – “Capital Receipts”, and not the Assets. Depreciation reduced the capital receipts and was not an expense against operating income. Fund accounting was replaced in the 90’s with what was termed the IMFO – Standard.

The “capital receipts” were equated to accumulated depreciation and Fixed assets ended with vastly understated values on the face of the Balance sheet (even NIL). During the above period, prescriptions were issued regarding the format of asset registers (data), and inventories were maintained by departments within a municipality, with mostly no reconciliation between physical records and financial disclosures.

Infrastructure was not broken down in components, descriptions of assets made it difficult to physically verify individual asset components. There was no coordinated effort to manage all the assets of the municipality, and conflicts arose frequently. The GRAP standards, with some national guidelines, were implemented, around 2011.

The overriding focus was to componentise the infrastructure assets, which made it possible to agree the physical inventory, as per the asset register, to the financial disclosures. The accuracy of asset data, as a rule, improved over the past 10 years, but the life cycle management of assets did not necessarily rise above the minimum requirements of
accounting compliance.