Storm-damaged roads are likely to cause a temporary “significant deficit” for Carterton’s council, with other councils facing the same dilemma.
This year’s annual report from Carterton District Council [CDC] is expected to flag climate-related impairment costs.
The yet-to-be-finalised amount relates to damage to roading incurred in the district during the severe weather events earlier this year. It is an accounting term called an “impairment expense”.
The CDC meeting last week, to discuss the council’s draft annual report, heard that while the expense means the council will probably be in a loss situation this year, this is currently expected to reverse out at a later stage.
A council official flagged the item.
“We have completed some work around our impairment assessment related to roading. You will recall there have been several damaging weather events in the past year. We are required under accounting standards to assess whether there’s impairment on the road that would reduce the value,” she said.
“We haven’t put the adjustment through the accounts yet, as we would like audit to review it first.”
The officer said once it has been reviewed, they are expecting a “significant adjustment” in the accounts. The reduction in value of the assets will be recognised in the accounts as an expense.
“What that’s potentially going to do is give us a significant deficit.”
The officer said it is important to note it is not a cash transaction.
“It’s just a decrease in the value of the assets recognising the damage on our roads,” she said.
Another officer described the accounting entry as “super-depreciation”, which could be effectively reversed in a future accounting period by things like insurance payments or other offsets.
The meeting heard much of the risk to the accounting entry lies in how it is interpreted.
“The risk for this committee is the amount of damage on the roads when that’s factored in as a significant deficit. It’s who reads it and how they interpret what that looks like. It’s not a catastrophic failure of financial management or financial planning. It’s a timing issue around impairment,” an officer explained.
An officer said Carterton is not alone in dealing with the infrastructure-related impairment issue.
“I would say you’re not alone. I hate to think what Auckland’s impairment is going to be. Hastings’ impairment, they’re not even worrying about it because it’s so difficult; they’re just going to say ‘we don’t know’ because they’ve lost a whole lot of bridges. They are still working through what it’s going to cost.”
The final version of the report is expected to be tabled at a CDC meeting at the end of October.
– NZLDR
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