Asset life principles The draft guideline contains a range of common useful lives for various classes of assets at Appendix B. Where an asset’s useful life does not fall within this range, the draft guideline requires the service provider to explain why this is the case in the notes. The explanation is intended to provide shippers with an understanding of why the asset life is longer or shorter than those for similar types of assets (for example, a pipeline with a longer potential operational life may be depreciated over a shorter estimated useful life when there is an expectation that gas will no longer be required due to changing customer needs). The inclusion of a range of useful lives in the draft guideline is intended to reduce the burden on service providers, because if their asset lives fall within the range they will not be required to provide an explanation for the basis for the asset’s useful life. If a range of asset lives were not prescribed, service providers would be required to explain the basis of the useful life for each asset (or class of assets) disclosed in the balance sheet. Depreciation principles While the AASB provides some flexibility in the methodology that can be applied to depreciate assets, for simplicity, the draft guideline requires assets to be depreciated on a straight line basis. The draft guideline does not currently provide for land or easements to be depreciated. Some service providers have, however, indicated that easements may have a fixed term life, so this issue needs to be consulted upon further. The draft guideline allows the residual value of the asset to be negative to recognise circumstances where there are required costs associated with decommissioning an asset (for example legally required environmental rehabilitation costs). Where a residual value is negative, the depreciation charge will be higher in each year than an asset with a positive residual value. Related party transactions A number of service providers have complex corporate structures that result in transactions with related parties (for example, one entity may own the pipeline assets and lease this asset to the entity that operates the pipeline or have an outsourcing arrangement with a related party). The draft guideline requires related party transactions in the reporting period to be separately disclosed. This information is required to be reported because, as noted above, there is the potential for related party transactions to not reflect arm’s length market rates and the certification required to confirm an arm’s length market rate may significantly increase the costs of certifying the financial reporting template.
Asset life principles The draft guideline contains a range of common useful lives for various classes of assets at Appendix B. Where an asset’s useful life does not fall within this range, the draft guideline requires the service provider to explain why this is the case in the notes. The explanation is intended to provide shippers with an understanding of why the asset life is longer or shorter than those for similar types of assets (for example, a pipeline with a longer potential operational life may be depreciated over a shorter estimated useful life when there is an expectation that gas will no longer be required due to changing customer needs). The inclusion of a range of useful lives in the draft guideline is intended to reduce the burden on service providers, because if their asset lives fall within the range they will not be required to provide an explanation for the basis for the asset’s useful life. If a range of asset lives were not prescribed, service providers would be required to explain the basis of the useful life for each asset (or class of assets) disclosed in the balance sheet. Depreciation principles While the AASB provides some flexibility in the methodology that can be applied to depreciate assets, for simplicity, the draft guideline requires assets to be depreciated on a straight line basis. The draft guideline does not currently provide for land or easements to be depreciated. Some service providers have, however, indicated that easements may have a fixed term life, so this issue needs to be consulted upon further. The draft guideline allows the residual value of the asset to be negative to recognise circumstances where there are required costs associated with decommissioning an asset (for example legally required environmental rehabilitation costs). Where a residual value is negative, the depreciation charge will be higher in each year than an asset with a positive residual value. Related party transactions A number of service providers have complex corporate structures that result in transactions with related parties (for example, one entity may own the pipeline assets and lease this asset to the entity that operates the pipeline or have an outsourcing arrangement with a related party). The draft guideline requires related party transactions in the reporting period to be separately disclosed. This information is required to be reported because, as noted above, there is the potential for related party transactions to not reflect arm’s length market rates and the certification required to confirm an arm’s length market rate may significantly increase the costs of certifying the financial reporting template.
20171009%20-%20Financial%20Reporting%20Guidelines%20for%20Non-Scheme%20Pipelines%20-%20Consultation%20Paper_1.docx