Development of the Book Value Calculator (BVC) was undertaken during 1999-2000 in preparation for the conversion to accrual based accounting for real property assets at the federal government level on April 1st, 2001. PWGSC worked closely with the Office of the Auditor General of Canada and with the Treasury Board Secretariat during the development stage, essentially, to ensure that the program did what it was designed to do, specifically, it would produce reasonable estimates of opening book values when the required input data was reasonably accurate and well supported.

Observations of the Auditor General on the Financial Statements of the Government of Canada for the year ended March 31, 2003 (excerpt)

“The move to full accrual accounting has been a major challenge, and it required a great deal of work. For instance, a major effort went into determining the cost of capital assets acquired many years ago, well before the recording and amortizing of costs for accounting purposes was contemplated. The Government met this challenge with innovative solutions such as a tool (i.e. BVC) for estimating the historical costs of real property assets. The result is a fair estimation of the costs of the Government’s capital assets—which will be amortized over their remaining useful lives—providing readers with, among other things, a better estimate of the costs of government programs from year to year”.

The BVC has been successfully used to calculate the opening book values for more than 20 federal government custodial departments in 2001. Word of the recent success of the BVC spread through the financial community, and in July 2001 we were contacted by the Office of the Accountant General, Government of Bermuda. They were facing the same challenge as the Government of Canada vis a vis the valuation of their tangible capital assets (more specifically land, buildings and an extensive array of infrastructure). Again, we worked with the Office of the Auditor General of Bermuda, and the Office of the Accountant General to customize and update the BVC in order to calculate the opening book values for Bermuda.

Subsequently, in 2002 we were contacted by the Ontario Realty Corporation (ORC). The ORC are the custodians of all real property held by the Province of Ontario. Once again the BVC was customized and updated and used to successfully calculate opening book values in 2003. The Office of the Provincial Auditors in Ontario completed a thorough testing and review of the BVC and the calculated values for the ORC. They were satisfied that the BVC produced accurate opening book values. (See the ‘Links’ page on this site for further background information)

In 2005, the ORC approached us once again on behalf of the Ontario Ministry of Education (MOE), who were moving to the accrual-based method for their real property assets, (i.e. land, buildings, and infrastructure for all provincial school boards). The ORC, who had gained a good understanding of the BVC’s functions and capabilities, worked in collaboration with the MOE to produce opening book values for Ontario’s school boards in 2005.

The previous successful use of the BVC with ORC and the MOE in Ontario has led to the interest of 15 of the largest Municipalities of Ontario through the Ontario Municipal Benchmarking Initiative (OMBI), who expressed interest in testing the Book Value Calculator (BVC) as part of their mandated research. OMBI produced a final report in February 2007, which noted the valuable assistance provided by the BVC. There has been growing interest in the BVC expressed by Municipalities across Canada over the past number of months partially as a result of the findings contained in OMBI final report. Currently the municipalities across Canada are facing the same requirement to move to accrual based accounting that senior levels of Government in Canada have previously and successfully undertaken.

Once again, we are updating the BVC to calculate opening book values for 2009 in accordance with the required timelines set out in PSAB 3150. Due to the potentially large number of municipalities across Canada that may decide to use the BVC, we are working with the original BVC user agreement programmer to make the BVC available on-line as a web based application. Previously, the BVC was an ‘MS Access’ based program that was distributed to users by CD.

The BVC’s mathematical functions and previous historic cost indices for all provinces have remained exactly the same as the previous editions of the BVC, that were used to calculate opening book values for the Government of Canada and Ontario. We have tested the web based BVC using the same input data from previous versions, and the BVC produces exactly the same output values as the previous version(s). Only the various historic cost indices in the BVC have been updated to account for the new effective date of the opening book values in 2009. These are the only changes that have been made to the application.

Based on our experience in the past, there are several key areas relating to the data that has been input into the BVC by users that should be reviewed to ensure that the data is as accurate and well supported as possible.

We suggest that the reviewer’s/auditor’s primary focus would be;

1. verification of the source of information used for assigning a value to the land;
2. verification of the source of information used for determining the year of acquisition of the land.
3. verification of the source and accuracy of the information that provides ‘year built’ for an asset.
4. verification of the source and accuracy of the information that provides the ‘historic costs’ for an asset.
5. verification that the proper/appropriate ‘cost’ is being used. Often there is confusion regarding the ‘cost’ of an asset. For example; market value, assessed value, are rarely the same as the ‘reproduction/replacement’ cost of an asset. In fact, they are usually substantially different values.
6. verification of the source and accuracy of the information that provides the current ‘condition’ of the asset. (This input is very important as it determines and selects the betterment rate that the BVC uses in its calculations).
7. verification of the source, reliability and support of the % rate chosen if the ‘Annual Betterment Rate’ section of the input screen is used.
8. verification of the source of information and accuracy of the physical details of the asset for purposes of calculating current replacement/reproduction cost.
9. verification of the proper/appropriate amortization period for a given asset type;
10. the proper utilization of the materiality threshold (dollars) noted in the municipalities stated accrual accounting policies.

The reviewer/auditor will typically provide the municipality with a report indicating the scope of the review, including the size of the inventory, the size of the reviewed sample, the percentage of errors observed. The reviewer/auditor will add comment(s) and recommendation(s) to management pertaining to the level of compliance of the inventory of real property capital of assets with the stated policies on accrual accounting.