Whitehorse has changed its accounting standards.
Whitehorse is now worth a grand total of $358,058,554 under this new number-crunching technique.
It’s called accrual accounting, and takes the city to asset-based accounting from accounting based on cash.
In the past, if the town needed to build a road it would be counted as a cost on its yearly cash budget.
Now, the new road will also be put on the balance sheet, held as an asset.
This allows the town to account for the value of the road each year and the amount the value has decreased from things, like, weather and use.
There are well-developed principles that categorize these assets and set depreciation rates. So, the city pays a certain amount each year to represent the value that has been lost on that asset from the year’s use. The value of the asset on the balance sheet is adjusted to show that.
“There will be no change to residents,” says Mayor Bev Buckway. “What we’ll have is a clear idea of the cost of those assets.”
This is especially important for city engineers when they are proving the need for renovations or new infrastructure.
It is also useful for nurturing federal funding, like the gas tax initiative, which designed to tackle the country’s $1-trillion infrastructure deficit.
As well, if a natural disaster ever wrecked the city’s road and bridges, for example, this technique provides a quick and easy reference for damages and loss.
The main changes to Whitehorse’s books include putting roads, bridges, and water and sewer pipes on the asset list – joining the city’s buildings and vehicles.
Land will also become part of the asset base, including that found beneath roads and buildings.
This is common across Canada and will occur within all municipalities across the territory. The Yukon government has already adopted this accounting method.
New Zealand led the way for accrual accounting and it is the most common technique used in the corporate word, says Yukon economist Keith Halliday.
It is a management tool that gives better consideration to the long-term cost of replacing assets, says Halliday.
But it’s not all rosy.
“These tools allow for better management, but they also allow for occasional chicanery with the numbers,” says Halliday. “It does open the scope for accounting manipulations. Overall it’s a good thing, but like any good thing, if used improperly, it can be deceiving.”
Enron, for example, used accrual accounting to its benefit, before it collapsed, notes Halliday.
Whitehorse residents will have to brush up on their accounting skills, he says.
Taking the extra time to understand the technique and keeping an eye on the cash position of their government is vital, he adds.
The problem is, it can be really tricky.
The Yukon government, for example, has been running a cash deficit but an accrual surplus for a few years, says Halliday.
“It does give you that multi-year view of how your assets are depreciating – which improves transparency,” he says. “But it’s also more complex and difficult to understand, which is a little bit harder on transparency.
“It comes down to it being a more advanced tool to manage public governments, but it also requires more education by citizens and media to track it and make sure it is used properly.”
The city’s new books will be hard to reconcile with the old, says Robert Fendrick, the city’s director of administrative services.
“As a result of these changes, the city’s future financial statements will look vastly different from statements done prior to 2009 and will make direct comparisons nearly impossible for the average person,” he says.
Contact Roxanne Stasyszyn at firstname.lastname@example.org