ARTA Annual Report 2009 - Auckland Transport

Provisions
Provisions are recognised when ARTA has a present legal or constructive obligation as a result of past
events; it is more likely than not that an outflow of resources will be required to settle the obligation; and
the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognised even
if the likelihood of an outflow with respect to any one item included in the same class of obligations may
be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised
as a finance cost.
Critical Accounting Estimates and Assumptions
In preparing these financial statements ARTA has made estimates and assumptions concerning the future.
These estimates and assumptions may differ from the subsequent actual results. Estimates and judgements
are continually evaluated and are based on historical experience and other factors, including expectations
or future events that are believed to be reasonable under the circumstances. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below:
Rolling Stock Assets
There are a number of assumptions and estimates used when performing an impairment review over
rolling stock. These include:
• the physical deterioration and condition of an asset. This risk is minimised by ARTA (or its agent)
performing a combination of physical inspections and condition modelling assessments
• estimating any obsolescence or surplus capacity of an asset; and
• estimates are made when determining the remaining useful lives over which the asset will be depreciated.
If useful lives do not reflect the actual consumption of the benefits of the asset, then ARTA could be over
or under-estimating the annual depreciation charge recognised as an expense in the income statement.
To minimise this risk asset inspections, deterioration and condition modelling are carried out regularly as
part of ARTA’s asset management planning activities, which gives ARTA further assurance over its useful
life estimates.
94