Inconsistent Depreciation Practice and Public Policymaking:

Local Government Reform in New South Wales

Summary, Opinion, and Comparison on Similar Subject in Indonesia

Written by Akbar Saputra

7B Akuntansi (Alih Program), DIV PKN STAN

Journal Summary
This journal examines the case of inconsistent depreciation practice in local governments in New South
Wales (NSW), Australia, and its impact towards performance measurement. Several essential points of
the journal are as follow.
a. As an implementation of New Public Management (NPM)1, NSW government has been
recommended to hold performance measurement for local government using financial indicators,
such as accounting data. The result of this performance measurement is directed as a resource for
public policymaking whichfor NSW governmenthas been centered to council consolidations,
in order to achieve a better fiscal sustainability.
b. Inconsistent depreciation among local governments in NSW was caused by extreme variation of
assets estimated useful lives. This practice distorted local government performance measurements
because
- depreciation accounts have big portions when compared with total expenditure or infrastructure
value;
- it potentially becomes the instrument for income smoothing2;
- depreciation rates have direct correlation to Financial Sustainability Ratings (FSR) 3 of local
government.
c. It is concluded that serious attention has to be delivered to depreciation treatment in local
government. Strengthening governmental audit and fixing Financial Sustainability Ratings system
are two key solutions offered to decrease this practice in the future.

Contrary Opinion and Comparison with Indonesia

While this journal was based on some thorough researches, it flawed for some minor reasons. Some
contrary opinions that can be addressed to this journal are as follow.
a. It is summarized that there are no other evidences of depreciation inconsistencies other than those
caused by extreme variation of asset estimated useful lives. If this is the only case, a better solution
that should be offered is to standardize government assets by applying compulsory regulations
about government assets.
b. It is unclear what impacts will significantly happen if erroneous policymaking about council
consolidation occurs due to ill-advised ratings system. No clear negative and significant impact of

1
New Public Management is a perspective that encourages government to be managed as if it were a
corporation. Its main characteristic is the reward-and-punishment system, based on performance measurement.
2
Income smoothing is a practice of polishing a financial report so that it shows what the stakeholders wanted,
instead of showing the actual financial condition.
3
FSR is created by Treasury Corporation of NSW (TCorp) based on 10 financial sustainability ratios requested
by Independent Local Government Reform Panel (ILGRP). FSR is used to assess NSW local councils under 7
rankings: distressed, very weak, weak, moderate, sound, strong, and very strong.
 erroneous performance measurements may diminish the good intention of NPM and discourage
governmental audit bodies to optimize their works.
There is little evidence of similar cases in Indonesia, so this study might also be necessary for Indonesia.
However, Indonesia already had several regulations concerning government assets depreciation, like
Minister of Finance Decree No. 94/KM.6/2013 or Regulation of Minister of Finance No.
1/PMK.06/2013, each with its amendments. Although local governments have the options to create
regulations of this kind, these country-level regulations will set standard for depreciation practices
among local governments in Indonesia. Thus, extreme variation of assets estimated useful lives will be
less likely to happen.