Natural disasters can have a significant impact on Queensland’s communities, businesses and governments. Since July 2024, disaster events such as fires, floods and cyclones have been declared across nearly all of Queensland’s local government areas.

In this blog, we refresh our previous advice on what Queensland public sector entities, including local governments, should consider when assessing the impact of these events on their financial statements.

We provide practical information and advice on what you need to do and think about if a disaster has:

• affected the condition of your assets and your ability to collect revenue
• increased your expenditure
• resulted in expanded or new grant programs to help the community recover.

Impact on assets

Perhaps the most visible impact of these events is damage to physical infrastructure, equipment, and inventory. Entities should consider the:

Condition of an asset

Do parts of the asset need repair or replacement, or should the whole asset be written off? Engineers and asset managers can provide condition assessments with recommended actions.

Useful life of an asset

Will the asset last as long as previously forecast or do you need to revise the useful life? Engineers’ reports and condition assessments will provide relevant information to help work this out.

Value of an asset

Is the asset impaired or has its value declined? For assets carried at cost or valued using an income or market approach, AASB 136 Impairment of Assets states that physical damage is an indicator of impairment. For assets valued using current replacement cost (where AASB 136 does not apply), condition assessments are a key input to determining their value. Consider whether the damage also affects the amount you expect to receive when the asset is sold (the residual value).

Accounting treatment for expenditure on repairing or replacing assets

Should you capitalise it as a new asset (or component of an asset) or expense it as repairs and maintenance? If the damage is substantially to an entire asset component or the entire asset, then the expenditure should probably be capitalised. For assets that aren’t componentised, you will need to consider the value of the work compared to the asset and the extent of work required to restore the asset to working order. If it’s significant, then the expenditure should probably be capitalised.

When components are replaced or are not expected to provide future benefits to your entity, you should:

Queensland Treasury’s Non-Current Asset Policies for the Queensland Public Sector provide additional guidance that is relevant for all entities. These policies are not mandatory for local governments.

The Local Government Finance Professionals has prepared a guidance paper on accounting for damage caused by significant weather events. This paper is available to its members.

Management will need to apply judgement when answering these questions. Remember to document your decisions and assumptions along the way and retain sufficient evidence to support them. While not specific to natural disasters, our fact sheet for Preparing position papers for accounting matters and valuation, may help you to structure your thoughts and conclusions.

Your assessments will take time, particularly if many assets are affected, so it is best to start early.

What if you can’t access the impacted assets?

Sometimes disasters happen late in the financial year and you may have trouble accessing assets to inspect them for damage (e.g. roads are still flooded or the number of assets affected makes it impractical to inspect them all before the end of the financial year). In these instances, you should:

• consider what information you do have to make an estimate of the damage such as assets in a similar location or damage from earlier events to the same assets
• document the assumptions you have made in your working papers
• engage early with your auditors to understand the impact and assumptions you have made.

Impact on revenue and expenditure

Grants and donations

Many entities receive new grants and donations in response to disasters. Our experience has shown that having a good system to track each grant and donation allows you to prepare your accounting records quickly and accurately. You will need to assess:

How to account for these grants in line with the relevant revenue accounting standards (AASB 15 Revenue from Contracts with Customers or AASB 1058 Income of Not-for-Profit Entities).

Keep in mind that you can’t recognise a grant you expect to receive. There are a couple of different recognition treatments depending on whether the grant is a capital grant or an operational grant. If the grant is to rebuild your infrastructure, in general, you will recognise the revenue as you spend the money. We have an example of this on slide 32 of our 2021 presentation to local governments at the tropical workshop for local government finance officers.

Whether the agreement has performance obligations that are sufficiently specific or relate to the construction of an asset that your entity controls. 

This will determine whether you recognise revenue when you receive the funding or over time.

How to separately account for the related expenditure.

Aligning each project that tracks expenditure against the grants in your grant register will make it easier to acquit how you spent the funding back to the granting body and prepare relevant disclosures for your financial statements.

How to value physical donations or volunteer services (subject to materiality).

You should only recognise volunteer services at fair value when the services would have been purchased if not donated and can be reliably measured.

Community assistance

Management may decide to defer, reduce, or refund fees and charges for affected businesses and the community. Your entity may also provide loans and other grants. You should consider and document how these impact the:

• timing and amount of revenue to recognise under the relevant accounting standards
• carrying amount of financial assets – for example, the disaster event may impact the amount of expected credit losses under AASB 9 Financial Instruments
• classification and disclosure of assistance provided in the financial statements.

Insurance recoveries

Insurance claim recoveries can only be recognised as a receivable when it is virtually certain that the amount will be received. The recoveries are treated as separately identifiable income and are not offset against the cost of repairing or replacing those assets.

Value of investments

The disaster may impact your investment in other entities. Consider the investment’s value – for example, did that entity suffer damage to its assets or has its ability to generate revenue been affected?

Impact on operations and internal controls

Disaster events will likely have immediate and ongoing impacts on your entity’s operations and internal controls. Staff may need to make quick decisions, implement temporary workarounds, or take leave, and this may reduce the effectiveness of internal controls during this period.

You may also need to spend time documenting (or re-documenting) lost records or making contemporary records of your transactions. Your entity’s priorities may have changed.

Some actions you should take include:

• reconsidering your budget and operational plan
• assessing your asset management plan – will any assets be replaced earlier than expected or capital projects brought forward or delayed?
• maintaining appropriate controls to ensure your entity is achieving value for money when procuring goods and services during the response and recovery phases
• reviewing and updating your business continuity and disaster recovery plans. If your entity does not have a documented plan, take this opportunity to create one.

Impact on financial report preparation and disclosures

Our experience has shown that assessing and documenting the impacts from natural disasters on the financial report can take longer than entities initially expect. Reassess your financial report preparation timetable, particularly the expected date for assessing asset condition and finalising valuations.

Think about what disclosures you should include in your financial report to provide meaningful information to readers. This could include:

• the extent of assets written off, impaired (non ‘current replacement cost’ assets), or revalued, including judgements and estimates about assets that you have not yet inspected
• specific grants and other assistance recognised as revenue or held as a contract liability
• changes to usual revenue collection processes, such as discounts, refunds, or deferral of payment
• clean-up costs and repairs
• specific community grants and other assistance provided
• impact on staff such as additional leave, allowances, or overtime paid
• contingencies or commitments at the end of the financial year
• events after the end of the financial year, such as disasters that impact you after balance date.

Present these disclosures early to your audit committee and executive management team for their review.

A useful resource that your entity can work through is Queensland Treasury’s self-assessment checklist for identifying the accounting and reporting impacts from natural disasters.

Reporting material losses to QAO

Departments, statutory bodies, and local governments have legislative requirements to report losses to the Auditor-General. However, losses caused by damage due to natural disasters don’t need to be reported to QAO in this way.

Impact on your audit

Communication with your auditors is key. We can help you to identify what might be significant financial impacts on your entity and work with you to assess the accounting implications.

We may revise our risk assessments and change the extent of work we do in response to the impact on your entity. This will be limited to addressing the changes in risk – for example, the valuation and existence of assets or the completeness and accuracy of grant programs. We may also need to audit your acquittal of funds back to various granting bodies.

To support your recovery, we may reassess our audit timetable, while still working towards the statutory deadlines.

We’re here to help, so please reach out to your QAO engagement leader or signing officer.

Related material

• Queensland Treasury’s Checklist for Natural Disaster Reporting
• Queensland Treasury's Non-Current Asset Policies for the Queensland Public Sector

QAO resources:

• Local government 2022 (Report 15: 2022–23)
• Results of audits: Local government financial statements for 2010-11 (Report 2: 2012)
• Results of audit: Internal control systems 2014–15 (Report 1: 2015–16), specifically Appendix F
• Fact sheet: Preparing position papers for accounting matters and valuation
• Blog: Maintaining controls amidst a global pandemic
• Blog: Why is it important to report material losses to QAO?
• Better practice guide: Annual internal control assessment