Finance Procedures Manual

15. Project Accounting

15.1. Introduction
Approved by Chief Financial Officer Version 3.0: June 2006

15. Project Accounting

15.1 Introduction

15.1.1 Purpose

This chapter outlines CASA’s approach to project accounting, costing and management
reporting for new capital projects, starting on or after 1 July 2006. The purpose of this
chapter is to provide information to support CASA staff on how to manage the costs of a
new CASA capital project from planning to completion effectively.

The intended audience of this chapter are CASA staff involved in the financial
management of capital projects, including project accountants (PA), project managers, and
project support staff.

15.1.2 Overview of this chapter

This chapter contains the following sections:
● Introduction (this section)
● Role of the Project Accountant, Finance Office
● Project Costing Model
● Capitalisation of Project Expenditure.

Related topics, not covered in this chapter, include:

● Asset Management – See Chapter 12 in relation to accounting procedures after the
completion of a capital project (eg, depreciation).

15.1.3 Project Governance in CASA

Please refer to New CASA Projects Policy, to be produced by the Planning & Governance
Office (PAGO) (this will be linked when the policy has been promulgated), which
establishes CASA’s most up-to-date policy approach to the coordination and governance
of all projects in CASA. The policy covers all projects in CASA that requires the
commitment of CASA funds in FY2006-07 and beyond (until the next policy review). The
policy defines the processes and management responsibilities for the development of
business cases and approval of projects, the creation of Project Boards to govern each
major project, and the requirements for conducting and reporting on projects.

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15. Project Accounting
15.2. Role of the Project Accountant, Finance Office
Approved by Chief Financial Officer Version 3.0: June 2006

15.2 Role of the Project Accountant, Finance Office

15.2.1 Support CASA Project processes

Each capital project in CASA proceeds along stages, a path of activities that consume
resources, until the objectives of the project is achieved and reported.

The Project Accountant supports the Project Manager during each stage of the project.

Although some stages may be shortened and some extended according to the nature and
complexity of the project, it is usually possible to determine the following groups of project
tasks that will require input by the Project Accountant:
● Initial project budget estimates; where timeframe and cost estimates are set against
a project’s work breakdown structure or at least a listing of what has to be done is
produced. These ‘rough-cut’ plans are used to prepare the outline of the business
cases and initial budget estimates.
● Detailed project planning; which may involve cost element planning, unit costing and
other cost estimating methods, together with the setting up of milestones and critical
dates. The project plan is the basis for tracking and monitoring the project budget and
expenditure.
● Cost tracking and monitoring; which involves monitoring the project’s budget,
commitments and expenditure as the project is executed in accordance with the
project plans; and checking the availability of funds.
● Project closing; with cost-benefit results analysis and settlement of final costs.

The Project Manager identifies the need for finance and accounting support, and may pass
this on to the Manager Budgeting and Planning in the Finance Office for initial input. All
project accounting issues are referred to the Project Accountant. This could take the form
of a discussion or written correspondence.

Specific responsibilities for the Project Accountant are described in the next section.
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15. Project Accounting
15.2. Role of the Project Accountant, Finance Office
Approved by Chief Financial Officer Version 3.0: June 2006

15.2.2 Project Accountant Responsibilities

The Project Accountant supports the Project Manager who is responsible for the project
and for producing a result that is capable of achieving the benefits defined in the Business
Case.

In addition to the support responsibilities outlined above, the Project Accountant has the
following responsibilities: (This is a general list and will need tailoring for each project.)
● Review the Business Case, Project Plan and other project initiation documents
● Ensure budgets are entered in FMIS based on the approved Business Case
● Account for the costs of the project
● Monitor the project actual costs against the budget
● Check availability of funds; warn Project Manager of potential overruns
● Track project variations, including approved changes to the original budget
● Reconcile FMIS GL-WIP account against Monthly Project Status Reports, prepared by
the Project Manager for the Project Board
● Capitalise assets in accordance with capitalisation procedures in Section 15.4
● Liaise with CASA management on all project accounting matters
● Prepare monthly management reports for individual projects, as required
● Prepare monthly management reports for consolidated projects for CEO and COO
meetings
● Review the Project Close Report, including cost-benefit results analysis
● Update the project benefits realisation register (to be developed)
● Keep records of high-level project documentation (see Projects Policy – currently
being produced)
● Liaise with auditors on capital project matters.

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15. Project Accounting
15.3. CASA’s Project Costing Model – (Effective 1 July 2006
Approved by Chief Financial Officer Version 3.0: June 2006

15.3 CASA’s Project Costing Model – (Effective 1 July 2006

15.3.1 CASA’s Costing System

FMIS and the Chart of Accounts (see Chapter 4) is provides a structured method of
reporting on the financial activities of CASA as a whole and of each individual cost centre,
including all projects in cost centre 18 identified by project codes.

All CASA resources should be assigned to business activities (including projects) that are
designed to achieve CASA’s strategic objectives and core outputs.

CASA’s costing systems are designed so that the cost of outputs can be traced back to the
activities and resources required to produce the output.

The figure below depicts CASA’s costing model.

$ $

Employee
Employee
expenses
expenses Capitalprojects
projects
Capital

Supplier’s
Supplier’s
expenses
expenses Keyinitiatives
Key initiatives
(non-capital CASA Outputs
(non-capital CASA Outputs
projects)
projects)
Depreciation
Depreciation
expenses
expenses

‘All other’
‘All other’
Otherfinancial
Other financial activities
activities
costs
costs

CostofofOutputs
Cost Outputs
CostofofResources
Cost Resources CostofofActivities
Cost Activities
(Advanced Costing System)
(General Ledger) (Cost Centre & Projects) (Advanced Costing System)
(General Ledger) (Cost Centre & Projects) ActivityBased
BasedCosting
Costing(ABC)
(ABC)
Activity

Direct and indirect cost allocation Advanced costing methods

Figure 15-1. CASA’s Costing Model

In FMIS, CASA’s cost of resources (employee expenses, supplier expenses, depreciation

and other expenses) are recorded in the General Ledger. Each resource cost is allocated
to the cost centre responsible for the cost (eg, ATOG, GAOG, ISB, Property, etc). FMIS
allows the cost to be further broken down and allocated to an activity code, including
projects.

The allocation of costs to specific outputs is done outside of FMIS using advanced costing
methods such as activity-based costing.
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15. Project Accounting
15.3. CASA’s Project Costing Model – (Effective 1 July 2006
Approved by Chief Financial Officer Version 3.0: June 2006

15.3.2 Costing Model for Capital Projects

The figure below is a ‘report layout’ to illustrate CASA’s costing model. The model enables
an efficient method for budgeting, tracking and reporting on the cost of resources, capital
projects and other activities by the cost centre. All projects are coded to cost centre 18 to
track the project budgets and expenses separately.
COST CENTRE 18 PROJECTS
Cost of All
Various Cost Key projects or
CAPITAL Projects and
Centres Activities initiatives (non-
PROJECTS Activities
capital)
Ref COST OF RESOURCES

(1) Salaries $ 1,000 $ 1,000

(2) Labour cost allocated to Project $ (900) $ 400 $ 500 $ 0
Employee expenses $ 100 $ 400 $ 500 $ 1,000

(3) Travel expense $ 2,000 $ 50 $ 200 $ 2,250

(3) Consultants and contractors $ 1,000 $ 100 $ 400 $ 1,500
(3) Administration expense $ 1,000 $ 100 $ 300 $ 1,400
(3) Other goods and services - $ 50 $ 200 $ 250
(3) Depreciation and amortisation costs $ 1,000 $ 50 $ 50 $ 1,100
(3) IT production support costs - $ 50 $ 50 $ 100

Supplier's and other expenses $ 5,000 $ 400 $ 1,200 $ 6,600

Less:
(4) Capitalisation of project expenses - $ (1,000) $ (1,000)

OPERATING COSTS (VARIOUS COST CENTRES) $ 5,100 $ 800 $ 700 $ 6,600

(4) Capital Works in Progress - $ 1,000 $ 1,000

(3) Asset (Property, Plant, Equipment $ 200 $ 200

CAPITAL COSTS (COST CENTRE 18) $ 1,200 $ 1,200

GRAND TOTAL (OPERATING + CAPITAL) $ 5,100 $ 800 $ 1,900 $ 7,800

Figure 15-2. CASA Project Costing Model from 1 July 2006

This costing model can be applied for capital projects as follows:

During the Project

1. All costs are to be coded to cost centre 18 (unless approval is given by the project
accountant for a different code in special circumstances).
2. Staff salaries are to be charged to CASA employees’ cost centre using the default
activity code ‘0000’ in FMIS
3. When a staff member works on a capital project, their cost of labour is to be calculated
and transferred (credit) from the ‘0000’ activity code to the relevant project code
(debit). The cost of labour is based on ‘hours worked’ entered in CASA’s time
recording system.
4. Supplier’s expenses for a capital project (such as travel, consultants, administration
and IT support) are to be charged to the FMIS project account. The purchases of
goods that meet the asset definition are to be charged to the relevant asset GL
account (including property, plant or equipment).
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15. Project Accounting
15.3. CASA’s Project Costing Model – (Effective 1 July 2006
Approved by Chief Financial Officer Version 3.0: June 2006

At Month-end

1. At the end of each month, the Project Accountant is to determine what costs
associated with all capital projects should be capitalised, in accordance with the
accounting guidelines and procedures in Section 15.4.

The GL accounting entry for capitalising project expenses is:

DR Capital works in progress (asset account)

CR Capitalisation of project expenses (expense account)

At the Completion of the Project

1. At the completion of a capital project, the Project Accountant is to ensure all capital
project costs are accounted for.

The GL accounting entry for project completion and asset recognition is:

DR Property, Plant, Equipment (through Asset Clearing account)

CR Capital works in progress

2. The capitalisation and asset recognition process is completed after the Financial
Accountant records the asset in CASA’s Asset Register. Please read Chapter 12
Asset Management in relation to accounting procedures after the completion of a
capital project.

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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

15.4 Capitalisation of Project Expenditure

This section outlines which of CASA’s expenses can be capitalised with an emphasis on
the capitalisation of project expenses.

15.4.1 Capital Projects

This procedure applies to all projects that result in CASA acquiring or creating an asset.

Assets can be acquired in two ways:

● By direct purchase; or
● By creating an asset by building it to specific CASA requirements (eg, software
development projects).

Externally acquired assets must be recognised and capitalised at time of purchase.

Internally developed assets (also called intangible assets) for use by CASA must initially
be recognised and where applicable, capitalised at the actual cost of development
(eg, software development) providing that:
● It is probable that the future economic benefits associated with the item will flow to
CASA; and
● The cost of the asset can be measured reliably.

Table 15-1 below lists the criteria required by the Australian Accounting Standard AASB
138 to demonstrate the recognition of an intangible asset in the development stage and
includes examples of how CASA may demonstrate that the criteria have been met.
Table 15-1. Australian Accounting Standard AASB 138 Recognition Criteria

AASB 138 Recognition Criteria Examples of How Demonstrated

An intangible asset arising from development
(or from the development stage of an internal
project) must demonstrate all of the following:
● The technical feasibility of completing the
asset
● The intention to complete the asset
● The ability to use the asset
Some elements of a feasibility study,
functional requirement and system
design documents – demonstrates that
it can be completed and gives some
indication of how.
Approved project plans, documents
showing approval – demonstrates
organisation commitment.
Implementation plans, training plans or
guides.
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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

AASB 138 Recognition Criteria Examples of How Demonstrated

● How the asset will generate future
economic benefits. The entity can
demonstrate the usefulness of the asset
● The availability of adequate technical,
financial and other resources to complete
the development of the asset
● The ability to measure reliably the
expenditure attributable to the intangible
asset during its development
Some elements of a feasibility study
and functional requirement –
demonstrates how it will add value.
Approved project or business cases,
documents showing approval –
demonstrates organisation
commitment to the project and the
ability to secure the required
resources.
The use of the Financial Management
Information System (FMIS) is
sufficient.

15.4.2 Identification of Elements of the Level of Capitalisation

Table 15-2 below provides a high-level indicator of the capitalisation of expenses that form
assets within CASA.
Table 15-2. Indicator of Capitalisation of Expenses Forming Assets

Category Project Description Capitalisation

Projects – this includes both non-IT based Partial capitalisation.
1. projects and IT based projects, including system
upgrades greater than $20,000.
Expensed, but placed on
Portable and attractive items between $500 and
2. Portable and Attractive
$4,999.
Asset Register.
Physical asset purchases of $5,000 or more Full capitalisation at time
3.
(including computer software purchases). of purchase.
4. New building fit out. Substantially capitalised.
Full capitalisation at time
5. Vehicle purchase.
of purchase.
Production support, including maintenance of Expensed.
6. existing software, but not enhancements over
$5,000.
7. Research and research phases of projects Expensed.

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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

15.4.3 Building Fit Out

Fit-out costs are substantially capitalised except for the following expenses:
● Design fees and engineering consultancy costs incurred prior to project approval
● Building fees and construction permits
● Old fit-out removal costs.

15.4.4 Project Abandonment

Where a project being developed cannot be completed, the project expenditure must be
expensed. This includes any expenditure already capitalised (assuming there is no
residual value that may be utilised elsewhere within CASA).

15.4.5 Identification of Elements of a Project to be Capitalised

Table 15-3 identifies the typical work breakdown structure of CASA projects.
Table 15-3 Elements of a Project to be Capitalised

Approval Implementation Close and Post

Business Project
Category Concept and Development Implementation
Case Plan
Initiation and Reporting Review
CASA – Expense Expense N/A Expense Capitalise 1 Expense
Dedicated Staff
(>80%) including
PM
CASA – Expense Expense N/A Expense Capitalise Expense
Intermittent Staff
(0-80%)
Contractor Expense Expense Expense Expense Capitalise Expense
Consultant Expense Expense Expense Expense Capitalise Expense
Software N/A Expense N/A Expense Capitalise Capitalise 2
Hardware N/A N/A N/A Expense Capitalise Capitalise 2
Travel Expense Expense N/A Expense Capitalise Expense
Legal N/A Expense N/A Expense Capitalise Expense
Administration N/A Expense N/A Expense Capitalise Expense
Training N/A Expense N/A Expense Capitalise 3 Expense
Post N/A N/A N/A N/A N/A Expense 4
Implementation
Training
Other Project N/A Expense N/A Expense 4 Expense 4 Expense 4
Operating Costs
IT Infrastructure N/A Expense N/A Expense 5 Expense 5 Expense 5
Support and
overhead costs
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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

Legend
Capitalise 1 Hours worked to be capitalised at an hourly rate.
Capitalise 2 Software and hardware purchases to be capitalised where they meet the
asset capitalisation threshold. This threshold is detailed in the AASB -
38
Capitalise 3 Training and associated costs required for implementation/development
of an asset can be capitalised if they are directly attributable costs
necessary to create, produce and prepare the asset.
Expense 4 Training and associated costs and other operating costs incurred after
implementation/development are to be expensed.
Expense 5 Overhead costs are not to be charged to a project.

The link to the Australian Accounting Standards – Internally Generated Intangible Assets
(AASB 138) is:
http://www.aasb.com.au/public_docs/aasb_standards_2005/compilations/AASB138_12-
04_COMP-02.pdf

15.4.6 Summary of Elements of a Project to be Capitalised

Table 15-4 summarises the three stages of the project. Only expenditure within the
application development stage can be capitalised. Any expenditure in the preliminary and
post-implementation stages must be expensed.
Table 15-4 Summary of Elements of a Project to be Capitalised

Preliminary project stage
Conceptual formulation of
alternatives
Evaluation of alternatives
Determination of existence of
necessary technology
Final selection of alternatives
Post-implementation
Application development stage
operation stage
Design of chosen path, including Training
software configuration and software
interfaces
Programming Application maintenance
Installation of hardware
Testing including parallel processing
phase.

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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

15.4.7 Financial Requirements in Establishing a Project

Initial breakdown of the capital and expense components along with the cash flow of a
project are to be identified within the Business Case. The Project Manager should define
the work breakdown structure for a project, including stages/activities, milestones, critical
dates and costs from start to finish. All capital and operating expenses within each
stage/activity of the project should be included in the business case to determine the
expected total cost of the project. Maintenance costs for future years after the project is
completed should also be included. Variations to proposed capitalisation values are to be
updated as part of the monthly reporting on projects or status report.

The final responsibility for determining which expenses will be capitalised rests with the
Chief Financial Officer. The Chief Financial Officer has the right of final determination in
relation to the following:
● Project expenses to be capitalised
● Depreciation rate to be used
● Service potential of assets produced or acquired
● All internal and external expenses identified as attributable to a project
● The value to be placed on abandoned projects.

15.4.8 Definitions
Capitalisation Capitalisation is a process by which expenses incurred in producing or
purchasing an item recognised and recorded in CASA’s Asset Register.
Asset Assets may be tangible (such as machinery or buildings) or intangible (such
as computer software, web sites and intellectual property). Assets can also be
a combination of tangible and intangible assets, such as a security system
within a building that comprises physical objects and software suites.
Assets must have the following three attributes:
● Service potential - service potential is the utility of the asset to
meet CASA’s requirements.
● Life span - the life span must exceed one year.
● Value - the value of an asset is measured in monetary terms so that
it can be recognised in CASA’s financial statements.
The CASA budget guidelines establish the following dollar threshold limits to
determine asset status:
1. Portable and attractive items: purchase of equipment with a life greater
than one year and value of $500 to $4,999.
2. Physical equipment asset: purchases with a life usually greater than one
year and a value of $5,000 or more.
3. Software assets: purchases with a life greater than one year and a value of
$5,000 or more
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15. Project Accounting
15.4. Capitalisation of Project Expenditure
Approved by Chief Financial Officer Version 3.0: June 2006

Project A project is a temporary endeavour undertaken to create a unique product or

service, to be completed within a specified time and cost. Projects should be
used as a means of achieving business change or improvement in business
processes aligned to CASA’s Strategic, Operational or Business Plans.
Projects typically, but not exclusively, include an information technology
component.
Depreciation/ Depreciation/amortisation is the method by which the value of an asset is
Amortisation apportioned over its service potential. Service potential assumes that normal
maintenance is undertaken on an asset over it’s period of use. Maintenance is
recognised as an expense in the year it occurs.
Indirect Indirect expenses are expenses that the Project Manager does not have
Expenses control over and cannot be directly related to a project. These include items
such as:
● Corporate support costs which may be related to the project:
❍ Percentage of Human Resource Management costs
(e.g. recruitment costs, payroll costs)
❍ Percentage of Finance Office costs (e.g. processing of journals and
invoices)
❍ Property and other related costs (e.g. property rent, rates, taxes,
insurance, etc.)
● Executive salary costs related to reviewing a project

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