POLVO DE MADERA
3.1. Características del polvo de madera
Additional depreciation charges in light of the HAM1
Comparatively to ordinary depreciation charges, additional depreciation charges are also de- preciation charges of administrative assets.36 This proves that the political and fiscal vision
promoted by the HAM1 strongly relies on and is achieved through the valuation of public assets. Nevertheless, unlike the ordinary depreciation charges that have to be reported each year because of the wear and obsolescence of public infrastructures, the accounting handbook for Swiss cantons reads that additional depreciation can be budgeted during economic expan- sions in order to pay off debt (CDF 1981: 13). However, there is no economic justification for reporting depreciation charges according to the business cycle, i.e. the obsolescence of public assets does not increase during economic expansion.37 It is also stipulated that additional
depreciation charges do not have to be used to finance new investments. This means that even though additional depreciation charges allow for increased cash-flow from operating ac- 34For instance, as debated in the last subsection below, provisions are also known as being largely used by finance
ministers in order to manipulate reported public figures. However, conversely to additional depreciation charges and operations on special funds, information regarding those provisions is not easily available since no particular accounting entry is devoted to this accrual in the statement of financial performance.
35
For detailed explanations regarding sophisticated econometric methodologies, we recommend paying attention to Healy (1985), DeAngelo (1986) and Jones (1991).
36
The additional depreciation charges represent a different accounting entry to the ordinary depreciation charges, although they are both depreciation charges of administrative assets. According to the chart of accounts included in the HAM1, the ordinary depreciation charges of administrative assets’ accounting number is 331. Then, the accounting number for the additional ones is 332. For more details, Appendix A presents the chart of Swiss cantons’ accounts.
37
In other words, even though ordinary depreciation charges do not fully follow the true and fair lifespan of public assets, their use is constant over time. Consequently, this is the discretionary characteristics of the additional
tivities, this cash-flow cannot be used to acquire new assets. In fact, the HAM1 emphasizes the importance of not accumulating new assets in a period of favorable conjuncture in order to maintain greater cash-flow from operating activities than the net investment. Indeed, it is by generating a surplus in the statement of financing, that a canton provides itself with the financial means to repay debt.
Additional depreciation charges in light of cantonal financial legislation
However, as previously mentioned, the HAM1 is simply a proposal and it has to be transposed into cantonal financial laws in order to have legal force. Noticeable gaps may thus appear between the recommendations formulated in the HAM1 and their transcriptions in cantonal financial laws. This is the case for additional depreciation charges, as reported in Table 1 below. This table reports the type of legal rule surrounding the use of additional depreciation charges in each canton. In the light of the 26 cantonal financial laws, rules dealing with additional depreciation charges may be classified in three distinct categories. Whereas the first and the second category of laws indicate that the resort to additional depreciation is “possible” or “mandatory” respectively, the third category refers to cantonal legislation including “no indication” regarding the use of additional depreciation charges.
Table 1: Regulation of additional depreciation charges in cantonal legislation Possible Mandatory No indication BL; FR; GL; NW; OW; SH; SZ;
TI; UR; ZG BE; SO; VS AG; AI; AR; BS; GE; GR; JU;LU; NE; SG; TG; VD; ZH
Source: Cantonal financial laws and own investigations
According to information reported in Table 1 above, the way in which additional depre- ciation charges are ruled by cantonal financial laws seems to be relatively heterogeneous. Out of the 26 Swiss cantons, the legislation in 13 of them has no indication as to the use of additional depreciation charges. 10 other cantons offer the possibility to report additional depreciation but only under particular circumstances. Indeed, as stipulated in the financial law of the canton of Obwald (OW), “additional depreciation charges are authorized as far as
the financial and economic situations allow it”.38 Finally, it is explicitly stipulated that the
resort to additional depreciation charges is mandatory during times of economic expansions in only 3 cantonal financial laws. For instance, the financial law of the canton of Valais (VS) stipulates that “additional depreciation charges on administrative assets have to be reported as far as the financial and economic situation allows it”.39
The use of additional depreciation charges therefore appears to be relatively flexible in Swiss cantons. Cantonal financial laws are sometimes so imprecise that enough leeway is of- fered to interpret them according to ones own interest. Lot’s of room is given to the threshold to which additional depreciation charges can or have to be used in Swiss cantons. There is no accurate indication as to how to interpret “as far as the financial and economic situa- tionallows it”. That way, in addition to not always being in line with the recommendations formulated in the HAM1, there is every reason to believe that the use of additional depreci- ation charges may differ among cantons with regards to the strong heterogeneity of cantonal financial laws.
Additional depreciation charges as accounting gimmicks
Evidence is therefore provided that additional depreciation charges must be seen as a policy tool controlled by finance ministers aiming to artificially increase operating expenses and deteriorate the reported balance of the statement of financial performance. This is exactly how they are described in the new Harmonized Accounting Model for cantons and munici- palities (CDF 2008: 148).40 The additional depreciation charges would then be used in the
38Source: Finanzhaushaltsgesetz vom 11 März 2010, Art. 24; al. 2. 39
Source: Loi sur la gestion et le contrôle administratifs et financiers du canton du 24 juin 1980, Art. 14, al. 4.
40The new Harmonized Accounting Model (HAM2), developed in 2008 by the Conference of the Cantonal Finance
Ministers (CDF), is the revised version of the HAM1. This new accounting handbook for Swiss cantons and munici- palities is widely based on the IPSAS norms. In spite of everything, the tradeoff between the economic and political visions of accounting still persisted during the making of HAM2. Just to show, some finance ministers were even completely opposed to the inclusion of additional depreciation charges in the HAM (NLZ 2014). Finally, an alter- native solution has been reached. In the end, the HAM2 reads that“As a compromise between the solution required by IPSAS norms and the traditional depreciation embracing the principle of prudence, both categories of depreciation charges are acceptable for administrative assets. Nonetheless, both categories have to be distinctively separated into ordinary and additional depreciation charges. [...]. Additional depreciation charges as instruments of the budgetary policy are admissible. They have to be reported as exceptional expenses in order for them not to apply any influence on the reported balance of the statement of financial performance” (CDF 2008: 66). The latest argument therefore clearly demonstrates that additional depreciation charges have been used as an accounting gimmick in Swiss cantons
sole purpose of maintaining fiscal pressure on citizens and to avoid political pressures aiming at increasing public spending. At the same time, additional depreciation charges increase the cash-flow from operating activities, which decreases the canton’s need to borrow and so contains the debt increase.
It is therefore obvious that additional depreciation charges have no economic reality since they go beyond the actual wear and tear and obsolescence of assets. Such evidence is even reported in newspapers. Le Nouvelliste notably, when citing the finance ministers of Valais, reads that “2011 accounts include additional depreciation charges for 118.1 millions CHF. This refers to depreciation charges having been recorded beyond the strict necessary”.41 That
way, additional depreciation charges constitute a hidden reserve because they artificially lower the book value of administrative assets. Moreover, they are discretionarily manipulated with- out any regard to the lifespan of public assets. For that reasons, such additional depreciation charges have to be considered as creative accounting since they violate the true and fair view of public figures (i.e. they simultaneously artificially decrease the surplus reported in the statement of financial performance, as well as the value of public assets).
Furthermore, additional depreciation charges are an asymmetric tool since they may only be used to hide a surplus of the statement of financial performance. Indeed, hidden reserves created through the use of additional depreciation charges cannot be dissolved in order to offset a deficit (or the improve a surplus). As administrative assets cannot be sold because of the principle of alienability, such hidden reserves can only increase over time (SRS 2011: 1).
The disclosure of additional depreciation charges in public accounts
Figure 7 on the following page schematizes a case where a surplus of the statement of financial performance is hidden by increasing the amount of additional depreciation charges. At the same time, we consider the same case as presented earlier, i.e. a case where a canton has to borrow money in order to finance a part of the net investment. As observed in the basic case previously presented, investment expenditure increase the amount of assets, whereas ordinary
depreciation charges and the subsidies come in deduction of the assets. Then, the additional depreciation charges are also accounted negatively on the assets’ side of the statement of financial position. Finally, the borrowing increases liabilities.
Figure 7: Graphical presentation of the HAM1 in the presence of additional depreciation charges