2022:2, 7 April
In a nutshell
- The Australian Accounting Standards Board (AASB) has recently released proposals to provide authoritative implementation guidance to help the sector and promote consistent application of the requirements. Comments on the proposals are due by 30 June 2022.
- Proposed guidance is expected to apply prospectively for annual periods beginning on or after 1 January 2024.
- The proposals have the potential to have a widespread impact on the sector.
In the public sector, most non-financial physical assets (such as land, buildings and infrastructure assets) are carried at fair value. However, many of the for-profit based concepts in AASB 13 Fair Value Measurement (AASB 13) have been problematic to apply in the public sector context because of the unique nature of many public sector assets. For example, there have been challenges in identifying appropriate market participants.
As a result, there is diverse practice for fair valuing non-financial physical assets in the public sector, particularly those not held primarily to generate net cash inflows.
Having heard stakeholder feedback, the AASB has recently released its proposed implementation guidance (along with some illustrative examples) in the form of Exposure Draft ED 320 Fair Value Measurement of Non-Financial Assets of Not for Profit Public Sector Entities (ED 320).
ED 320 proposes guidance for fair value measurement of non-financial physical assets not held primarily for their ability to generate net cash inflows. The following table outlines key areas of ED 320 and the associated guidance.
Market participant assumptions
Highest and best use
Application of the cost approach
The ED is open for comment until 30 June 2022.
The proposals in the ED are expected to apply prospectively for annual reporting periods beginning on or after 1 July 2024.
Likely impact on the public sector
Non-financial physical assets are a significant proportion of the balance sheet of many public sector entities. Depending on the non-financial assets held by an entity and its current accounting policy/practice, the ED proposals may have a substantial impact on the value reported on the entity’s balance sheet.
It is paramount that public sector entities:
- get involved in AASB’s public consultation process and give feedback while the proposals are still in draft stage
- revisit your current accounting practice in light of the proposals
- liaise with your VAGO audit team contact if you anticipate any potential changes to the current practice
- start preparing for future implementation of the proposals once finalised by the AASB.
If you wish to discuss any of the information included in this tech alert, please reach out to your VAGO contact or a member of the financial reporting advisory team at firstname.lastname@example.org.