Should government measure assets at fair value if it doesn’t intend to sell them?

If fair value is a measure of how much an entity would receive to sell an asset, should it be used to measure government assets? As government is usually in the business of using its assets to provide goods and services, sometimes for free or at a subsidised amount, fair value doesn’t seem all that relevant.

Does fair value have a place in measuring government assets?

The IPSASB issued a Consultation Paper on Measurement during 2019 asking for views on this question. The IPSASB’s Conceptual Framework currently does not identify fair value as a measurement basis for assets and liabilities. This has a long history and stems from how fair value is defined and applied in practice in the private sector.

In the private sector, fair value is determined using a hierarchy depending on the availability of information in the market: i.e., determine fair value based on prices for the asset in an open, active and orderly market; if no directly observable price is available, use a similar asset and make adjustments; lastly, use a valuation technique based on an income approach or a cost approach. The cost approach uses replacement cost, which represents the cost to replace the service potential/capacity of the asset. The IPSASB believes that replacement cost is measurement basis in its own right, rather than being a ‘proxy’ for determining fair value.

One of the IPSASB’s objectives is to maintain alignment with IFRS Standards. IFRS Standards use fair value extensively – either as a compulsory or an optional measurement basis. In order to maintain alignment with these Standards, the IPSASB needs to resolve how to deal with fair value in its literature.

Fundamentally, fair value may be an appropriate measure for some assets, particularly those such as investment property or some financial instruments where the intention is to realise economic benefit. The IPSASB could prescribe the use of replacement cost, or historical cost, when the intention is to hold an asset for its ability to provide services or otherwise meet its objectives. A key tension that would however need to be resolved is ‘replacement cost’ and whether it is a proxy for fair value, or whether it is used on its own.

Follow the debate

The comments for the Consultation Paper closed in mid-October and the IPSASB is in the process of analysing the feedback received. There will be two further opportunities to comment on the proposals regarding the measurement of both assets and liabilities. Subscribe to the ASB’s Newsletter to receive further updates (subscribe here:

The views expressed in this article are those of the author and is not an official position of the ASB.

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