Changes to IPSAS 17 on Property, Plant and Equipment – what are they about?

In a nutshell…

The IPSASB is proposing updates to the principles in IPSAS 17 on Property, Plant and Equipment by proposing new requirements and guidance for measurement of property, plant and equipment, and identifying and accounting for heritage assets and infrastructure assets. Stakeholders are given the opportunity to comment on these proposals by responding to ED 78 on Property, Plant and Equipment (published locally by the Board as ED 190). ED 78 was issued as part of a package of EDs which includes:

• ED 76 on Conceptual Framework Update: Chapter 7, Measurement of Assets and Liabilities in Financial Statements (published locally as ED 188);
• ED 77 on Measurement (published locally as ED 189); and
• ED 79 on Non-current Assets Held for Sale and Discontinued Operations (published locally as ED 191).

Previous articles this month provided background information to ED 76, ED 77 and ED 79.

More about ED 78…

ED 78 proposes the following:

• General measurement guidance and options when accounting for assets within the scope of the ED. The guidance is based on the proposals in ED 76 and ED 77.
• Characteristics to identify heritage assets and infrastructure assets.
• Guidance on how heritage assets and infrastructure assets should be recognised and measured.

This article provides background information on the proposals in ED 78 related to measurement and infrastructure assets. An upcoming article will provide background information on the proposals related to heritage assets.

What will change for measurement of PPE?

In ED 76 and ED 77 the IPSASB provides detailed guidance on the application of commonly used measurement bases and the circumstances under which these bases should be used. There are two key proposals in ED 76 and ED 77 that impact the measurement requirements of ED 78. These are:

1. The fair value measurement principles have been updated to align with IFRS 13 on Fair Value This means that the term “fair value” will continue to be used in IPSAS 17 (ED 78), but with the same meaning as in IFRS 13.
2. A new measurement basis has been introduced for property, plant and equipment, being “current operational value” (COV). COV responds to stakeholders’ request for a public sector specific current value measurement basis as issues were identified with the use of fair value as a current value measurement basis in the public sector for certain assets. COV was developed to consider the unique characteristics of many assets held in the public sector, specifically those assets held for their operational capacity. As an example of how COV solves some of the issues with fair value in the public sector, COV considers an asset’s current use, and not the highest and best use.

What guidance is provided on infrastructure assets?

Stakeholders raised infrastructure-specific accounting issues related to the unique characteristics of these assets with the IPSASB. These issues include, among others:

1. assessing control (as part of determining whether the definition of an asset is met);
2. valuing land over or under infrastructure assets; and
3. identifying individual parts of infrastructure assets.

In response to the issues raised, the IPSASB proposes guidance to firstly ensure common understanding of the types of assets that are infrastructure assets. Although ED 78 does not define infrastructure assets, their key characteristics have been identified as:

1. they are networks or systems; and
2. they have long useful lives.

Secondly, guidance is proposed to clarify the application of existing principles of IPSAS 17 to infrastructure assets. The guidance includes the assessment of control and valuation of land over or under infrastructure assets and identifies significant parts of infrastructure assets. Further guidance is provided on the potential use of asset management plans as a source and input for financial reporting, and the potential implications on financial reporting of under-maintenance of assets.

What is next?

The proposals in the package of EDs and potential implications and issues will be explored further by the Secretariat with stakeholders in coming months. Upcoming activities to look out for include:

• A series of recordings will be made available on the ASB’s website.
• Education sessions and roundtable discussions will be held with stakeholders.
• Newsletter articles and social media posts will explore the EDs further.

Where can the EDs be accessed and how can you provide comment?

ED 76 to ED 79 (locally published as ED 188 to ED 191) have been published on the ASB’s website and can be accessed here: https://www.asb.co.za/comment-on-proposals/.

Comment can be submitted to the Secretariat of the ASB at info@asb.co.za, by 1 October 2021.

Disclaimer

This content has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved or otherwise acted on by the Board.