The IPSASB to address the lack of guidance on accounting for heritage assets

The IPSASB to address the lack of guidance on accounting for heritage assets

The Accounting Standards Board has developed guidance on accounting for heritage assets in GRAP 103 on Heritage Assets, that became effective in April 2012. Internationally, no accounting standard currently exists on accounting for heritage assets.

Internationally, entities that recognise heritage assets in their financial statements, do so in terms of IPSAS 17 on Property, Plant and Equipment. IPSAS 17 allows, but does not require, an entity to recognise its heritage assets, with the application of the measurement principles being optional. If an entity applies the recognition principles in IPSAS 17, it is also required to apply the IPSAS 17 disclosure requirements.

Consultation Paper issued by the IPSASB to obtain views on accounting for heritage assets

In 2017, the International Public Sector Accounting Standards Board (IPSASB) issued a Consultation Paper on Financial Reporting for Heritage in the Public Sector. This was the first phase in developing accounting guidance for heritage assets. The Consultation Paper requested, among others, views on whether heritage items should be recognised as an asset, and whether the special characteristics of heritage items prevent entities from recognising them as assets.

Accounting guidance to be included in IPSAS 17

Based on feedback received on the Consultation Paper, the IPSASB has commenced work to address the current lack of guidance on accounting for heritage assets.

The IPSASB agreed that the nature of a heritage item is not a reason for special financial reporting requirements. It concluded that heritage assets should be recognised when the Conceptual Framework’s recognition criteria are met, i.e. when an item satisfies the definition of an element; and when it can be measured in a way that achieves the qualitative characteristics and takes account of constraints on information in general purpose financial reports.

From responses to the Consultation Paper, the IPSASB noted that many heritage assets would be within the scope of IPSAS 17 if it were not for the scope exclusion for heritage assets in that Standard. It was agreed that IPSAS 17 will be revised by removing the scope exclusion for heritage assets, along with other paragraphs that made IPSAS 17s’ requirements optional. The requirements in IPSAS 17 will apply fully to heritage assets that satisfy the definition of property, plant and equipment. Application guidance will be included in the revised IPSAS 17 to explain how the principles in the Standard should be applied to heritage assets.

Distinguishing heritage assets from other items of property, plant and equipment

The IPSASB agreed that a separate definition for heritage assets is not necessary as heritage assets are a subset of property, plant and equipment. To distinguish heritage assets from other items of property, plant, and equipment, the characteristics specific to heritage assets will be included in IPSAS 17. As these characteristics could present complexities in the application and implementation of the existing principles in IPSAS 17, additional application guidance will be developed.

Impairment and depreciation of heritage assets

The IPSASB agreed that the depreciation requirements in IPSAS 17, and the impairment principles in IPSAS 21 on Impairment of Non-cash-generating Assets or IPSAS 26 on Impairment of Cash-generating Assets should be applied to heritage assets. These principles should be applied in the same way as other items of property, plant and equipment.

Due to the nature of some heritage assets, or the entity’s preservation objectives, a heritage asset may have an unlimited useful life, in which case the depreciation will be zero. In these instances, regular impairment reviews will be necessary.

The revisions to IPSAS 17 will include guidance to illustrate how the depreciation and impairment requirements should be applied to heritage assets.

Control over assets

As a number of entities experience challenges to assess control over property, plant and equipment, the IPSASB agreed to provide more guidance on assessing control of an asset. To enhance consistency in assessing control of an item of property, plant and equipment, general guidance on the control principle will be included in IPSAS 17. This will be supported with additional application guidance.

Revisions to IPSAS 17 likely to be issued in December 2020

The IPSASB is likely to issue the revisions to IPSAS 17 in December 2020. As part of the Accounting Standards Board’s ongoing commitment to participate in the international standard setting process, the proposed revisions to IPSAS 17 will be issued concurrently for input locally. If you are interested in these developments, more information is available on the IPSAS website [http://www.ipsasb.org/consultations-projects] or you can subscribe to the ASB’s newsletter to receive further updates.

The views expressed in this article are those of Secretariat and not the ASB Board.