New international guidance on heritage assets
The IPSASB issued ED 78 on Property, Plant and Equipment (published locally by the Board as ED 190) that proposes updates to the principles in IPSAS 17 on Property, Plant and Equipment.
Among others, ED 78 proposes new guidance to address the long-standing lack of guidance on accounting for heritage assets. Currently IPSAS 17 allows entities an option to recognise heritage assets. If recognised, entities are required to apply the IPSAS 17 disclosure requirements, but the application of the measurement principles in IPSAS 17 remains optional.
What does ED 78 require about the depreciation of heritage assets?
As items with a heritage nature meet the definition of assets, ED 78 proposes that IPSAS 17 should fully apply to heritage assets when they meet the definition of property, plant and equipment.
Does this mean that heritage assets should be depreciated?
This is a consequence of applying IPSAS 17 to account for heritage assets. The IPSASB concluded that heritage assets could be depreciable assets on the assumption that some heritage assets are consumed over time as they deliver services and/or provide economic benefits.
ED 78 explains that the typical characteristics of heritage assets are that they:
a. have restrictions on their use;
b. are irreplaceable; and
c. have long and sometimes indefinite useful lives.
To determine if a heritage asset has an indefinite useful life, certain factors need to be tested. These factors are:
a. the period that the asset provides service potential or generates economic benefits – to meet this factor, the entity needs to conclude that, to the best of its knowledge, the period over which the heritage asset will continue to provide service potential and/or generate future economic benefits will continue indefinitely;
b. usage of the asset – the entity needs to conclude that the usage of the heritage asset will not result in physical wear and tear; and
c. preservation of the asset – the entity should be able to conclude that its past actions and future plans involve the continued preservation of the heritage asset.
If circumstances change, these factors should be reconsidered to assess if the heritage asset continues to have an indefinite useful life.
Assess a heritage asset with an indefinite useful life for impairment
A heritage asset with an indefinite useful life is not depreciated. ED 78 includes a new requirement that if an item of property, plant and equipment has an indefinite useful life, an entity should annually assess if any of the impairment indicators have been triggered. IPSAS 21 on Impairment of Non-cash Generating Assets or IPSAS 26 on Impairment of Cash-generating Assets is applied in making this assessment.
If, based on a change in circumstances, an entity concludes that the useful life of a heritage asset has changed from indefinite to finite, the heritage asset should be treated as a depreciated asset from the date of change. The deprecation principles in IPSAS 17 will then be applied to the heritage asset.
Where to access the ED and how can you provide comment?
The Secretariat will host an education session, and a roundtable discussion on ED 78 during August and September. In the education session we will work through the proposals in ED 78, while the roundtable discussion will give participants an opportunity to share their comments and views and provide any other feedback on the IPSASB’s proposals. This feedback will be used to formulate a comment letter which will be submitted to the IPSASB. If you are interested in attending these session, please forward your details to elizna@asb.co.za.
ED 78 is 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
The article 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.