| New IPSAS 17? What may change? |
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The IPSASB published a revised IPSAS 17 on Property, Plant and Equipment for comment. The comment deadline is the 25th of October 2021. Given the proposed changes and the significance of property, plant and equipment in the public sector, it is critical that we provide our views to the IPSASB.
There are three key “themes” that resulted in changes being made to IPSAS 17: Changes in response to the proposed IPSAS on Measurement. The inclusion of heritage assets in the scope of IPSAS 17. Implementation guidance provided on infrastructure assets. Changes in response to proposed IPSAS on Measurement
The most significant change is to the initial measurement of property, plant and equipment (PPE) acquired in a non-exchange transaction. Previously, non-exchange transactions were measured at fair value. The revisions to IPSAS 17 indicate that these transactions are measured at “deemed cost”. Deemed cost is a current value measure and can be determined using three possible measurement techniques – market approach, income approach or cost approach. The ability to use three different techniques creates a greater range of potential valuation methods that could be used and would largely depend on the information available.
The options available for subsequent measurement are largely unchanged. Entities can still use cost or the revaluation model. The revaluation model allows the use of fair value and “current operational value”. Additional disclosure is required when a current value measurement basis is used.
Inclusion of heritage assets in the scope of IPSAS 17
The IPSASB decided that there is no need for separate guidance on heritage assets. Heritage assets meet the definition of PPE and should be accounted for using IPSAS 17. As heritage assets are held indefinitely by entities for current and future generations, and are preserved to ensure their longevity, changes are proposed to accommodate their measurement.
A key change relates to depreciation. There is now a rebuttable presumption that items of PPE, other than land, can have finite useful lives. This means that entities could identify items of PPE (other than land) – for example, heritage assets – that have indefinite useful lives and need not be depreciated. However, because the rebuttable presumption is not limited to heritage assets, it could arguably apply to other assets. This could result in misuse/abuse of this principle.
The next change relates to the inclusion of disclosure requirements for heritage assets that is not recognised in the financial statements because a value could not be determined on initial measurement. Entities should disclose:
(a) the difficulties in obtaining a reliable measurement; and
(b) the significance of the unrecognised asset(s) in relation to delivery of the entity’s objectives.
Subsequent expenditure incurred on those unrecognised assets can be capitalised when the recognition criteria are met. Specific disclosure requirements apply in these instances.
Implementation guidance on infrastructure assets
Non-authoritative examples describing a range of issues are included in an appendix to IPSAS 17.
Read more
Access the full Exposure Draft and educational materials by following this link.
Have your say
We are hosting an education session on the 20th of August and a roundtable discussion on the 15th of September. To join these discussions, please contact Elizna van der Westhuizen at [email protected]. |
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