IPSASB looks to add accounting for heritage items to its suite of standards

The International Public Sector Accounting Standards Board (IPSASB) has issued a consultation paper entitled Financial Reporting for Heritage in the Public Sector. IPSASB sits under the auspices of IFAC and develops international accounting standards for the public sector.

The paper discusses financial reporting for heritage items, in particular:

  • Identification of heritage items;
  • Whether heritage items are assets for financial reporting purposes;
  • Recognition and measurement; and
  • Whether heritage related obligations are liabilities for financial reporting purposes.

This consultation continues IPSASB’s strategy of focusing on government specific topics which are not addressed by any other standard.

Many countries adopting IPSAS standards cite the identification and valuation of assets and liabilities as one of the key hurdles to overcome. Adding heritage items to the list will certainly not make this task any easier. A potential future standard on heritage items could have a big impact on a government’s balance sheet if items such as mountains, lakes and forests (natural heritage) are in scope.

In the UK, heritage items are limited to tangible assets with historical, artistic, scientific, technological, geophysical or environmental qualities that are held and maintained principally for their contribution to knowledge and culture. That is to say, intangible items as proposed by the consultation paper are not within scope. The UK government’s Financial Reporting Manual (FReM) states that valuations may be made by any method that is appropriate and relevant and that external valuers are not required. Nor is there any prescribed minimum period between valuations (7.1.38, FReM).

It is interesting to note that the UK’s Department for Culture, Media and Sport (DCMS) has not valued ‘non-operational’ heritage assets that were acquired prior to 1 April 2001; these are therefore not included on the balance sheet. Non-operational heritage assets are those that are solely held for the maintenance of the country’s heritage rather than also being used for other activities. The reason provided as per the 2015-16 DCMS accounts is: ‘the cost of valuing these assets is considered to be prohibitive and is not commensurate to the benefits, due to the size of the collections and/or the assets’ uniqueness.

As demonstrated by the UK approach, cost/benefit considerations will come into sharp relief in relation to heritage items. The cost of obtaining information must not outweigh the benefits to the users of the accounts. However, to ensure that heritage items can be enjoyed by current and future generations, governments need to be accountable for such items, and, a future international heritage accounting standard could help to underpin this accountability.

Comments are due to IPSASB by 30 September 2017. The Financial Reporting Faculty will be responding and would welcome views from ICAEW members. Comments should be emailed to frfac@icaew.com.

Please refer to the full consultation for further details.