By John Howard, IPWEA NAMS.AU Project Manager
As publishers of the Australian Infrastructure Financial Management Guidelines (AIFMG), the IPWEA recognises the importance of keeping them up to date so that they remain current and applicable as new Accounting Standards come into effect. These updates are done on a six-monthly basis to keep abreast of any changes.
One such new Standard is AASB13 Fair Value Measurement, which will come into effect for the 2013/14 financial year reporting.
Accordingly, the IPWEA has announced that their latest update of the AIFMG will give users full details on the application of this Standard.
Valuation of infrastructure assets is a key part of the overall asset management process and appropriate methodologies are an important aspect of the valuation process. That is why guidelines such as the AIFMG are so important to foster greater national consistency across local governments as they pursue the financial management of their assets.
There are some good lessons to be learned from recent Audit Office reports like the one issued by the Queensland Audit Office on results from the 2011/12 audits. One thing noted was that:
“Many councils do not have an appropriate understanding of the scope of work performed by their valuers, including any limitations or restrictions thereon; or of the methodology adopted by the valuers and the key assumptions and inputs used in applying the valuation methodology. This is a significant issue given the differences in the methodologies adopted by valuers and the subjective nature of the key inputs and assumptions applied in the valuation process.”
The AIFMG has a whole section (12.12) on Fair Value, which explains the requirements of AASB 13 Fair Value Measurement. Section 12.14 covers revaluation of assets. The Guidelines are commended to users to ensure that appropriate methodologies are applied. The latest update includes amendments to this Section to ensure that the new Standard AASB13 provisions are incorporated.
AASB 13 identifies a fair value hierarchy of three input levels. Level 1 inputs are quoted prices in active markets for identical assets such a motor graders. Level 2 inputs are inputs other than quoted market prices included within Level 1, such as the value of a home unit based on the sale price of similar units.
Level 3 inputs are unobservable inputs for the asset, such as where there is little or no market activity for the asset at the measurement date. Most public infrastructure comes under this level and valuing infrastructure based on depreciated replacement cost is the appropriate valuation method with unit rates based on local market conditions. AASB 13 also requires disclosure of the valuation basis as Level 1, 2 or 3.
Updates are available from the AIFMG website and advice will be circulated when this update is available to download.