Measurement Bases for Heritage Assets
Heritage assets can be regarded as the item which has the value due to its overall contribution to the culture, knowledge and society of the country (Ellwood and Greenwood 2016). They are generally the assets; however some nations also utilise the term with regards to the intangible spiritual and social inheritance. Such assets are generally accounted for as a different category since their overall value is not likely to be completed demonstrated in the financial price or value. Most of them are unique which implies that their overall value might enhance instead of depreciate, although physical situations deteriorates. Moreover, heritage assets might bear heavy costs to sustain them and their overall life could be evaluated in hundreds of the years. Heritage assets are usually defined as the inalienable as holder cannot dispose or sell without an external consent. This paper aims at investigating whether the heritage assets in public sector be identified in a balance sheet of the financial statement. This paper will discuss the measurement for the heritage assets. Moreover, this paper will critically analyse whether heritage assets should be included in the balance sheet of company’s financial statements or not by laying down certain arguments.
The conceptual framework or model offers the direction on choosing the measurement basis instead of suggesting one measurement basis for every transactions, conditions and events (Aversano, Christiaens and Van Thielen 2019). It recognises the following basis of measurement for such assets:
Historic cost: The conceptual framework explains the information related to historic expense as appropriate to the evaluations of the cost of services, financial capacity as well as operational capacity and as frequently being direct to utilize as information on the overall cost at the acquisition is readily present. Such cost is mainly present to evaluate the heritage assets which have be bought currently. These are generally those assets whose past cost data is available. In case the past cost data is not available or lost, other measurement basis like replacement cost or market value might be obtainable.
Market values: Market values would be present for certain heritage asset via the reference to market values of such similar kind of items, in case an orderly, open and active market survives. The market value usually aids information regarding such financial and operational capacity. Nevertheless, the required market values in the orderly, open as well as active market might not be present in certain situations. Most of the heritage assets have the limitation on their disposal or sale that minimizes the presence of the asset’s market values.
Replacement cost: The conceptual framework explains the overall replacement cost to be enhanced depreciated cost of replacement that is considered as the,most economic expense needed for firm so as to replace the asset’s service potential. Such cost depends on the presence of such other assets which would give the same kind of service potential as heritage asset of a firm being valued. Moreover, where the replacement cost is present for these assets, it has the ability to offer beneficial information or data for the evaluation of the service costs, financial capacity and operational capacity. For the heritage assets utilized in the firm’s overall operations, such cost which demonstrate their respective value in respect of their overall operational utilization seems to be more likely relevant and present.
Inclusion of Heritage Assets in Financial Statements
Net selling price: The conceptual model explains this net selling price as an effective measurement in which the most resource-effective course which is present to the firm is asset selling. It is generally not a correct measurement base in case the firm is anticipated to possess the ability to utilize the resources more effectively by deploying it in another manner. Such assets are predicted to be held and then protected instead of sold and their overall value is typically connected to their respective service potential. In case, the firm has the ability to sell heritage assets and has prepared proper plan to do so, the net selling price might be a correct measurement base.
Value in use: The conceptual framework describes that the overall value in utilization is correct in which it is not more its replacement expense of resources and not less than the net selling price. Operationalization of value in utilization for the non-cash producing assets incorporates the utilization of the replacement expense as the surrogate. Most of the heritage assets are generally non-cash producing assets, therefore in certain cases the value-in-utilization could be equivalent to the overall replacement expense.
It is seen that the firm need the disclosure of such heritage assets so as to develop the general purpose financial statements. The major policy rationale for such disclosure is that these assets generally make up an essential part of assets under the control of the firm (Aversano et al. 2019). Thus, to eliminate them entirely from the financial statements of the firm renders them as an inadequate picture of the firm. Moreover, it is also observed that there are certain other advantages as well for correctly identifying the set of such assets in the firm’s financial statements. The users or the readers of such financial statements of a company are generally more interested in the overall scale and scope of the assets managed by this company whether they are cultural artefact set, historic buildings or similar (Aversano et al. 2015). Utilising the financial statements to completely and precisely communicate such information to the major users of the financial statements or stakeholders can lead to enhanced stakeholder support because of the increased viability and visibility of importance of such assets under its administration. Generally, it is found that the emphasis on the requirements of financial reporting also prompts enhanced emphasis on the details of record keeping of the collection. Such information can be beneficial for certain other purposes like assuring that adequate insurance cover is present in the firm and possibly uncover the assets which has certain significant value. It is also observed as the move towards the firm which have more emphasis on valuing of their respective assets. Adequate reporting of firm’s heritage assets would therefore assure that the firm is in accordance with the industry trends towards incorporation of these assets in the balance sheet of the financial statements. There were certain instances observed in which the firms have applied for and obtained grants for documenting and cataloguing of the heritage assets or backing-up with their respective preservations or restoration. Thus, carrying out such activities is the useful manner to offset possible expenses of caring and recording for firm’s collection of such assets. In case the heritage assets satisfies the laid down recognition criteria and the firm has the ability to reliably evaluate such assets, they should be documented in the balance sheet of the financial statement. These assets are covered by same type of standard as utilised for such other items of equipment, plant and property and thus have same kind of measurement and disclosure needs.
Advantages of Incorporating Heritage Assets in Financial Statements
There were certain researchers who argued against the identification of such assets in the balance sheet. Such researchers generally claimed that these assets demonstrates the obligation for the upcoming cash outflows instead of the inflows and thus showcases more feature of the liability than the asset. Some of them regarded as the heritage asset as the akin to the community assets and similarly laid an argument that these assets must be excluded from the financial information (Aversano et al. 2015). Nevertheless, there were other arguments put forward against the inclusion of such heritage assets in the financial statements like such kind of assets cannot be offered for sale and so they must not be compared against the firm’s liabilities. In addition to that, these assets cannot be valued or measured in terms of money. It was also claimed that government is mainly the custodian of such assets that the governing body hold such assets in faith for future and current generations and thus has a duty to preserve as well as protect them (Basnan et al. 2015). The expenses of maintaining and preserving such assets needs to be incurred by every generation since they get the benefits from these assets. As the trust assets, such public assets must not be incorporated in the statement of liabilities and assets of the government. These assets were considered as the public goods which are typically non-rival and non-excludable that everyone can use such assets and an individual enjoying such assets does not restrict others.
Nevertheless, there were some studies which believed that most of the arguments against the presence of the heritage assets in the balance sheet could also be applied to most of the non-heritage assets like land and plant. For instance, a plant might have no such market value but still might be incorporated in company’s financial statements. Likewise, the land also has an undefined life span and value of such other assets like school can be only recovered via the social use of the same and so on. In addition to that, certain researcher also stated that representational faithfulness needs that the heritage assets as the assets needs to be incorporated in the financial statements.
From the above discussion, it can be concluded that the heritage assets should be included in the balance sheet since the readers and users of such financial statements has the right to know about each kind of asset possessed by a public firm.
Aversano, N., Christiaens, J. and Van Thielen, T., 2019. Does IPSAS meet heritage assets’ user needs?. International Journal of Public Administration, 42(4), pp.279-288.
Aversano, N., Christiaens, J., Polcini, P.T. and Sannino, G., 2019. Accounting for heritage assets: An analysis of governmental organization comment letters on the IPSAS consultation paper. International Journal of Public Sector Management.
Aversano, N., FERRONE, C., CHRISTIAENS, J., SANNINO, G. and POLCINI, P., 2015. Heritage assets in local government financial reporting: the analysis of two case studies. Journal of Economy, Business and Financing, 3(1), pp.35-46.
Basnan, N., Salleh, M.F.M., Ahmad, A., Harun, A.M. and Upawi, I., 2015. Challenges in accounting for heritage assets and the way forward: Towards implementing accrual accounting in Malaysia. Geografia, 11(11).
De Wolf, A., Christiaens, J. and Aversano, N., 2021. Heritage assets in the due process of the International Public Sector Accounting Standards Board (IPSASB). Public Money & Management, 41(4), pp.325-335. (De Wolf, Christiaens and Aversano 2021)
Ellwood, S. and Greenwood, M., 2016. Accounting for heritage assets: does measuring economic value ‘kill the cat’?. Critical Perspectives on Accounting, 38, pp.1-13.
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