Debrief and refresher on
AASB13 and what the
future holds for valuation
David Edgerton FCPA
Director
Quality + Expertise +
Flexibility + Innovation =
Confidence & Real Value
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What are your thoughts?
•What is it about?
•Have you done it well?
•Will you need to make improvements next
year?
•What are the key aspects?
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What is it about?
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GFC and Sovereign Debt Crisis
Valuation = Subjectivity
Need for greater information
Greater Risk = Greater Disclosures
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Key Aspects of AASB13
• NOT about the Asset
• Focus on HOW the valuations were made
• IS about the methodology
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Asset Classes
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Probably the biggest issue
Totally missed by many !
All disclosures by ‘Asset Class’
‘Asset Class’ defined by paragraph 94
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Asset Classes
94 An entity shall determine appropriate classes of assets and
liabilities on the basis of the following:
(a) the nature, characteristics and risks of the asset or liability; and
(b) the level of the fair value hierarchy within which the fair value
measurement is categorised.
The number of classes may need to be greater for fair value
measurements categorised within Level 3 of the fair value
hierarchy because those measurements have a greater degree of
uncertainty and subjectivity.
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In layman’s terms
• If you have used a different valuation process
then this would be a different ‘asset class’
• Idea is to provide the ‘reader’ with all the
information about each different valuation
• Indicators include different –
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Technique
Level of Valuation Hierarchy
Approach / Algorithms
Inputs / Assumptions
Level of risk or uncertainty
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Example (Land)
• Freehold residential land
• Freehold development/commercial potential
• Restricted / non-freehold
– Small lot (residential area)
– Large lot (residential or commercial area)
– Large lot (multi-use area)
– Very large lot (forest / natural parkland area)
– LUR
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Hierarchy (Inputs v Valuation)
• Valuation Hierarchy based on –
– Lowest level of input
– Unless input is insignificant
• Need to –
– Identify ALL significant inputs
– Classify as level 1, 2 or 3
• Technique DOES NOT determine hierarchy
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Example (Buildings)
• Residential
– Open and liquid market
– Insufficient market evidence
• Specialised
– Aged building
– Historic building
– New and major
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Infrastructure?
• Roads?
– Sealed Roads
– Traffic Signals
– Traffic Management Devices
• Treatment Plants?
• Bridges?
• Footpaths?
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Valuation Premise
• Highest and Best use
• From the perspective of other market
participants….. Not entity specific !
For public sector current use is
usually the highest and best use.
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Example (Restricted Land)
Cemetery
Potential
Sell balance
Cemetery
acquisition
to Golf Club
Process
• Characteristics ?
• Is there a principal market?
• Market Participants?
• Valuation Premise?
• Valuation Technique?
Highest & Best Use …. Cemetery
No market….. Cost Approach
Cost to Replace …. $20m
Golf Course
Developers $19.0m
Golf course $19.5m
Council
$20.0m
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Disclosures
• General Disclosures (policies and reconciliations)
• For each ‘Asset Class’
– Valuation Techniques and Inputs
– If level 3
• For each level 2 input (no disclosures)
• For each level 3 input
– Where did it come from
– How was it evaluated
– Quantitative info (eg. min and max)
– How reliable is it (sensitivity +/- %)
– Impact ($) on Fair Value Measurement
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Techniques and Inputs (for each
asset class)
• Market / Income/Cost (or combination!)
• High level overview of process
– Segmentation
– Componentisation
– Condition scoring process
• Identify and disclose ALL inputs
• Classify each input as level 1, 2 or 3
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What are the inputs?
(observable or unobservable)
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Asset design, location and specification
Condition (and Scoring methodology)
Componentisation / Segmentation
Replacement Cost (Unit Cost)
– what level?
– How developed?
• Component level details (NOT at asset level)
– Residual Value
– Pattern of Consumption
– Useful Life
• Future Use / Obsolescence?
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How well did we go in 2014?
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Landfills
• Now under increasing focus
• Significant liabilities
– May not have been previously recognised
– Many ‘new’ requirements = increased liabilities
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Engineered cells = complex valuation
Land component = Registered Valuer
Complexity with depreciation and discounting
Different Asset Management Strategies =
Different Valuation and depreciation outcomes
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The Future of Valuation
• Increasingly more complex and specialised
• More changes ahead in accounting standards
– IFRIC4 & 12 / AASB15 (control and service
concessions)
– Conceptual Framework (definition of asset)
– AASB review of disclosure requirements
– IPSASB conceptual framework
• Efficiencies through technology
– Fair Value Pro
• CPA Australia Guide (AASB standards)
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Questions
David Edgerton FCPA
Email:
David@apv.net
Web:
www.apv.net
Mob:
0412 033 845
Work:
(07) 3221 3499
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