Shire of Toodyay Policy Manual
FINANCE POLICY
POLICY NO
F.15
POLICY SUBJECT
FAIR VALUE ACCOUNTING POLICY
FILE NUMBER
FIN20
ADOPTION DATE
15 OCTOBER 2013
LAST REVIEW
22 July 2014 (Council Resolution No 201/07/14)
STATEMENT OF INTENT
The intent of this Policy is to ensure that Council meets its statutory and
legislative requirements whilst providing clear and concise guidelines to
management and finance staff in regards to the appropriate treatment of Fair
Value Accounting in relation to Shire assets.
OBJECTIVES
To provide compliance with the following legislation and standards:
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Local Government Act 1995
Local Government (Financial Management) Regulations 1996 – 16 –
Land under Local Government’s Control, accounting for.
Local Government (Financial Management) Regulations 1996 – 17A –
Mandating of Fair Value.
AASB 13 - Fair Value Measurement
AASB 116 – Property, Plant & Equipment
AASB 138 – Intangible Assets
DEFINITIONS
AASB – Australian Accounting Standards Board
FVA – Fair Value Accounting
Observable Inputs – inputs that are developed using market data such as
public available information about actual events or transactions and reflect
assumptions market participants would use when pricing the asset.
Unobservable Inputs – inputs for which market data is not available and
developed using the best information available about assumptions market
participants would use when pricing the asset.
WDV – Written Down Value
ACCOUNTING THRESHOLD
Only assets that fall within the guidelines of Council Policy F.1 Capitalisation
of Assets will be included in the Fair Value process.
Finance Policy No F.15 – Fair Value Accounting Policy
Shire of Toodyay Policy Manual
ACCOUNTING TREATMENT
Accumulated depreciation at the date of the revaluation is treated in one of
the following ways:
(a)
Restated proportionately with the change in the gross carrying amount of
the asset so that the carrying amount of the asset after revaluation
equals its revalued amount. This method is often used when an asset is
revalued by means of applying an index to determine its depreciated
replacement cost (Gross Method); or
(b)
Eliminated against the gross carrying amount of the asset (purchase
cost) the net amount (WDV) restated to the revalued amount of the asset
(Net Method).
The amount of the adjustment arising on the restatement or elimination of
accumulated depreciation forms part of the increase or decrease in carrying
amount that is accounted for in accordance with the relevant AASB’s.
METHODOLOGY
As mandated by Local Government (Financial Management) Regulation 1996,
17A, a local government in Western Australia must show all assets in its
financial report at fair value by 30 June 2015.
Implementation is to be phased in over three years from 1 July 2012 and
commences with plant and equipment being reported at fair value for the
financial year ending 30 June 2013.
The implementation of Fair Value Accounting at the Shire of Toodyay will be
carried out as follows:
Financial Year
2012/2013
2013/2014
2014/2015
2014/2015
Triennially – ongoing
Asset Groups/Resources
Plant & Equipment – predominantly in house in line
with supporting documentation from external sources
Land & Buildings (including specialised and nonspecialised buildings valued at component level)
using industry cost guidelines – current
Infrastructure – re-valued using industry unit costs –
Roman Data updated June 2013 to be used as basis
All other assets (including intangible, historical and
cultural assets, library books, art collections etc.)
All asset classes will be re-valued on a three year
cycle to enable plant and equipment revaluation by
30 June 2016 and again by 30 June 2019 and so on;
infrastructure by 30 June 2017 and again by
30 June 2020, and so on.
Finance Policy No F.15 – Fair Value Accounting Policy
Shire of Toodyay Policy Manual
The Fair Valuation of Shire of Toodyay Plant and Equipment will be conducted
in house using corporate knowledge backed up with supporting
documentation from external sources.
Each plant item is photographed and recorded individually all relevant details
as per attached example.
FAIR VALUE HIERARCHY (INPUTS TO VALUATION TECHNIQUES)
Valuation techniques used to measure fair value shall maximise the use of
relevant observable inputs and minimise the use of unobservable ones.
Level 1 Inputs – quoted prices (unadjusted) in active markets for identical
assets of liabilities at the measurement date.
Level 2 Inputs – inputs other than quoted prices included within level one that
are observable either directly or indirectly.
Level 3 Inputs – inputs that are unobservable or have no ‘market’
The majority of valuation techniques will be a combination of Level 1 and 2 but
Level 3 will be utilised when valuing assets such as roads or specialised
buildings eg: town halls.
Where a higher priced conforming offer is recommended, there should be
clear and demonstrable benefits over and above the lowest total priced,
conforming offer.
ADOPTED 15 OCTOBER 2013
Amended Council Meeting 22 July 2014
Finance Policy No F.15 – Fair Value Accounting Policy