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Valuation Guidance for Cultural and Heritage Assets (2002)

1  Introduction

1.1 Purpose

The purpose of this document is to provide practical guidance on the valuation of heritage and cultural assets in the context of New Zealand general purpose financial reporting, so as to facilitate a consistent and cost effective approach across the public sector. The guidelines set out in this document are expected to be referenced to in the Treasury Instructions and are intended to be applied by departments.

At the moment, libraries are using the draft guidance on valuation of library collections that was jointly issued by the Library Association of New Zealand, the National Library and Audit New Zealand in 1992. This guidance replaces that previous guidance and reflects changes resulting from the introduction of FRS-3 Accounting for Property, Plant and Equipment. The scope of the guidance has been extended to cover other heritage and cultural assets in addition to library collections.

1.2 Scope

Heritage and cultural assets are those assets that are held for the duration of their physical lives because of their unique cultural, historical, geographical, scientific, and/or environmental attributes. They assist holders of the assets to meet their objectives in regard to exhibition, education, research and preservation, all of which are directed at providing a cultural service to the community.

In the context of this proposal, cultural and heritage assets include, but are not limited to:

  • general collections in libraries;
  • heritage collections in libraries;
  • museum collections (such as those in Te Papa);
  • art gallery collections;
  • historical documents, historical monuments and heritage assets held in local authority trusts.

1.3 Summary of the Proposed Approach

FRS-3 encourages entities to revalue their property, plant and equipment (PPE), and where they do so, requires them to use fair value.

If an entity has decided to revalue its cultural and heritage collections, it should follow the following procedure to determine the fair value of an asset:

  1. If an active market exists for the same asset or a similar asset, the market prices are deemed to be the fair value; or
  2. If there is no active market, fair value should be determined by using other market-based evidence; or
  3. If there is no market-based evidence, use Depreciated Replacement Cost (DRC). For practical purposes, where an asset has an indefinite or sufficiently long life, no depreciation charge should be applied.

1.4 Changes from the Current Practice

The previous draft guidance issued by Library Association, National Library and Audit New Zealand requires using DRC to value current use collections every three years. Net market value is used to value ‘permanently retained’ collections with items of high value being assessed individually. Given the intention to retain them permanently, they are not depreciated.

The proposed approach has incorporated the changes introduced by FRS-3 and moved away from the distinction between current use collections and ‘permanently retained’ collections for valuation purposes. Regardless of asset classifications, all assets are valued first by referring to market prices or market-based evidence, and DRC is used only when the market information is not available.

When using the DRC approach and applying depreciation, exception is made for assets that have indefinite or sufficiently long useful lives. The depreciation amount for such assets is considered irrelevant or negligible, therefore no depreciation is charged against them.

1.5 Rationale for Valuation

Financial reporting of cultural and heritage assets is useful for three reasons:

  • Accountability - to provide information by which the Chief Executive Officer and governing body can be held responsible for their stewardship of public assets and to measure changes in the net worth of public sector entities over time;
  • Management decision making - to provide management with the information required to manage effectively the assets under their control and to make appropriate decisions on their utilisation and the future allocation of resources to them; and
  • Insurance - the valuations obtained for financial reporting have relevance for decisions regarding insurance and risk management purposes.

In addition, Members of Parliament, Councillors, the public or ratepayers are entitled to know the extent of the resources that have been allocated by the central or local Government to the cultural institutions.

The valuation of cultural and heritage assets will provide information to management and/or the public to allow them to:

  • have a complete picture of the financial value of the assets at a particular time;
  • make comparisons of changes in the financial value of the assets over time;
  • allocate new funds between different types of assets;
  • re-allocate resources to higher priority assets through the sale of existing low priority assets; and
  • develop appropriate internal management practices and procedures.

To best achieve these purposes the financial information provided should be current. If an historical cost approach is used, no account is taken of specific or general price movements since purchase, comparability between financial statements is reduced and distortions may be introduced as to the value of components of the collections assets.

As noted in paragraph 1.3, FRS-3 encourages but does not require reporting entities to revalue cultural and heritage assets. Underlying this view is the proposition that fair value, the value for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction, represents the best estimate of the intrinsic cultural or heritage value of the assets.

In determining whether or not to revalue, and the frequency of revaluations, entities must trade off the benefits noted above with the costs associated with the revaluation. Where the entity is consolidated into the Crown’s Financial Statements, another factor will be the usefulness of consistency with the Crown’s accounting policies.

This guidance has been prepared for the users of entities that have decided to revalue their cultural and heritage assets.

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