Valuation of owner occupied properties under IFRS
Comments from ACCA
October 2003
The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the above Consultation Paper. This was discussed at a recent meeting of ACCA�s Financial Reporting Committee and I am writing to give you their views.
We have responded below to certain of the specific questions that you have raised for comment, being those where we judge that our views as accountants are going to be most relevant.
Q1. Where valuations of property, plant and equipment are made for the purposes of global accounting standards, consistent valuation standards should be followed as well.
Q2. We agree that fair value means market value (MV) where there is an evidenced market, or depreciated replacement cost (DRC) where the property is specialised or where there is no identifiable market. Without DRC, specialised buildings risk being valued as scrap.
Q3. DRC should be viewed as a surrogate for MV where there may be few potential buyers and transactions in comparable assets.
Q4. We agree with the proposed definition of specialised properties.
Q5. We agree that there may be cases where specialised buildings can be valued at market value, for example where recent market transactions have taken place.
Q7. The important question, in the end, is whether there have been recent market transactions or not. If yes, then an MV may be possible, though there might need to be some guidance on how recent the transactions have to be. If there have not been recent relevant transactions, then DRC will have to be used as a fall back. Whether there needs to be a defined category of Limited Market properties seems debatable.
Q8. Where DRC has been used to value the buildings, then the land valuation should also assume existing use.
Q22. We think this matter needs to be clarified. The guidance would seem to imply that the directors should carry out an impairment test each time they use a DRC valuation. IAS36 requires an impairment test only when there is any indication of potential impairment, that is to say when one of the trigger events has occurred.
Q23. DRC is meant to be a surrogate for a market value. Value in use in IAS36 is an entity-specific value, and therefore they will not necessarily be the same.
Q26. We agree that there should be a consistent basis for valuing non-specialised owner-occupied property. Basis 1 (vacant possession) is preferable because it corresponds to the basis for a sale and is therefore more consistent with the market value objective.