Exposure Draft (ED) 14 - Property, Plant and Equipment
Comments from the Association of Chartered Certified
Accountants
January 2001
We welcome the proposal of the International Federation of Accountants (IFAC) Public Sector Committee (PSC) to publish an IPSAS for Property, Plant and Equipment. In general we are supportive of the issues raised in the ED and we respond to the specific matters raised for comment in the consultative document as follows.
Specific Matters for Comment
(a) ACCA agrees that while infrastructure assets, military assets and heritage assets may have certain unique features, in the main, they meet the definition of property plant and equipment and the recognition criteria as laid out in the proposed standard. It is our view that the ED should include some discussion on renewal accounting with respect to infrastructure assets and it should provide more guidance on the valuation and recognition of assets.(b) In respect of point (i) we agree with the proposal to introduce a five year transitional provision during which entities are not required to recognise as assets those items of property, plant and equipment which satisfy the recognition criteria. We believe that five years is sufficient time for an economic entity to collect all the necessary information to be recorded in an asset register for disclosure purposes. We do not agree, however, that the provision should extend from the date that an entity first applies the Standard. Such a proposal could result in the anomaly that in twenty years time, for example, an entity could adopt to apply the standard and still have 5 years in which to comply with the recognition criteria. ACCA believes that there should be a cut off period after which organisations adopting to apply the standard must be in a position to comply with it.
In respect of point (ii) we do not think that it is unreasonable to have a separate and extended transitional provision for infrastructure and heritage assets.
(c) ACCA supports the use of fair value on initial recognition in the limited circumstances described in the standard.
(d) We believe that the accounting treatment for the estimated costs of dismantling and site restoration should be consistent with IAS 16 (i.e. the estimated costs are capitalised and recognised as a provision in accordance with IAS 37). This accounting treatment is superior to the suggested alternatives as by disclosing separately the provision for de-commissioning costs it highlights the full extent of such commitments making them more transparent.
(e) In respect of point (i) we believe that it is appropriate to have a benchmark for the measurement of property, plant and equipment in the public sector and we suggest that such a benchmark should be valuation where possible.
In respect of point (ii) paragraphs 43 to 46 summarise the relevant issues concerning the valuation of property plant and equipment in the public sector (i.e. in the context of our UK experience).
With regards to paragraph 45, however, the advice given for arriving at the fair value of a national park by referring to "the market value of land with similar features and topography for which market evidence is available" appears quite glib. The list of classes of assets, provided by way of examples at paragraph 50, is far from comprehensive and does not take a public sector stance.
(f) We do not believe that it is appropriate for revaluation increases and decreases to be offset within a class of assets as such treatment does not promote transparency nor does it promote effective asset management in the public sector. We believe that where possible transactions relating revaluation increases and decreases should be reflected against the specific assets concerned.
(g) ACCA suggests that all assets could initially be classified as one of two broad categories: those with restrictions and those without. The extent of disclosure of the nature of the restriction should be limited to the general nature of restrictions. Further elaboration could be shown by way of a note to the accounts or the annual report.
We also believe that allowance should be made for disclosure of impairments, as dealt with in your discussion paper, in relation to provisions for impairment by class and perhaps assets to be valued at net realisable value.