One of the main stays of Preston Rowe Paterson’s Sydney business is financial reporting valuation for all property asset classes, infrastructure, and plant and machinery. We have always closely monitored accounting (financial reporting standards) developed by the Australian Accounting Standards Board (AASB) and valuation standards developed by the International Valuation Standards Council (IVSC). In September 2011 the AASB released AASB 13 entitled “Fair Value Measurement”.
Whilst released some time ago (and forming part of the International Financial Reporting Standards set by the International Accounting Standards Board (IASB)) AASB 13 Fair Value Measurement applies to annual reporting periods beginning on or after the 1st January 2013 (see AUS4.2 page 9 of AASB 13).
AASB 13 at section 9 of the objectives (page 10) states that the standard defines Fair Value as “the price that would be received to sell an asset or payed to transfer a liability in an orderly transaction between market participants at the measurement date”.
Over the coming months we will be releasing a series of Fair Value Measurement technical papers relating Fair Value to various asset classes’ real estate and plant and machinery.
At issue it is the fact that Fair Value, which once formed a 2-3 page guidance document at the rear of AASB116 entitled “Australian Guidance”, now comprises AASB 13, a 59 page document that not only defines Fair Value but also discusses its application in considerable detail. It also introduces new logic to a hierarchy of Fair Value assessment inputs being Levels 1, 2 and 3 inputs and, at section 5 under “Scope”, it is stated to apply when another standard requires or permits Fair Value measurement. Exceptions include leasing transactions within the scope of AASB 117 Leases and measurements such as “value in use” in AASB 136 Impairment of Assets.
Preston Rowe Paterson Sydney will also consider the definitional issues between Fair Value and Market Value conceptually, as well as asset classification, for various asset classes. We will also consider the interrelatedness of the Fair Value Measurement standard AASB 13 and other relevant accounting standards including:-
- AASB 5 – Non Current Assets Held For Sale And Discontinued Operation;
- AASB 15 – Property Plant and Equipment;
- AASB 117 – Leases;
- AASB 136 – Impairment of Assets;
- AASB 140 – Investment Property;
- AASB – Interpretation 115 operating leases – Incentives.
Greg Preston commented that it is easy to dismiss the changes as not having any notable impact on the asset classification and the assessment of Fair Value for financial reporting. However, he also commented that the nuances in the definitions require careful consideration especially in circumstances where asset valuations for financial reporting are provided to banks for mortgage fund advancement purposes wherein it is presupposed that Fair Value is one in the same by definition as Market Value. If you would like a quote for asset valuations or would like to discuss our analysis of AASB 13 please don’t hesitate to contact us.