The Accounting Standards Board (ASB) has today issued a revised Financial Reporting Exposure Draft (FRED) that aims to improve the quality of the financial reporting of heritage assets. It applies to museums, galleries and other entities that house historic collections of art, antiques and books, or that own or manage land or buildings with important environmental or historical qualities.

The main feature of the proposals is that enhanced disclosures should apply to all entities that hold heritage assets, regardless of whether these assets are reported in the balance sheet. These disclosures should provide readers with an understanding of the asset values being reported as well as the entity’s policies for managing its total holding of heritage assets.

The proposals also require heritage assets to be reported in the balance sheet where information is available on cost or value. The ASB remains of the view that heritage assets are assets and that the best financial reporting is secured when they are reported as such in the balance sheet.

Announcing the issue of FRED 42 ‘Heritage Assets’, Ian Mackintosh, Chairman of the ASB, said:

“Accounting for heritage assets presents some very difficult and challenging issues and, having considered a number of alternative approaches, we are not persuaded there is a better accounting solution than the current FRS 15 based requirements. We do, however, expect the proposed enhanced disclosures to significantly improve the financial reporting of heritage assets and thereby contribute to better financial management in this important sector.”

The ASB’s project on heritage assets addresses criticisms of the current financial reporting requirements for heritage assets. The proposals set out in FRED 42 have been developed from the Discussion Paper ‘Heritage assets: Can accounting do better?’, published in January 2006 and FRED 40 ‘Accounting for heritage assets’, published in December 2006.

The Discussion Paper and FRED 40 both proposed that entities should be required to report heritage assets at a valuation in the balance sheet where this was practicable, otherwise a non-recognition approach was to be required. The Discussion Paper proposed the accounting policy should be applied for an entity’s total holding of heritage assets whilst FRED 40 proposed it should be applied for each individual collection.

Many of the proposals in the Discussion Paper and FRED 40 were welcomed by respondents, although there were concerns about the proposal to require separate consideration of each collection. Respondents commented that this would be difficult to implement and could cause difficulties for auditors. The ASB noted these concerns and was also aware that requiring valuation, where practicable, could result in even fewer heritage assets being recognised than under current practice.

Comments on FRED 42 are requested by 10 October 2008. It can be downloaded free of charge from the publications page of the ASB website (http://www.frc.org.uk/asb/publications/). Hard copies will be available, price £2.50 (post-free) from FRC Publications, 145 London Road, Kingston Upon Thames, Surrey, KT2 6SR (020 8247 1274). Web: www.frcpublications.com.

Copies of the Discussion Paper and FRED 40 can be downloaded from the ASB website: (http://www.frc.org.uk/asb/technical/projects/project0066.html).

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