Revaluation Group meeting in London
On 7 September, the ASB hosted a meeting of the 'Revaluation Group'. Chaired by Liz Hickey of the Financial Reporting Standards Board of New Zealand, the meeting included representatives of national standard-setters from countries where revaluation of fixed assets is permitted (Australia, New Zealand, South Africa and the UK). IASB liaison members for these countries were also in attendance, as was a representative from the IFAC Public Sector Committee.
The IASB had asked the Revaluation Group to compare the requirements for revaluation in their standards, and to develop proposals for international convergence. Despite significant differences between members' domestic standards, the Group reached a wide measure of agreement.
In no country is revaluation required; rather, it is optional. As accounting continues to evolve towards wider use of current values, there seems little case for reverting to historical cost. On the other hand, a general requirement to revalue would be onerous, and probably would not command international support.
Among its other conclusions, the Group reached tentative agreement that:
- where the current value of an asset exceeds its existing use value, for example because of the possibility of development for an alternative use, that value should be recognised in the balance sheet. This differs from the requirements of FRS 15, under which such an asset, if revalued, would be recorded at existing use value and the higher open market value would be disclosed in the notes to the accounts.
- depreciated replacement cost has some application for specialised assets, for which there is no active market.
- where an asset in a class is revalued, the whole class should be revalued and at each balance sheet date the assets should be shown at their current value.
- where a policy of revaluation had been adopted, in general, there should not be an option of reverting to historical cost at a future time.
- there is a case for supplementary disclosure where historical cost is used and there is a significant difference between it and current values.
More discussions are needed to review these preliminary conclusions and to discuss other issues, and it has been agreed that the Group should meet again in 2002. One issue for discussion will be the valuation of assets that are not specialised—could the use of value to the business (incorporating depreciated replacement cost) have a wider application than to specialised assets, or is exit value (net realisable value) a more appropriate measure of current value?
If you have any comments on revaluation issues, Jenny Carter would be pleased to receive them, and can be contacted by email at j.carter@asb.org.uk.
