Project Director Alan O’Connor gives an outline of the ASB’s proposals on accounting for heritage assets.

In December, the ASB published an exposure draft ‘Accounting for Heritage Assets’. The aim is to improve the quality of the financial reporting of heritage assets for entities such as museums holding collections of art, antiques and books and also for entities that own and manage landscape or buildings for their environmental or historical qualities.

The proposals in Financial Reporting Exposure Draft (FRED) 40 have been developed from a Discussion Paper ‘Heritage Assets: Can Accounting Do Better?’ which the ASB issued in January 2006.

The proposals apply only to entities that hold heritage assets that contribute to a principal objective of promoting knowledge and culture. These entities should report their heritage assets in accordance with new requirements, rather than the current requirements of FRS 15 ‘Tangible Fixed Assets’. Specifically, the proposals will require entities, wherever practicable, to report collections of heritage assets at valuation in their annual accounts. Where it is not practicable to obtain a valuation, the collection should not be reported in the balance sheet. This is a change from the Discussion Paper, which proposed that the accounting policy should be applied for an entity’s total holdings of heritage assets. Enhanced disclosures are required regardless of whether or not collections are reported in the balance sheet.

Illustrative disclosures, including details of the nature and scale of heritage assets held and policies for their acquisition, reservation, management and disposal are included in the FRED.

The proposals are intended to address criticisms of the current financial reporting requirements that result in most entities only recognising recently acquired heritage assets in the balance sheet at cost: figures which may bear little or no resemblance to the value of the entities overall collection.

Comments on FRED 40 are requested by 20 April 2007. Copies of the document can be accessed on the website via the following link: http://www.frc.org.uk/asb/technical/projects/project0066.html.