| Update from the ASB’s December Board meeting
The Board met on the 1st of December 2020. The Board’s deliberations focused on the results of the post-implementation review of GRAP 103 on Heritage Assets.
Both users and preparers of the financial statements expressed broad support for the Standard as it resulted in better management of heritage assets. Concerns were expressed about the cost of implementing the Standard, the skill and capacity at entities to apply its concepts and technical aspects of the Standard.
The issues related to cost and skill and capacity will be shared with the Department of Arts and Culture and National Treasury as the resolution of these issues is within their respective mandates. The matters related to the technical aspects of the Standard were debated by the Board and potential actions identified. The key proposals are discussed below.
Identifying heritage assets
Respondents to the review often raised questions about the identification of heritage assets. In particular, whether heritage assets should be identified based on legislation such as the National Heritage Resource Act, or by applying the definition of a heritage asset in GRAP 103. As the Standards of GRAP are used to prepare the financial statements, the definition in GRAP 103 should be used to identify heritage assets. Respondents indicated that there should be a closer alignment between the definition in GRAP 103 and legislation.
The Board agreed to review the definition of heritage assets in GRAP 103 and potentially align it more closely to legislation.
Classifying heritage assets
GRAP 103 currently requires heritage assets that are held for an alternative use to be accounted for in terms of that alternative use. As an example, if a heritage building is used in an entity’s service delivery, it would be accounted for using GRAP 17 on Property, Plant and Equipment. When accounted for as property, plant and equipment (or investment property using the cost model), depreciation is recognised.
Respondents expressed diverse views about whether this treatment is appropriate. Those that supported the current treatment indicated that if heritage assets are used for other purposes, then they should be accounted for based on that purpose. They also observed that recognising depreciation is appropriate as this reflects the cost of using the asset in providing goods and services.
Respondents that did not support the current treatment were of the view that the main objective for holding heritage assets is to preserve and manage them for current and future generations because of their cultural, artistic, scientific etc. significance. A key concern was that the line item “heritage assets”, as presented in the financial statements, is incomplete as heritage assets held for an alternative use could be presented as property, plant and equipment, investment property, etc. They also did not support recognising depreciation as heritage assets are often preserved and maintained at a higher level than other assets which means that they may not necessarily depreciate. The depreciation may also be very low given the long useful lives of many heritage assets. These respondents proposed that all heritage assets should be accounted for using GRAP 103.
The Board agreed with the views expressed about why the current treatment is inappropriate and supported a change to GRAP 103 and related Standards.
Measuring heritage assets
At present, GRAP 103 does not require the recognition of heritage assets if a reliable measure cannot be determined on initial recognition. As many heritage assets were acquired many years before the adoption of the Standard, historical information may not have been available. In these instances, entities were allowed to value the heritage asset using the fair value on the date of adoption. Fair value can also be used when heritage assets are gifted or donated to entities in a non-exchange transaction.
Respondents indicated that the measurement of heritage assets had caused significant difficulty in the application of the Standard. It was observed that it was unclear when a “reliable” measure is considered unavailable. Concerns were also expressed by preparers about how fair value was being determined and the perceived lack of market information. Valuation experts provided a different context and noted that in most instances, fair value would be determinable. Exceptions could be one of a kind archaeological artefact, human remains, etc.
The Board agreed to provide guidance on when a reliable measure of a heritage asset cannot be determined. It was also agreed that entities could potentially use “peer data” if other entities held and valued similar assets. These proposals would result in amendments to GRAP 103.
The International Public Sector Accounting Standards Board (IPSASB) will issue a proposed Standard on the measurement of assets and liabilities in early 2021 for comment. Some of the proposed guidance responds directly to the issues observed by preparers. As a result, the Board did not propose any specific actions related to the valuation methods and their application.
Applying GRAP 103
Several specific application issues were raised by preparers. One of the most significant issues raised related to the treatment of heritage assets before assessing whether they are heritage assets. A typical scenario is where an entity receives artefacts from an external party. The entity would need to assess whether the artefacts meet the definition of a heritage asset in GRAP 103. Respondents noted that they often do not recognise these assets in the financial statements, or they recognise them at a value of R1 prior to the assessment being completed.
The Secretariat will issue a Frequently Asked Question to provide guidance on this issue. Based on other application issues identified, new FAQs will be issued, or existing FAQs revised.
Way forward
The Board’s proposed actions will either result in changes to GRAP 103 or guidance from the Secretariat. Revisions to GRAP 103 would need to be developed and issued for comment. The Board will consider proposed revisions to GRAP 103 in September 2021. The FAQs will be issued at the same time.
The full results of the review and comments received with related responses will be published on the ASB’s website in due course.
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