The Accounting Standards Board (ASB) has today issued 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 entities that own and manage landscape or buildings for their environmental or historical qualities.

The proposals in Financial Reporting Exposure Draft (FRED) 40 require entities, wherever practical, 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. However, 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, preservation, management and disposal, are included in the FRED.

The proposals are intended to address criticisms of the current financial reporting requirements for heritage assets. These 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 entity’s collection as a whole.

In developing the FRED, the Board has been advised by its specialist Committee on Accounting for Public-benefit Entities (CAPE). The proposals will apply only to those entities that hold heritage assets to contribute to a principal objective of promoting knowledge and culture.

Announcing the issue of FRED 40, Ian Mackintosh, Chairman of the ASB, stated:

“Without their collections, entities such as museums and galleries simply could not function. In the ASB’s view, the best financial reporting of these heritage assets is secured by reporting them at current valuation. The proposals in this Exposure Draft are intended to secure this policy as widely as is practicable and, where doing so, provides useful and relevant information. I look forward to hearing views on the proposals, particularly on applying the valuation approach at the level of an individual collection”.

Comments on FRED 40 are requested by 20 April 2007.

1. In January 2006, the ASB issued for comment a Discussion Paper ‘Heritage Assets: Can Accounting do better?’ Many of the Discussion Paper’s proposals were welcomed by respondents. The proposals in FRED 40 have been developed from the Discussion Paper. The main features of the proposals are:

   1. Entities that hold heritage assets to contribute to a principal objective of promoting knowledge and culture should report them in accordance with new requirements, instead of the current requirements of FRS 15 ‘Tangible fixed assets’;
      
   2. Specifically, it is proposed that an entity should adopt a policy of reporting collections of heritage assets at valuation in those cases where it is practicable to obtain valuations which, when supplemented with appropriate disclosures, provide useful and relevant information sufficient to assist in an assessment of the value of that collection at the balance sheet date. This is a change from the Discussion Paper, which proposed that the accounting policy should be applied for an entity’s total holding of heritage assets;
      
   3. For any collection where it is not practicable to obtain valuations as set out in (c) above, under the new requirements, the collection should not be reported in the balance sheet and acquisitions and disposals will not be reported as giving rise to losses or gains;
      
   4. Enhanced disclosure requirements are proposed regardless of whether or not collections are reported in the balance sheet.
      
2. The ASB is an operating board of the Financial Reporting Council (FRC). The FRC is a unified, independent regulator. Its aim is to promote confidence in corporate reporting and governance. The FRC has six operating bodies: the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board.
3. The role of the ASB is to issue accounting standards. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
4. The ASB has up to ten Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time.
5. FRED 40 can be downloaded, free of charge, from the from the ASB section of the FRC’s website (www.frc.org.uk/asb). Hard copies of FRED 40 will be available in early January 2007 and can be obtained, price £2.50 (post-free) from:

   FRC Publications
   145 London Road
   Kingston upon Thames
   Surrey KT2 6SR
   
   Telephone: 020 8247 1264
   Fax: 020 8247 1124
   Email: customerservices@cch.co.uk

6. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Acting Technical Director and Secretary) on 020 7492 2420 or Alan O’Connor (Project Director) 020 7492 2421.