Many entities have experienced difficulties with supply chains and accessing specialised labour due to ongoing global events. This may have resulted in a significant increase in material and labour costs for your entity’s capital program, which you should reflect in the unit rates you apply in valuing assets using the current replacement cost method.

Because of this, many entities have asked us for advice on whether they need to change their approach to valuing their specialised infrastructure assets (level 3 under the fair value hierarchy) to be compliant with the accounting standards.

What do the accounting standards say?

The accounting standards call out that assets with significant and volatile changes in fair value should have an annual revaluation. Assets that don’t exhibit these characteristics may only need to be revalued every 3–5 years. They don’t provide advice on which method an entity should use.

Most entities either undertake:

• a rolling comprehensive revaluation of a portion of their asset base, to ensure that all assets are comprehensively revalued every 3–5 years
• significant comprehensive revaluations every 3–5 years.

A comprehensive revaluation is often used to help reconfirm the asset’s conditions (and other key asset management data).

Most entities undertake a desktop or indexation approach in intervening years to ensure that changes in the cost of labour and materials, and approaches to construction and changes in technology, are reflected in the fair value of the asset.

Both approaches are valid valuation techniques that entities can use to address key estimation risks.

How should I approach my valuation?

We have updated our fact sheet Financial reporting considerations in uncertain times with guidance on what entities should consider when undertaking valuation of property, plant and equipment.

In summary, entities will need to consider:

1. What is driving the valuation movement that may be considered significant and volatile? Your valuation response should reflect the risk of a material movement in the fair value of the asset
2. What is the most appropriate method to address estimation risk? Undertaking a full comprehensive revaluation may not be necessary or appropriate in certain circumstances.

The fact sheet also provides guidance on when an indexation is considered an appropriate valuation approach.

Other relevant materials

Impacted entities should also have regard to Queensland Treasury’s draft Non-Current Asset Policies for the Queensland Public Sector (NCAPs). Our fact sheet aligns with Queensland Treasury’s advice.