Author
Vaughan S.
Vaughan Stemmett

Most Queensland Government and local government entities revalue their land, buildings and infrastructure every year. These assets can be highly specialised, geographically dispersed and made of various components. Due to this complexity, the accounting for asset valuations is a resource-intensive activity and an area of greater risk of error.

Often judgements and estimates made on asset valuations can have a real impact on an entity’s budget and how much might be set aside for future capital investment. These judgements can impact decision making on the effectiveness of existing maintenance plans, the expected remaining utility of the asset, and the level of priority to replace, maintain or upgrade the asset. For these reasons, entities need to oversee and challenge the valuation process to manage these risks.

Challenging the valuation process is important regardless of the valuation method (indexation, market approach, income approach or cost approach) and whether an internal or external valuation specialist is used.

The following table provides entities and governance committees with questions to consider during the different phases of the valuation.

Questions to consider

Planning and scoping
  • Does the valuer (internal or external) have appropriate qualifications, experience and capability?
  • Is the nature, scope and valuation methodology suitable for the accounting standards’ intended purpose?
  • Will the valuation cover all the assets that need to be valued?
  • Does the project plan, including deliverables and milestones, allow the valuer and entity enough time to perform and challenge the valuation adequately?
  • Are the asset valuation policies and procedures up to date?
  • Does the entity have any planned changes to the systems, processes or people that will be involved in the valuation?
  • Has the entity added risks and risk response treatments of the valuation process to the risk management system?

Valuation process
  • How has the valuer and entity checked the data used in the valuation for completeness and accuracy?
  • Has the valuer performed asset inspections?
  • Has the entity performed regular meetings with the valuer to understand the evidence gathered, issues identified, and progress they have made?
  • Has the valuer’s calculations been checked for mathematical accuracy?
  • Has the valuer consistently applied and supported their assumptions and judgements (including forecasts, unit rates, prices or adjustments)?
  • Has the entity re-performed and verified a selection of the asset valuations against supporting documentation?
  • Has the entity backtested results of the valuation against actuals?
  • Has the entity or valuer performed sensitivity analysis to consider alternative scenarios?

Reporting
  • Has the valuer presented the results and explained significant judgments they made?
  • Are there any limitations to the scope of the valuation?
  • Were there matters indicative of errors in prior years? (For example, new assets found or incorrect formulas or inputs.)
  • Has the entity made any adjustments on top of the valuation?
  • Has the entity accurately recorded the valuation in the general ledger?
  • Has the entity updated its financial statement disclosures, and detailed key assumptions and judgments?

 

Entities should document and present the results of the valuation, key control processes, significant judgements and validation activities to an appropriate oversight committee—for example, an asset management committee or audit and risk committee.

Once completed, we encourage entities to undertake a self-assessment on the valuation process and identify areas for continuous improvement for future valuations.

Further references:

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