How Heritage Can Get Accounting?
While dealing with the accounting, a particular item that caught interest was the, old furniture’s, old structures, and other old assets, all of which were easily over a century old. The office was situated in a structure that was over a century old, and there were many other objects that were as old as or older than the building that shared space under the same roof. Some organisations, such as museums, which are housing these historical artifacts, while others just have them for the purpose of beauty, symbolic significance, ornamentation, or even nostalgic or emotional affinity. These are very invaluable and priceless.The accountant and the finance analyst in me wondered how we would account for them. We are always on the lookout for things of worth, but what about those that are priceless and valued more than we can measure? And it was out of this curiosity to learn more that we decided to share our perspectives on the issue.
What are the Heritage Assets?
Assets of the Past Heritage assets aren’t limited to buildings. It may be a piece of jeweler, a picture, a work of art, a cutlery set which was used by famous and legendary king or royal family, a mural, a warrior’s weapon, or anything else we think has cultural, social, historical, or heritage significance. Well, if allowed by law, some of them might be purchased through auction houses such as Southey’s, Christie’s, and others, but some of them are so valuable that no one would want to part with them and therefore not sell them. Various accounting standards-setting agencies, including the IASB, have discussed what the value of these assets should be. Who is going to regard the same thing the same way?
‘Heritage Assets: Can Accounting Do Better?’ was the title of a discussion paper published by the Accounting Standards Board in 2006. A few of museums and galleries did declare specific valuations on these assets in their balance sheets, but only the cost expended at the time of acquisition, not the inherent worth they had. A heritage asset can be understood as an asset or item of plant, property, or equipment with a prominence or historic, technological, artistic, scientific,geophysical, or environmental qualities that is held and maintained primarily for its contribution to culture and knowledge, and this purpose is central to the objectives of the entity which is keeping or holding it,according to Heritage Assets. Paintings loaned to museums, historical sites, and so forth are examples for the same.
Assets that appear to fulfill this description but are owned by an organisation for operational say, a historic structure utilized as a head office or decorative purposes are not included in the scope e.g., art in the boardroom. Natural characteristics from the perspectives of history, science, art, aesthetics, anthropology, ethnology, conservation, or natural beauty have been defined by the United Nations Educational Scientific and Cultural Organization. Other definitions are provided by the Charity Commission and the Chartered Institute of Public Finance and Accountancy in the United Kingdom, the SFFAS 29 in the United States, the ASB in South Africa, the Public Sector Handbook in Canada, the French Central Government Accounting Standards, the FRSB in New Zealand, and UNESCO, among others.
Do they meet the asset definition?
The term “asset” refers to the rights to future economic advantages that an entity has control over as a result of previous transactions or occurrences. The principal source of money for a museum is the fees it receives from visitors to see the artefacts on exhibit made of such items, therefore it passes the test of gaining future economic advantages as well as the test of asset control.
Methodologies for Accounting Capitalization
If an entity can get credible contemporary values for cultural assets at a reasonable cost, such values can be used to determine the asset’s value. Any additional costs associated with restoring the asset would be capitalized. What would be the proper heading if an entity chose to capitalize, or should it be stated as a separate line item?
Non-capitalization Methodology
If an entity can show that it cannot get accurate values at a reasonable cost, the financial statements should merely contain a disclosure. Any additional expenses incurred to rehabilitate the asset would be written off as well. Since the value of these assets appreciates through time, that is the nature of legacy assets, the question of how much should be depreciated or /amortised or evaluated for impairment is a contentious subject.
Alienable vs. Inalienable (Alienable vs. Inalienable)
It is critical, however, that these assets are conserved rather than discarded carelessly. Most of these assets would be ‘inalienable’ i.e., the entity cannot sell off without any prior authorization or approvals by the donor or the government or any other body that supervise the heritage assets. However, inalienability should not be viewed as a barrier to asset recognition; rather, it is one of the limitations on their utilisation.
Excerpts from a Number of Yearly Reports 30 June 2019 and 2020 from American Museum of Natural History
Collections:
The Museum has a vast collection of specimens and artefacts that serve as a record of life on the planet. Since the Museum’s foundation, these rich, and often irreplaceable, items have been gathered through field expeditions, gifts, and purchases, and form one of the world’s biggest natural history collections. The Museum’s frozen tissue collection of DNA and tissue samples, as well as massive scientific databases of genomic and astrophysical data, are among the new collecting areas. The collections are a valuable resource for scientists all throughout the world, and they continue to increase each year.
The value of the Museum’s collections is not included in the consolidated financial statements of financial condition, in conformity with museum accounting regulations. The earnings from the sale of collection artifacts must be utilized to add to the collections, according to the Museum’s collection policy. Proceeds from the selling of collection items are reported as increases in net assets with donor limitations in that fund until an acquisition is completed if the assets used to acquire collection items are drawn from restricted funds.
Annual Report of the Metropolitan Museum of Art for the Years Ending June 30, 2020 and 2019
Collections:
The value of the Museum’s collections has been omitted from the Statements of Financial Position, and donations of art pieces have been excluded from income in the Statement of Activities, in accordance with accounting procedures often used by art museums. The Museum’s purchases of art artefacts are shown in the Statement of Activities as reductions in net assets. Proceeds from the sale of art and accompanying insurance settlements are recognised as net assets with donor limits for the acquisition of art, according to state law and Museum policy.
Annual Report 2019-20 of the Victoria and Albert Museum
Assets of historical significance, where such a cost or valuation is reasonably achievable, additions to the collection are capitalized and reported on the Balance Sheet at the cost or value of the purchase. Because such things are considered to have endless lifetimes, they are not depreciated. Note 6 summaries the museum’s asset management policy for its heritage holdings. Acquisitions are costed and capitalized. Donated items are capitalized at their current estimated worth at the time of gift. The Keeper of the relevant collection will determine this value. The museum does not hold a policy to revalue items that were capitalized once.
Due to the large number of artifacts in the V&A’s collection and their various character, conducting valuations on a regular enough basis to keep them current would be too expensive for the museum. Only those things for which we have valid cost or value information have been capitalized. For objects given or bought before April 1, 2001, such information is not publicly available and could only be obtained at a disproportionate expense to the advantages that would be created. The capitalized artifacts make just around 1% of the whole collection, and revaluing the rest would consume such much time and money that the museum’s capacity to fulfill its charity goals would be jeopardized.
The museum’s Loss Review Board will label any object that has been missing for five years or more as Missing, and it will be handled as a disposal in the Financial Statements. Since 2001, no capitalized items have been declared as Missing. More information on the museum’s historical assets the V&A’s holdings include 1,570,817 museum artifacts and works of art, 1,125,925 library items, and 1,046 archive collections. Approximately 1% of them have been included in the museum’s financial statement and the chart above. There were 64,140 pieces on exhibit as of March 31, 2020, with access to more items available through reading and study rooms or by arrangement. The selected third-party websites, reference materials and publications, as well as the museum’s website, and other electronic media, provide further access for the same.
Accounting and reporting of all assets and items around us are important. But while accounting or reporting the items of huge relevance like the priceless artefacts, along with the curiosity, the difficulty associated with making right decision is also important in an equal manner.
Accounting Standard on Lease
Indian Accounting Standard 17 is dealing with the Leases. And it is requiring all the rental amounts received to be charged to the Statement of the Profit and Loss which is prepared by the entity on a straight-line basis, if the same is an operating lease. But this shall be applicable only if the payment to lessor is made on straight line basis and there is no other systematic basis more appropriate.
And as per the AS, any inflation or increase in the lease rentals, will cause the computation all expected rentals. This should then be charged to the Profit and Loss Statement in an equal manner over the term of the lease. Then the excess or deficit amount shall be transferred to the equalization account.
IFRS 16 – An Understanding
IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, however it can be used sooner (as long as IFRS 15 is also applied).
The goal of IFRS 16 is to provide information that (a) accurately portrays lease transactions and (b) allows readers of financial statements to evaluate the amount, timing, and uncertainty of lease-related cash flows. A lessee should recognise assets and liabilities emerging from a lease to achieve this goal.
IFRS 16 establishes a unified lessee accounting model, requiring lessees to recognise assets and liabilities for all leases lasting longer than 12 months unless the underlying asset is of low value.
A lessee must account for both a right-of-use asset, which reflects the lessee’s right to use the underlying asset which is leased, and a lease liability, which represents the lessee’s obligation to make lease payments.
