ED 320 Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities

Wednesday, March 30, 2022

ED 320 proposes to add authoritative implementation guidance to AASB 13 Fair Value Measurement for application by not-for-profit (NFP) public sector entities. It also asks whether that guidance should be applicable to NFP private sector entities.

The proposed authoritative implementation guidance pertains to fair value measurement of non-financial assets of NFP public sector entities not held primarily for their ability to generate net cash inflows (i.e. assets held primarily for their service potential). It proposes to clarify that, for the fair value measurement of such an asset:

1. if the entity needs to develop unobservable inputs, the entity uses its own assumptions as a starting point and makes adjustments to those assumptions if reasonably available information indicates that other market participants would use different data;
2. the circumstance in which market or other factors indicate that an alternative use to the entity’s current use of the asset is the asset’s highest and best use (referred to in AASB 13 paragraph 29) is when the appropriate level of the entity’s management is committed at the measurement date to a plan to sell the asset or to use the asset for an alternative purpose;
3. an entity is only required to consider whether a use of the asset is physically possible, legally permissible and financially feasible in accordance with         AASB 13 paragraph 28 when the presumption in AASB 13 paragraph 29 that an asset’s current use is its highest and best use is rebutted;
4. if the cost approach is applied to measure such an asset’s fair value:

1. 1. it is assumed that the asset will be replaced in its existing location, even if it would be feasible to replace the asset in a cheaper location;
   2. all necessary costs intrinsically linked to acquiring or constructing the asset at the measurement date are included in the asset’s current replacement cost because it should be assumed that the asset presently does not exist and all components of the asset need to be replaced; and
   3. ‘surplus capacity’ of an asset that is necessary for stand-by or safety purposes is not identified as representing economic obsolescence.

The authoritative implementation guidance is proposed to be applied prospectively.

The AASB seeks your views on the proposed guidance and whether the guidance should be applicable also to NFP private sector entities.

Please submit your comments on ED 320 to the AASB by Thursday 30 June 2022, via the AASB website or email.