ED 101 Revaluation of Non-Current Assets: Proposed Amendments to AASB 1041/AAS 38

19 April 2001

Mr Keith Alfredson
Chairman
Australian Accounting Standards Board
530 Collins St (Level 3)
Melbourne 3000

Dear Keith

ED 101 Revaluation of Non-Current Assets: Proposed Amendments to AASB 1041/AAS 38

The Group of 100's (G100) comments on the principal issues dealt with in ED 101 are set out below:

1. Changing between the Fair Value Basis and the Cost Basis

The G100 supports the proposed amendment to remove the restriction on entities from shifting from the fair value basis to the cost basis and vice versa when directors consider it appropriate and necessary to provide relevant and reliable information. Under the existing requirements directors have no discretion or flexibility to adapt to different circumstances affecting the entity, for example, in response to a change in control or to a change in the management or the balance of activities of the entity. On the grounds of practicality it is highly unlikely that directors would 'game play' through switching between the fair value and cost basis on a regular basis.

2. Consolidated Financial Statements

The G100 supports the proposed amendment to specify that a revaluation of non-current assets to fair value in consolidated financial statements (as a means of allocating the cost of acquisition) is not a revaluation under AASB 1041 if the entity applies the cost basis to measure the relevant class of non-current assets. By complying with the requirements of AASB 1024 a company should not inadvertently trigger the need to adopt a fair value basis for a class of non-current assets on an annual basis.

In addition, the G100 believes that the revaluation requirements of AASB 1041 should not be invoked where such values are "pushed down" to the acquired entity's financial reports at the time of the acquisition in order to bring the carrying amounts into line with the acquisition transaction.

3. Disclosure of Reconciliation

The existing Standard requires a detailed reconciliation of the opening and closing balances for each class of non-current asset. Concerns have been raised that this is a considerable extension of the previous requirements, that the disclosures are onerous and are unlikely to improve the information value of financial reports. The G100 supports the proposal on the grounds that it limits the requirements to classes of property, plant and equipment and removes much of the overload imposed by the existing Standard. We suggest that, where consolidated financial reports are prepared, the disclosure of movements in property, plant and equipment should not be required in the financial reports of the holding company because such disclosure does not provide meaningful information to users of financial reports.

Other Items

The existing standard does not deal with those situations where an asset under construction such as development property in the extractive industries changes from one asset class to another. We suggest that where an individual asset is reclassified to another asset class the transfer value should be deemed to be fair value or cost depending on the valuation method applied for the asset class to which it is being transferred.

Yours sincerely

Tom Pockett
National President