The use of international standards has set accountants many tricky problems
to resolve. One of the biggest is how to quantify, in cash terms, those
that do not have an easily calculated monetary value.
Take, for example, the accountants in Hong Kong whose client was a zoo,
managing its stock of whales as a ‘global entity’. When one of the whales died,
the question arose as to how to treat this loss, as individual animals didn’t
have a value. The only conclusion the accountants could reach was that the whale
had to be written off.
In another case, a theme park had eight fully trained seals, but when one
died there wasn’t another seal with the same level of skills to take its place.
The troupe had to be regarded as an impaired asset.
Experts say the valuing of assets is easier when there is an active market
for a particular item in other words, when someone can be found to buy the
item. With property, for example, valuation is fairly straightforward in most
But the difficulty arises when items cannot easily be sold. Plant machinery
and computers are examples of assets that can fall into this category.
At present, there are differences in the way such assets are treated in the
US and the UK. This side of the Atlantic, accountants consider whether something
is being used by a business and then value it in terms of how useful it is. But
in the US, explains Ken Wild, Deloitte’s global head of IFRS, the attitude is:
can it be sold and if so for how much?
‘There are tensions in the system,’ says Wild. He believes these issues are
for the accounting standards boards to resolve, and is confident they will be
able to do so. ‘I think it will lead to sensible compromises,’ he says.
But observers warn there is a danger in all of this: that the difficulty of
reaching a valuation can actually change a client’s behaviour. Take a business
with a fleet of cars.
Should the business own the vehicles, lease them or ask staff to buy their
own cars and give them the cash? It might be easier to reach a valuation figure
for the fleet if the cars were owned by the business or the employees rather
Some observers says the answer lies in ‘balancing the theory with
pragmatism’, and for the standards boards to see this.
One issue that makes the valuation issue more complex is the lack of
precedents to call on, a problem identified by Carolyn Clarke, a director in
PricewaterhouseCoopers’ IFRS convergence group.
‘Industrial sectors must come together and look at what is the most
appropriate way to look at these issues,’ she says, adding that there is some
early evidence of this happening.
Clarke says a great deal of specialist involvement is often needed to give
the expertise of a particular sector in the valuation process. But she still
describes as ‘subjective’ the view that has to be taken on some items of
equipment. Each time that accounts are prepared, you have to revisit the
valuation and reassess the residual figure you can dispose an asset for, she
In the case of a brand, she says, future sales have to be forecast in order
to reach a valuation. Valuing assets is now a central issue for accountants,
Clarke says. ‘IFRS has caused us to focus on the balance sheet you have to
look at the assets and liabilities.’ When a company is being examined for an
acquisition, these valuations come under the microscope.
‘The purpose of IFRS was to achieve consistency internationally,’ Clarke
says. She believes this will happen once models for different types of assets
As long as the boards take a patient approach, it seems that a consensus on
how to value all assets will be possible, making the work of accountants that
little bit easier.
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