Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Cairns– Tropical Workshop Wednesday 26th March 2014
Valuations for Financial Reporting
AASB 13
Cameron Hurman Manager Client Valuations
State Valuation Service
Results of Audits Local Government Entities
AG Report to Parliament 2011-12
• Valuation of infrastructure assets remained the
most significant financial reporting issue for the
sector
• Significant volatility in valuations experienced
across councils from one year to the next.
Councils continued to face significant financial risks in
relation to the potential loss of past and future grant
revenues for their expenditures under Natural Disaster
Relief and Recovery Arrangements (NDRRA).
Valuation of Infrastructure Assets
Councils have ultimate responsibility for the
valuations.
Councils need to have an appropriate understanding of
the work performed by valuers, including:
• methodology
• limitations
• key assumptions
• inputs used in applying the valuation methodology.
Valuation of Infrastructure Assets
Accepting responsibility for the values reported in the
annual financial statements requires councils to:
• understand the process used by valuers
• interpret the results of the valuation process
• evaluate and challenge the key assumptions
• identify the reason for significant movements in asset values
• ensure there is adequate support for the values provided
• include adequate disclosure in the financial statements of all
key assumptions and inputs used to determine the asset
values.
Valuation of Infrastructure Assets
Areas where disclosures in valuers' reports are often
found to be deficient during an audit include:
• the extent of the investigations undertaken by the valuer
• physical inspection of assets
• verification of information supplied by the councils
• the sources of the data provided, or relied upon
• procedures completed to ensure the data was complete and
accurate
• identification of all key assumptions and inputs used in the
valuation process
Recommendations
Comparability and consistency in council infrastructure
asset valuations could be enhanced if councils used
the skills and experience available in the Office of the
Valuer-General in relation to the engagement of
professional valuers.
This assistance is to include:
• developing requests for proposals to engage valuers
• reviewing proposals received by valuers
• selecting valuers
• establishing a panel of pre-approved valuers and model
requests for proposals to engage valuers.
Outcomes from recommendations
To satisfy the recommendations of the Auditor-Generals
Report the State Valuation Service has:
1. Worked with Qld Treasury and Trade in developing requests
for proposals from valuers and instructions to valuers.
2. Established a Standing Offer Arrangement (SOA) for
engaging pre-approved valuers.
http://qcd.govnet.qld.gov.au/Pages/Home.aspx
3. Worked on the Roads Alliance Project as part of an expert
panel in establishing replacement cost unit rates for roads.
State Valuation Service
1.6 million statutory land valuations
SVS valuers and administration
officers are located in 19 offices
across the State
Valuations are used as a basis for
assessing:
– Local government rates
– Land tax (OSR)
– State land rental for leasehold
land (DNRM)
– Commonwealth Grants
Commission
Valuation Basis
• Site Value
• Unimproved Value
Valuations produced annually:
$1 billion in land tax
$2.5 billion in local government rates
$98 million in leasehold rents
$48 billion in Financial Reporting
Valuations
Valuer-General Queensland
The Valuer-General provides independent advice and transparency in the assessment and issuing of valuations.
• Is a statutory role
• Manages the statutory valuation of land in accordance with the Land
Valuation Act 2010
• Oversees QA and Peer Review
• Maintains the valuation roll
• Issues annual and maintenance valuations
• Determines and administers valuation objections
• Provides data to support the Commonwealth Grants Commission
• Undertakes valuations of State land assets
• Valuer General Property Market Movement Report
• Provides Financial Reporting and Market valuations
Local governments receiving an annual
valuation - 2014
Barcaldine Barcoo Blackall
Tambo
Boulia Brisbane Bulloo
Bundaberg Burdekin Burke Cairns Carpentaria Cassowary
Coast
Charters
Towers
Cloncurry Cook Croydon Diamantina Douglas
Etheridge Flinders Gladstone Gold Coast Goondiwindi Gympie
Lockyer
Valley
Longreach Mareeba McKinlay Moreton Bay Mount Isa
North
Burnett
Quilpie Richmond Scenic Rim Somerset Tablelands
Toowoomba Western
Downs
Whitsunday Weipa Winton.
The 41 local government areas valued
in 2014 are:
Approaches to Fair Value
Valuation methods used by valuers to
determine Fair value:
• Direct Comparison
• Depreciated Replacement Cost
• Capitalisation or income approach
– Summation or cost method
Direct Comparison
Direct Comparison method of valuation
– For property where there is available evidence
(Active Market)
• Land assets
• Residential
• Commercial
• Industrial
• Residential - Added value of Improvements
– Valuation by comparison with recent sales
• Sales of similar use
• Location
• Size
Hierarchy: Level 2
Depreciated Replacement Cost
Depreciated Replacement Cost Method
Specialised or Complex Assets
Heritage and Cultural Assets
• Determine the cost and depreciated value of improvements
• Building Costs and cost guides
• Quantity Surveyors/Valuers/Engineers
• Major components – Land/Buildings
• Depreciation
• Total life/Useful Life
Hierarchy: Level 3
Capitalisation or income approach
Capitalisation or income valuation approach
– Specific assets such as commercial or industrial
property
– Market valuation assessments
– Income determined by capacity and condition
– Capitalisation rate derived from
market research
Hierarchy: Level 2
Summation or Cost approach
Summation or cost method of valuation
– Land and buildings
• Land valued by direct comparison highest and
best use
• Buildings valued by depreciated replacement
cost
Summation of the two components
Check method of value
Complex Assets Components
Component valuations for various entities
– Requirements for determining complex asset components
• Separately identifiable
• Replaced at regular intervals
• Exceed threshold
• Significant individual value
• Different estimated useful life.
Asset Valuation Components
Component valuations for various entities
• Consider the requirements for components
• How many components?
– Fabric, Fit-out, Plant and Equipment, Infrastructure.
Building Building
Area
Fabric Rate /m2
Fabric %
Actual
Fitout & Fixtures
Rate /m2
Fixtures & Fitout
% Actual
Plant & Equip
Rate /m2
Plant & Equip % Actual Infrastructure
Total Building
Cost (Excl GST)
Building Cost /
m2
Administration 218 881 51% 722 41% 141 8% 0 379982 1744
Admin / Resource 287 723 51% 593 41% 116 8% 0 410483 1431
Admin / Resource 236 695 51% 570 41% 112 8% 0 324580 1376
Administration 349 795 51% 652 41% 128 8% 0 548788 1573
Administration 347 850 51% 697 41% 136 8% 0 583526 1682
Administration 364 844 51% 692 41% 135 8% 0 607805 1670
Land and Building Indexation
What index to use?
– Where to obtain indexation
• Land, Buildings and Infrastructure
» Land - SVS
» Buildings – BPI, QS Publications, Treasury IPD
» Infrastructure - Treasury IPD, QS/Engineers
• How to apply the index
• Date of Valuation – current data
• Check, validate and challenge results
Hierarchy: Level 2
Asset Valuation Reports
Asset valuation reports depend on:
– Valuer Instructions
• Issue good instructions to valuers and
• Understand the difference between various forms of
valuation
– What to look for in a good valuation
• What report?
• What should be included in the valuation report?
– Appropriate Methodology
– Qualifications
– Desktop or Full Inspection
– Valuation details
– Disclosures
Half Time
Quick Quiz
How would you value a…….
Park Reserve?
How would you value a…….
Cemetery Reserve?
How would you value a…….
War Memorial?
How would you value a…….
Town Hall?
Valuer Instructions
The valuation must conform to the fair value principles
and guidance in Non-Current Asset Policies and
AASB 13, including:
• Principal Market or most Advantageous Market
• market participant assumptions,
• and highest and best use of the asset which is:
• physically possible,
• legally permissible (particularly taking into account any
restrictions)
• financially feasible
Valuer Instructions
• The valuation instructions must ensure the valuer
uses:
• defensible and consistent methodologies
• valuation techniques when there are no obvious markets
• make maximum use of relevant observable data inputs, and
• minimum use of unobservable data inputs
• valuation provides supportable and sufficient evidence to
meet audit scrutiny
• support the reasonableness of the valuation whether there is
an increase, decrease or no change.
Valuation Report
The Valuation Report must include:
• The effective date of the valuation
• If land values are involved - a statement that the valuers are
registered under the Queensland Valuers Registration Act 1992
and have complied with the relevant accounting standards (e.g.
AASB 13) and Queensland Treasury and Trade’s Non-Current
Assets Policies;
• Was the asset physically inspected;
• Any significant assumptions used (whether the principal or
most advantageous market was used, restrictions that exist,
market participant expectations taken into account, who the
market participants would be, and what they would take into
account);
Valuation Report
The Valuation Report must also include:
• Highest and Best Use (whether this is on a standalone basis or
within a group of other assets/liabilities (and if so, what is included in that
group)) that is physically possible, legally permissible and financially
feasible;
• Valuation technique (including whether more than one valuation
technique was used, and justification for the technique chosen in terms
of the AASB 13 principles) and details of the calculations;
• Data inputs used and their sources (e.g. whether they are
observable or not, and whether or not transportation costs have been
included and why), and methods used to develop and substantiate
unobservable data;
Valuation Report
The Valuation Report should include:
• Where there are any significant unobservable data
inputs (or significant adjustments to observable data based on
unobservable inputs)
• the rationale for doing so,
• nature and possible variation in such data inputs,
• and any information required to provide narrative
sensitivity analysis (including inter-relationships between
unobservable inputs, and changes in fair values if an alternative
amount is applied to the unobservable inputs);
Valuation Report
The Valuation Report must include:
• the fair value hierarchy level of valuation;
• reason for any changes in valuation
technique/methodology or inputs used;
• pattern of consumption of service potential
assumed – for valuations undertaken using a cost
approach. (Depreciation)
Valuation Report
The Valuation Report must include:
• Any necessary information and matters pertinent to
the valuation for the client to determine how the
valuation was conducted and how the revaluation
amounts were derived
• A statement that all data supplied to the valuer and the
report and data provided by the valuer is the property
of the Client
• The client should have full access to any supporting
documentation for verification of reports, if required.
Market Update
The Queensland property market update:
• Slowdown in mining investment infrastructure
• Improved conditions in Brisbane
• Cairns and Gold Coast conditions stabilised
• Growth in Urban areas across Qld.
• Limited rural sales activity
• Ongoing effects of the drought and global
economic factors
Factors affecting market movement
Movements in value attributed to a number of factors
including:
– Relatively high Australian dollar still impacting on export
industries and tourism industries
– global financial volatility
– Growth (or lack of) associated with the resources industry
– slowing of population growth in Queensland
– difficulty obtaining development finance affecting investment
– economic uncertainty about the future
– interest rates stable;
– housing affordability increasing
– low borrowing costs
House Price Index
2006 to 2013
House Price Index
1988 to 2013
House Price Percentage Change
2006 to 2013
House Price Percentage Change
1988 to 2013
Conclusion
The importance of Financial Reporting
Valuations
Compliance (Audit)
Quality
Consistency
Questions?