Accounting for heritage assets

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Civilisation, according to Mark Twain, is the limitless multiplication of unnecessary necessities. To Antoine de Saint-Exupery, though, civilisation is "a heritage of beliefs, customs, and knowledge slowly accumulated in the course of centuries, elements difficult at times to justify by logic, but justifying themselves as paths when they lead somewhere, since they open up for man his inner distance."

What is heritage? "Cultural legacy or tradition passed on within a community from one generation to another," says

. The accounting profession may not boast of a hoary heritage, though it is said that that bean counters could be traced all the way to Adam as the original accountant; for, he'd first turned a leaf and made an entry.

Be that as it may, here is something of immediate interest to the profession: `Accounting for Heritage Assets under the Accrual Basis of Accounting,' a consultation paper from the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC).

The 72-page document, available on

, has at its core another recent paper on the subject, `Heritage Assets: Can Accounting Do Better?' issued by the UK Accounting Standards Board (


"In 1799, a company of French soldiers was demolishing a wall near the Egyptian village of Rashid to clear the way for an extension to a fort, when it discovered a slab of grey granite. This was the Rosetta Stone, and its inscriptions provided the breakthrough for the decipherment of Egyptian hieroglyphs. In 1801 the stone was acquired by the British; the following year it was deposited in the British Museum in London where it has remained ever since," narrates the UK paper's intro.

Can you put a value to the Rosetta Stone, which is `one of over 1,00,000 objects held by the British Museum'? Priceless, says the paper. The stone `was acquired at little or no direct cost,' as should be true of many Indian artefacts too, lying in museums worldwide. Even if the Rosetta Stone had been purchased, "it is unlikely that the cost would have any relevance in financial reporting two centuries later."

Heritage assets, according to the paper, are "assets with historic, artistic, scientific, technological, geophysical or environmental qualities that are held and maintained principally for their contribution to knowledge and culture." Examples of heritage assets are not only `museum collections such as those of art, antiquities and books' but also `assets such as landscape and coastline, historic buildings and archaeological sites'.

Make place for the dinosaur in the balance sheet!

Why should heritage assets make an accountant sleepless? Because "the balance sheets of museums and galleries do not include their most significant assets." The UK paper, therefore, proposes both capitalisation and non-capitalisation approaches.

"Where an entity can obtain at reasonable cost reliable current values for the majority, by value, of heritage assets held, these values should be reported in the balance sheet," it suggests. Where such values can't be obtained, "disclosures should be given to provide useful and relevant information about the heritage assets held by an entity," rather than show any value in the balance sheet. Before accountants turn into fossils, it is quite likely that balance sheets will have place for dinosaur bones.

While on the subject, you may like to read a five-page paper titled

Heritage Assets in an Accrual Accounting Perspective


, the site of the Swedish National Financial Management Authority. Sweden uses historical cost valuation. Such a basis may lead to distortions, as the UK paper highlights in its Rosetta Stone story.

How are things closer home? Do we to put a value on India's heritage assets? Sources in the Archaeological Survey of India (

) point out that such an exercise is done for insurance purposes. The Institute of Chartered Accountants of India (ICAI) needs to study the applicability of the latest IFAC document to India. Remember that the Institute's office isn't far from the ruins of Purana Qila, the heritage site that the US President George Bush chose for his speech recently.

Catch up with a set of Indian heritage sites on

. Don't miss `panographies' (360-degree imaging) of "all sites registered on the World Heritage List by UNESCO (United Nations Educational, Scientific and Cultural Organisation)."

Let's transit to `transition to accrual accounting,' which is the topic of the latest `information paper' of the IPSASB.

The 64-page document "outlines the development of administrative arrangements for formal standards setting over 70 years at the Local, State and Federal Government levels in the USA, and highlights key factors shaping the standards setting structure," as one learns from the preface.

Relevant read for the Indian accountant, I'd suggest, because the ICAI, the country's premier accounting body, is actively into government accounting. About a year ago, the Institute constituted a group called the Committee on Accounting Standards for Local Bodies (CASLB). That was in recognition of "the need to harmonise and improve accounting and financial reporting among local bodies," informs `CA. T. N. Manoharan,' the ICAI President in a mail dated March 31.

The key objective

The main objective of CASLB is to formulate `Accounting Standards for Local Bodies'. The committee has finalised a draft preface for the purpose. Apart from the members of the governing council of the ICAI, the committee includes "representatives of the Ministry of Urban Development, Controller General of Accounts, National Institute of Urban Affairs, Ministry of Panchayati Raj, and Directorates of major Local Bodies of various State Governments."

Recently, the CASLB's job description got enlarged. The ICAI Council decided last month that the committee, apart from formulating Accounting Standards for Local Bodies, should take steps "in facilitating improvement in accounting methodology and systems of Local Bodies" and "act as a forum to receive feedback from Local Bodies regarding problems faced by them in the adoption of accrual accounting and in application of the Accounting Standards."

Manoharan also speaks of `sustained efforts of the ICAI' that have yielded fruit: "The Ministry of Urban Development (MoUD) has decided that the Governmental Level Technical Committee be constituted under the aegis of MoUD, and C&AG would recommend the Accounting Standards for Local Bodies, issued by ICAI, for acceptance by State governments."

The ICAI doesn't want to stop with accounting standards. It wants to support the proposed Technical Committee "in its endeavours towards various other aspects of financial reporting, including preparation of asset registers, performance measurement, budgeting, costing, internal control and audit." Good goals.

An instructive chapter in the IFAC document on accrual accounting specifies three lessons: One, the role that publicity plays; two, education and implementation assistance are essential; and three, be alert to the potential for standards overload.

"The goal of issuing accrual accounting-based financial statements is not an easy one," concedes the IFAC. "However, with constituent participation in the development of those statements through task forces, focus groups, field tests, and other forms of due process, it can be accomplished."

D. Murali

(This article was published in the Business Line print edition dated April 6, 2006)
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