Property, plant, and equipment fair value assessment

Client Substantiation File.


NZ IAS 16 and PBE IPSAS 17 requires a valuation to be undertaken when the carrying value of an item of PPE is materially different from its estimated fair value. Most entities revalue their assets on a cyclical basis, which is allowed under the standard. However, a fair value assessment is still required to be performed in a non-revaluation year to ensure that the carrying amount does not differ materially from fair value in a given financial year, as certain items of PPE may experience changes in fair value.

NZ IFRS defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Whereas PBE IPSAS states that the fair value of property is usually determined from market-based evidence by appraisal and the fair value is usually their market value determined by appraisal.

Nature of fair value assessment

A fair value assessment needs to be sufficiently robust so that all requirements of the standard are met. This could also allow for your auditor to rely on some of the work performed (see using the work of an expert). Common examples of the types of fair value assessments undertaken are as follows:

  • For PPE valued at market value (i.e. land and buildings), a review of similar property sale figures for the relevant period or other market-based information. Valuers can provide estimates of property price increases.
  • For PPE valued at depreciated replacement cost (i.e. Council infrastructure assets, electricity distribution networks and certain buildings), relevant inflation index movements or unit rate information. Inflation index information can be determined by reference to Statistics New Zealand data provided on their website. Unit rate information should be come from recent entity-specific contract information.

These percentage movements can be used to work out an estimated fair value movement and whether a revaluation should be performed. However, before completing such an approach, we would recommend that you discuss the fair value assessment with your audit team.

In a situation where you have used market‑based or statistical information to estimate potential fair value movements, we would expect you to still consider whether these movements are in-line with your expectations. These sources of information are based upon regional data and may not represent your local conditions.

Valuations should be planned for to ensure they are completed in a timely manner without significantly impacting on the entities normal operations and processed.

Your auditors are likely to focus upon the assumptions used in the fair value assessment and may also request a confirmation, if an external party has been used.

Page created: 10 April 2019