Accounting for property: First-time recognition and measurement is crucial?

; (). Accounting for property: First-time recognition and measurement is crucial?: Case study: Individual appraisal approach vs. model approach in the IPSAS introduction of the Canton of Zurich. In: 14th IRSPM Conference. Berne/Switzerland:

While traditional cash based accounting did not account for real assets such as property held by governments, accrual accounting requires the recognition of all classes of assets. For most governments property is a very important if not the most important class of assets, as they typically provide most of their services in dedicated buildings, such as schools, hospitals, prisons, barracks to name only a few. This gives a genuinely high level of relevancy to the process of recognition and measurement when governments first adopt accrual accounting.

Even under International Public Sector Accounting Standards (IPSAS) there are different processes for first time recognition and measurement allowed. Two main groups can be identified. Firstly, the individual appraisal approach where each and every property is appraised individually and the totals presented in the financial reports are the aggregate of these individual appraisals. Secondly, there is a model approach which looks at historical investments into property in order to estimate current values.

Usually the adopting entity uses either one of the two approaches, but not both of them, at least not for the same class of assets. In the State/Canton of Zurich, due to a restructuring of property management in parallel to the adoption of IPSAS, both methods were used on the same portfolio of property. This is a rare setting in which the use of both can be compared in real life situation. A CTI (Swiss commission for technology and innovation) sponsored research project undertakes this comparison.

In order to undertake this comparison, criteria for the assessment had to be defined. The comparison starts at a general level with the requirements from the International Public Sector Accounting Standards (IPSAS) and from the public real estate management. Secondly, the process for the first time recognition, the data requirements for the different methods and the cost related to the two methods are compared. Thirdly, on the qualitative side the adequacy and reliability of the results are considered. Finally, the comparison includes the difference of the two results and its impact on the financial reporting

In conclusion, recommendation on the selection of a first time recognition method is derived from the comparison and a general cost benefit consideration.

First results show that there are types or categories of property which clearly should be appraised individually, while for others the model approach is equally feasible for financial reporting purposes. However, for financial management resp. real estate management purposes the individual appraisal approach is generally better suited.

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