Purposes of valuation

Our financial reporting valuations comply with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). These are the key standards:

IAS 16IPSAS 45 Property, Plant and Equipment

These standards set out how property, plant and equipment is recognised as an asset, how its carrying amount is measured, and how depreciation charges and impairment losses are recognised. After recognition, an entity applies either the cost model or the revaluation model to each entire class of assets:

• Cost model: the asset is carried at cost, less accumulated depreciation and accumulated impairment losses.
• Revaluation model: where fair value can be measured reliably, the asset is carried at its fair value at the revaluation date, less any subsequent accumulated depreciation and impairment losses. Revaluations must be made regularly and kept current. Increases go to other comprehensive income and accumulate in equity, unless they reverse a previous decrease; decreases go to profit or loss, unless they reverse a previous increase.

IFRS 13 Fair Value Measurement

Fair value is the basis of value for financial reporting. IFRS 13 defines fair value, sets out a framework for measuring it, and requires disclosures about fair value measurements.

• Fair value is 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 — an exit price.
• It uses the assumptions market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The entity's own intention to hold an asset or settle a liability is not relevant.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

An asset (or disposal group) is classified as held for sale when its carrying amount will be recovered mainly through sale rather than continuing use. Assets held for sale are:

• measured at the lower of their carrying amount and fair value less costs to sell
• no longer depreciated

Key terms

Declared value / sum insured

The total of all property insured at each declared location, calculated according to the basis of settlement. It includes foreseeable expenses such as fees for planning, architects, surveyors, consulting engineers and legal advisors.

Reinstatement (new value)

The cost of replacing existing assets with identical or substantially similar equipment at the manufacturer's current new prices, plus transport, installation, commissioning and, where appropriate, other directly attributable costs such as consulting engineers' fees. Sums insured on a reinstatement basis usually include:

• Overnight reinstatement cost estimates
• Fees and contingencies
• Cost increases during the policy period, lead time and reconstruction period
• Demolition and debris removal
• Non-recoverable taxes

Indemnity value

The cost of replacing the assets with identical or substantially similar assets in comparable condition — that is, the cost to replace, repair or rebuild them to a condition equal to, but not better than, their condition when the damage occurred, taking into account age, condition and remaining useful life.

IAS 36 Impairment of Assets   IPSAS 21 Impairment of Non-Cash-Generating Assets

The core principle of IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount that can be recovered through its use or sale. If its carrying amount exceeds its recoverable amount, the asset is impaired.

Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use. For most assets, it is assessed only when there is an indication that the asset may be impaired. Fair value less costs to sell is the arm's-length sale price between knowledgeable, willing parties, less the costs of disposal.

Our team understands the valuation requirements for impairment testing.

IFRS 3 Business Combinations

Under IFRS 3, an acquirer measures the cost of an acquisition at the fair value of the consideration paid, allocates that cost to the identifiable assets acquired and liabilities assumed based on their fair values, and recognises the remainder as goodwill. Any excess of the acquired assets and liabilities over the consideration paid (a “bargain purchase”) is recognised immediately in profit or loss. The acquirer must disclose information that lets users evaluate the nature and financial effects of the acquisition.