Heritage in Financial Reporting - Europa · 2017-11-29 · Study and Research Directorate We...

Study and Research Directorate

Heritage in Financial Reporting Italy

EPSAS Working Group

Luxembourg, November 21-22 2017

Fabrizio Mocavini

Italian MEF – RGS – Study and Research

Directorate


We started from …


Heritage in Financial Reporting

2

Heritage Team

Ministry of Economic and Finance – General

Accounting Department and Ministry of Cultural

Heritage and Tourism

In cooperation with:

• National Institute of Statistics

• Italy’s Court of Auditors

• Ministry of the Environment, Land and Sea

• State Property Office

• Academics


Index


3


► What is a Heritage Item?

• UNESCO view

• IPSASB view

• Italian view

► Heritage Item as asset

• Main characteristics

• From heritage Item to heritage Asset

• Evaluation criterion

• Fixed points and open issues

► Pilot Project


What is a Heritage Item?



4

ITALY

“In order to be included in the World Heritage List, sites must be of outstanding universal value and

meet at least one out of ten selection criteria “ (e.g. iii, iv, vi, viii).

1073 sites;

Classification:

• Cultural;

• Natural (e.g. mountains, lakes, waterfalls).

Definition of cultural heritage (Cultural

Heritage and Landscape Code, L.D. n.42/04)

Classification:

• Cultural (ONLY tangible);

• Natural.

Movable and immovable properties

Evaluation criteria

Committee

UNESCO

Characteristics of Heritage Items*

often irreplaceable;

often ethical, legal and/or statutory

restrictions or prohibitions that restrict or

prevent sale, transfer or destruction by

the holder or owner; and

a long, possibly indefinite, useful life due

to increasing rarity and/or significance.

*IPSASB CP April 2017 Par. 1.7, p.10


5



What is a Heritage Item?

Cultural

(intangible) items

+

Mediterranean diet

Cultural (tangible)

items

Natural items Landscape heritage

Cultural heritage

SITES ITEMS

Historical centres

of Florence

Dolomiti Mountains

Caserta Royal Palace

Dolomiti Mountains

Piazza Duomo of

Florence

Uffizi gallery (Florence)

Caserta Royal Palace

ITALY UNESCO


Heritage Item as Asset

6






7


*IPSASB CF Par. 5.6, p.51

Definition of Asset by IPSASB Conceptual Framework*

«A resource presently controlled by an entity as a result of a past event»

“… Heritage items are items that are intended to be held indefinitely and preserved for

the benefit of present and future generations because of their rarity and/or

significance in relation, but not limited, to their archeological, architectural,

agricultural, artistic, cultural, environmental, historical, natural, scientific or

technological features…”*

*IPSASB CP April 2017, par. 2.11, Preliminary View – Chapter 2.1

Special characteristics of Heritage Item by IPSASB Consultation Paper*




8


• Legal ownership

• Other enforceable rights given to an entity that give it the ability to access or deny or restrict access

• Direct the use of heritage resources to achieve the entity’s objectives

2. Presently controlled by an entity…

1. Resources

3. …as a result of past event • Purchase

• Non exchange transaction (nationalization)

Italy agrees on the fact that these special characteristics do not prevent heritage items being:

EPSAS


Heritage Asset in Financial Reporting



9

Nevertheless, given the legal limits weighing on cultural heritage (such as its non-

transferability), an unavailable reserve should be recognized in the net equity, equal to

the amount of the unavailable Heritage Items recorded in the assets.

Heritage Asset 30 ― Item #1 10

― Item #2 5

― Item #3 10

― Item #4 5

ASSETS LIABILITIES

Current Assets X

Non -Current Assets X

Current Liabilities X

Non -Current Liabilities X

NET ASSETS/EQUITY

Not available Reserve

30

Financial Position

Principle of prudence

• «Inalienability» as legal concept;

• Link between Financial Position and Financial Performance: HI give rise to revenues and costs;

• Debt sustainability: it should be consider the «inalienable» assets (eventually another index).

KEY ELEMENTS


Approach to evaluation



10

“Nominal cost of one currency unit” criterion* is inadequate

because:

• it is equivalent to not attributing any value to the asset;

• it would cause severe distortions in the accounting of the State

property.

Other criteria such as historical cost, market value and

replacement cost are not completely adequate because:

• difficult to apply to the entire cultural heritage;

• do not properly consider the use of the asset;

• non-monetary values are not taken into account.

[Market value can be used only for some contemporary works of art]

*IPSASB CP April 2017, Specific Matters for Comment—Chapter 4.1


Italian view: value of Heritage Assets



11

A Heritage Asset represents an investment made in the public interest

and its value is given by:

► the VALUE OF USE: the value that the asset has because it is seen, visited, enjoyed.

Measured based on the financial flows generated by its use.

and by

► a NON-USE VALUE: the value that people attribute to the cultural asset even without

using it.

Measured with ad hoc techniques (e.g. contingency evaluation).

HAV = useV + non-useV


• non-use value can be measured with the public

contribution allocated to the type of cultural asset

or services (proxy of the option value)*.

• non-useV is completely independent from the

individual use of the cultural asset or service and

it doesn’t depend on revenue financial flows.

The financial flows related to the use

of the asset is given by:

► revenue related to the use of the

asset;

► revenue connected to the

economy generated thanks to

the heritage asset.

The non-use values of heritage assets

can be:

► “option value” (conservation, use in

the future);

► “existence value” (availability for

the community);

► “inheritance value” (future

generations).

useV non-useV


12


Fft = Ffdirt + Ffindt

Ffdirt: direct financial flows

Ffindt: indirect financial flows

t : is the time when the evaluation takes place

Value of use and non-use

*The whole of the direct and indirect expenses the Entity incurs in order

to safeguard and enhance its assets.


(D) Costs for protection and enhancement



13

…. so, Heritage Asset Value is the flow discounting of the following sum:

Heritage Asset Value

(A) Direct revenue – (B) Expenses for use

+

(C) Tax revenue from tourism economy

(A) Revenues from ticket sales; (B) Expenses for cleaning, personnel, fees, etc.

(C) Duties, direct and indirect taxes (e.g. tourist tax)

(D) Costs for renovation, extraordinary maintenance, etc.

• This method focus on the expectations entertained concerning the values that the asset may generate in its

future;

• Nevertheless, this method completely overlooks the "past", the "history" of the asset, with the limit of

potentially placing an ancient heritage asset and a more recent one on the same level.

non-useV

useV

Study and Research Directorate Luxembourg, November 21-22 2017


14

What therefore seems most appropriate for our purposes is a “mixed solution”, which - in a

balanced way – should consider Heritage Asset value based on both historical method and

financial future flows.

«Mixed solution»

t0 Future Past

“Mixed solution”

Non-use value

Use value

HAV based on

financial flow

HAV based on

historical method*

HAV = (HAVs ∙ q) + (HAVf ∙ p)

* a kind of "financial“ value, able to appreciate the investments made on Heritage Assets during the course of history

[ q + p = 1 ]


Fixed points and open issues

► Heritage Items have to be considered

as “assets” for the purposes of financial

reporting;

► Heritage Items have to be evaluated

recognising an unavailable reserve in

the net equity;

► The «nominal cost of one currency»

criterion cannot be applied;

► The criteria set out in the IPSASB CP

are not always applicable.

► Intangible assets;

► Landscape property;

► Subsequent measurement:

amortization, capitalisation, etc.


15



Pilot Project

• Purpose: to test the actual applicability of criterium on different assets;

• How: selecting at least five different heritage assets, identifying relevant data and information;

• Items: Colosseum, Trevi Fountain, Galleria Borghese, Caravaggio’s Paint (inside Galleria

Borghese), Pantheon, Villa Pamphili.

• Timeline: from Nov. 2017 to Feb. 2018

Working Team

Ministry of Economy and Finance

Ministry of Cultural Heritage and Tourism

Municipality of Rome

University of Roma Tre


16



Contacts

Fabrizio Mocavini – [email protected]

Pierpaolo Italia - [email protected]

Paolo Angiolillo – [email protected]

Ministry of Economic and Finance

Via XX Settembre, 97

Rome - Italy

17



Heritage in Financial Reporting - Europa · 2017-11-29 · Study and Research Directorate We...

Documents

Transcript of Heritage in Financial Reporting - Europa · 2017-11-29 · Study and Research Directorate We...