In case of the transition of a company to the accounting under IFRS (hereinafter – IFRS) most questions from the accountants arise when determining the fair value of assets. The easiest way to deal with this is to involve professional appraisers. In some cases, the company's internal calculation, which auditors can check to make sure it is correct, is sufficient. How to reduce costs and minimize risks in determining the fair value of assets in the event of a transition to IFRS reporting?
What assets and liabilities can be valued independently?
If the company’s management has decided to conduct the valuation independently, first of all, it must determine the date of transition to IFRS accounting as well as draw up a detailed calculation file which is based on market data and statistics and prepare to answer auditor’s questions. It is important to keep in mind that the fair value of each asset must be reflected in accounting. The closer the date of asset capitalizations and the high its liquidity are, to a greater extent the carrying amount will correspond to the fair value.
Goods, assets
If goods and inventories remain at the balance without any flow for more than 12 months, the auditors will probably suggest writing them off. In such case it is not necessary to conduct their valuation.
Receivables
Receivables are tested at terms of occurrence, which is the basis for provision creation, or the debt is written off if the probability of its payment is insignificant. If the provision is calculated correctly, then there is no need to measure receivables.
Fixed assets
Such fixed assets as furniture and office equipment have a short useful life, their total book value is usually a small part. In most cases, the values of such assets reflected on balance is close to fair, so their revaluation is optional.
Liabilities
No special valuation procedures are required to evaluate the liabilities. We highlight long-term debt – the further the date of debt payment from the valuation date and the more the interest rate on long-term liabilities of the company differs from market one, the more noticeable is the effect of revaluation of such liabilities.
What assets should be valued by the experts?
When forming fair value for the financial statements, property, the fixed assets are the most complex. First of all, pay attention to real estate: land, buildings, structures and transmission devices. These assets are recorded in the balance sheet at cost, and given the useful life of such assets, which usually exceeds 10 years, there is a risk that these assets are either overvalued and do not take into account their depreciation (aging), or undervalued, which does not also corresponds with the fair value of such property.
For intangible assets created by an entity or formed as a result of a combination of several entities, there is usually no open data on the sale price, so there is a risk that their value will not be reflected objectively. That is, all intangible assets must also be included in the revaluation.
Valuation for IFRS purposes requires not only knowledge of the specifics of complex objects, such as real estate, complex production equipment or intangible assets, but also the peculiarities of their formation in the market. If you need to re-evaluate such fixed assets, it is better to consult a professional appraiser.
By delegating tasks to a consulting company, you can, first, significantly reduce your risks - by signing the valuation report, the evaluators assume part of the risks associated with the results. Second, they have a large amount of information sources, including paid ones, that will help to reliably measure assets. Third, professional appraisers have experience, well-established methodology and are ready to solve complex problems. Fourth, the calculations made by the appraiser are universal and can be modified for various internal purposes and for external users. Fifth, the report, performed by a team of certified professionals, is perceived as a reliable source of information for all stakeholders.
