Accounting Standards Board discussion paper on heritage assets: can accounting do better?

Response from the Museums Association, May 2006
1.0 Introduction

1.1 The Museums Association (MA) is an independent membership organisation representing museums and galleries in the UK and people who work for them. The Association has over 5,000 individual members and 600 institutional members.

These institutional members encompass around 1500 museums in the UK ranging from the largest government-funded national museums to small volunteer-run charitable trust museums.

Formed in 1889, it is a charity, receiving no regular government funding, which seeks to inform, represent and develop museums and people who work for them in order that they may provide a better service to society and the public.

1.2 Since the more technical aspects of this consultation are beyond our area of expertise, we have concentrated our response on the key principles, with some brief answers to the specific questions in the paper.

2.0 Key points

2.1 We agree that the current hybrid approach is unworkable and does not enable museums to account for the use of their heritage assets in a consistent manner. Accounts produced under the current regulations are seriously misleading to potential donors and other stakeholders.

2.2 The question of the treatment of heritage assets is a major issue for museums and related heritage organisations, since heritage assets are the heart of their business. It is very important for the museum sector and all its stakeholders that this issue be resolved.

2.3 Not only does the current approach produce misleading accounts, it also represents a missed opportunity. A major report by the Museums Association, published last year, Collections for the Future, asserted that many museums need to be encouraged to make better use of the whole of their collection: "Collections are potentially museums' most precious asset - but what business would allow up to 80 per cent of its assets to go unused, while continuing to consume significant resources?" (Collections for the Future, Museums Association, 2005, p.9).

An accounting process that encourages museums to make a thorough appraisal of the whole of their collection may have the additional benefit of bringing previously overlooked aspects of that collection into use.

2.4 We believe that the proposals in the paper represent the best solution to the problem. Allowing museums to adopt a non-capitalisation approach, while encouraging them to capitalise heritage assets where possible, is a pragmatic and workable solution for the longer term.

3.0 Responses to specific questions

Question a) Do you agree with the definition of heritage assets proposed for financial reporting purposes?

We do have a concern regarding this definition, which may require some small adjustment. Local authority museums and university museums (as well as some independent museums) are part of larger bodies whose primary purpose is broader than that of the museum. Some museums in this position will prepare their own accounts; others' accounts will be prepared as part of the accounts of the larger body.

There is then a danger that collections held by such museums could fall outside the proposed definition of heritage assets, since the promotion of knowledge and culture may not be central to the purpose of the larger organisation. We understand that, within local authorities, museum collections are generally classed as community assets. If the ASB is keen for them to be classed as heritage assets, the definition may need adjustment.

If it were possible, without there being any danger of other organisations falling outside the definition, we should also prefer to see some reference to education in the definition, since this is key to museums' purpose.

We agree with the discussion in section 6 about whether or not historic buildings occupied by museums constitute heritage assets. Clearly they do if they are intrinsic to the museum's mission, as in the case of Sir John Soane's house. However, this more nuanced approach is not evident in paragraph 1.18. Care must be taken when publishing a definition of heritage assets to clarify this point.

Question b) The Discussion Paper proposes that where heritage assets are reported in the balance sheet this should be at a current value rather than at historical cost as this provides more relevant and useful information. Do you agree?

We agree. Relative historical cost is not a reliable indicator of relative contemporary commercial value: the commercial value of some classes of museum objects has risen much more steeply than others. (And in any case, the price paid for an object may not have reflected its actual commercial value at the time of purchase.)

Question c) The objective of the proposals is to improve the quality of financial reporting of heritage assets. Do you agree that to meet this objective, it is impractical to require all entities to adopt a capitalisation approach for the financial reporting of heritage assets?

We absolutely agree, and welcome the fact that the proposals take a realistic and pragmatic approach that recognises the difficulties faced by museums and other organisations in valuing heritage assets.

Question d) Do you consider the proposals in paragraphs 4.8 and 4.9 will encourage the adoption of a capitalisation approach in appropriate cases?

Yes we do. We welcome the proposal that a pragmatic approach should be taken when capitalising heritage assets. It seems particularly sensible to suggest that, if most of the financial value of a collection resides in a small number of objects, these alone could be valued.

This is likely to be the case for many medium-sized museums with mixed collections, where a relatively small number of paintings are much more valuable than other parts of the collection such as social history, archaeology and natural history.

Question e) Where it is clear that practical considerations prevent an entity adopting a policy of recognising heritage assets a non-capitalisation approach should be adopted.

Do you agree that, in reaching this decision, an entity should have regard to whether it can obtain - at a reasonable cost - reliable valuations on an ongoing basis for the majority, by value, or heritage assets held and that this should be explained clearly in the notes to the accounts? If you do not agree, how should an entity support its decision to adopt a non-capitalisation approach?


We agree.

Question f) Under a non-capitalisation approach, it is proposed that acquisitions and disposals of heritage assets should be presented outside of the income and expenditure account in a statement of change in recognised net assets. Do you support this proposal?

We agree.

Question g) Do you consider that it is appropriate to report other transactions related specifically to heritage assets - such as donations, grants for their acquisition and restoration costs - in a statement of change in recognised net assets?

If not, how should these transactions be reported?


We agree that transactions related to heritage assets should be clearly distinguished from other transactions, although we feel we lack the technical expertise to comment on how this could best be achieved.

Question h) Do you agree with the proposed disclosure requirements for heritage assets? Are there other disclosures that are practicable and would provide useful information?

The proposals seem sound. In paragraph 2.10, the document refers to other information about the heritage assets, including policies for their display.

It is a small point, but we would prefer to see guidance refer to the "use" of heritage assets, rather than "display". We think it is important to stress that heritage assets may be used in many ways other than through display: for scholarly research, for loans to schools, for digitisation and online use.

Question i) It is proposed that, for financial reporting purposes, historic assets used by the entity itself and corporate art are not heritage assets. Is it appropriate at this stage to clarify the accounting treatment of these assets? If so, do you agree with the proposals in Sections 6 and 7 of the Discussion Paper?

Yes, but see comments under Question (a) above, about the treatment of historic buildings.

4.0 Other comments

4.1 We recognise that the examples given in paragraph 5.19 are for illustrative purposes. However, it is worth noting that the majority of museums do not dispose of objects to fund new acquisitions (p.43) and that this is contrary to the MA's current guidelines on disposal (although these are currently under review). It is therefore very unlikely that a museum would report proceeds from disposals in this way (p.44).

4.2 Again, looking at the illustrative example, the consultation document suggests that a museum might report in summary form the value of objects acquired by donation over the previous five years. In some cases this will not be possible, where the objects are exceptionally rare and data from sales of comparable objects are not available.


For further comment or information, please contact:

Helen Wilkinson, Policy Officer, Museums Association, 24 Calvin Street, London E1 6NW

helenw@museumsassociation.org, 020 7426 6950

To see the original consultation document, click here