Financial reporting of heritage in the public sector

Abstract

PURPOSE: The objectives of this study on the financial reporting of heritage were to establish the various arguments underlying the subject at an international and national level; and then highlighting the possibilities and challenges at a national level. DESIGN: The objectives of the research were achieved through the use of a qualitative research approach. A documentary analysis was carried out on the responses to the IPSASB’s Consultation Paper on Heritage. Semi-structured interviews were conducted with Maltese stakeholders, and their responses were compared to those of the IPSASB’s responses and other relevant literature. FINDINGS: There is a lot of discourse about whether heritage items are assets. According to the IPSASB, heritage items should be reported as assets if they meet the asset definition; but, in actual fact, heritage items would not meet the asset criteria. This is mainly due to the fact that determining a financial value of heritage items is impossible due to the non-financial value that they represent. Furthermore, the cost/benefit constraint must also be taken into consideration as the process to confer a financial value may outweigh the benefits attached thereto. There is no standard set of practices for the financial reporting of heritage items among jurisdictions. Moreover, IPSAS 17 Property, Plant, and Equipment allow public-sector entities to choose their own accounting approach. Therefore, they can recognise heritage items in the statement of financial position as assets, disclose them in the notes of the financial statements, or simply disregard them. This diversity reduces the comparability of information among public-sector entities. The current practices may not provide the financial information that users of general-purpose financial reporting need for accountability and decision-making. CONCLUSION: The findings of this study confirm the existence of a gap between the information needs of users and the definition, recognition and measurement of heritage items. This also extends to the Maltese context; however, the issue of heritage reporting should not deter the Maltese Government from continuing the implementation of accrual accounting at Central Government level. VALUE: The study seeks to shed light on the financial reporting of heritage items in the public sector, especially regarding recognition and measurement. Since no similar research was conducted in Malta, this study could in due course assist the Maltese Government’s decision on how to deal with heritage in its financial reporting.