IPSAS 17 (& IAS 38): GUIDANCE NOTE 2 ACCOUNTING FOR LIBRARY COLLECTIONS

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1 IPSAS 17 (& IAS 38): GUIDANCE NOTE 2 ACCOUNTING FOR LIBRARY COLLECTIONS Executive Summary The recognition and measurement of libraries is a challenging area for United Nations System organizations. Under UNSAS, generally library materials were expensed upon acquisition, whereas under IPSAS initial valuation for qualifying library materials should be recognized at either their cost or fair value. Libraries are likely to include both physical and intangible aspects which may, if specific criteria are satisfied need to be reported and classified within Property, Plant and Equipment (PPE) or Intangible assets. This paper considers only library materials such as books, publications, maps and electronically available library materials. The library building and physical equipment found in libraries such as computers, desks and shelving are not dealt with in this paper but are considered as PPE in previously issued System-wide guidance papers. The Task Force on Accounting Standards (the Task Force) requested specific guidance on accounting for libraries. This Guidance Note addresses this request by: Proposing that because library materials when taken individually will generally have a value below the approved Task Force capitalization threshold, they be grouped and accounted for in the framework of three types of collections General, Reference and Heritage. Suggesting that the grouping of library materials in the framework of collections is consistent with the management of libraries in practice and for that reason close coordination between the library and finance units is essential for the correct accounting of library materials. Providing considerations for library collections that include both PPE and Intangible items; Proposing accounting guidance for library collections in the context of the IPSAS adoption time-line whereby each type of collection is assigned a specific accounting treatment according to its characteristics, with both General and Heritage collections expensed upon acquisition and only Reference collections capitalized. Noting that items in Reference collections, System-wide organizations in practice may encounter difficulty with the tracking and or cost determination of individual library books for the purposes of amortization. In such cases, an average cost method is presented as an alternative since straight line depreciation may not be feasible. Discussing the increasing importance of electronic media (intangibles) in library collections. Page 1 of 22

2 Table of Contents This guidance is subordinate to the standard Guidance Notes... 3 Guidance Requested on Accounting Treatment of Libraries... 3 Authoritative Support - Application of IPSAS Other Relevant Paper(s)... 4 Library & Finance Units - Classification and Valuation a Joint Effort... 4 Library Collections - General, Reference & Heritage... 5 General Collection... 6 Reference Collection... 6 Heritage Collection... 7 Accounting Treatment for Library Collections - Expense or Capitalize?... 7 General Collection Expense... 7 Reference Collection Capitalize... 7 Heritage Collection Expense... 7 Reliable Cost Measurement - 1 Jan 2009 Achievable... 8 Transfers between Library Collections... 8 Capitalization Threshold - Material as a Group?... 8 Library Collections - PPE or Intangible Assets?... 9 Property Plant and Equipment... 9 Intangible Asset- Electronic Library Media... 9 Service Potential - Benefit & Control... 9 First-Time Recognition - Transitional Provisions and Opening Balances Property, Plant and Equipment Intangible Aspect The Cost and Fair Value Choice Financial Statements - PPE and Intangible Asset Categories PPE Classification, Useful Lives and Depreciation Intangible Classification, Useful Lives and Amortization Library Management Information Systems - Impact on Accounting Increasing Importance of Electronic Library Media - The Future Reference Collections - Periodic Review APPENDIX A: IFRS & Other Authoritative Support when No Applicable IPSAS APPENDIX B: Authoritative Support Accounting Practices Comparison APPENDIX C: Previously Approved Task Force Policies - Relevant to Libraries APPENDIX D: Library Collection Classification and Accounting Treatment APPENDIX E: Transfers between Library Collections APPENDIX F: Formula to Calculate Average Value of a Library Collection Page 2 of 22

3 DRAFT: IPSAS 17: GUIDANCE NOTE 2 ACCOUNTING FOR LIBRARIES May 2008 This guidance is subordinate to the standard. 1 The final authority on International Public Sector Accounting Standards (IPSAS) is IPSAS. This guidance aims to meet the requirements of IPSAS, including the requirements in IPSAS 17 Property, Plant and Equipment and IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors (IPSAS 3) with respect to choice of accounting policies. If a conflict between the guidance and IPSAS is identified, then the requirements of IPSAS apply. Guidance Notes 2 Guidance Notes aim to support organizations as they implement IPSAS requirements. They may include explanations of what a particular standard means, how a standard should be understood when applied to United Nations System specific situations, transactions or events, descriptions of the range of acceptable practices which may include identification of a best practice where one exists, and guidance on practical implementation tasks. Guidance Requested on Accounting Treatment of Libraries 3 The Steering Committee requested further guidance on the accounting treatment for libraries. 1 This Guidance Note addresses this request by providing: a framework for the grouping of library contents into collections ; considerations for library collections that include both PPE and Intangible items; accounting guidance for library collections in the context of the IPSAS adoption time-line; and discussion on the increasing importance of electronic media (intangibles) in library collections. Authoritative Support - Application of IPSAS 3 4 The level of detail found in IPSAS 17 and IAS 38 Intangibles does not address the specifics and nuances of library accounting. Authoritative support below these standards has been referred to in order to develop this guidance, applying the framework for accounting policy development in IPSAS 3. Authoritative support has been sourced from the jurisdictions of Australia and New Zealand, two jurisdictions whose financial reporting is closely aligned with IPSAS, and that support is referenced throughout this Guidance Note. Appendix A provides a detailed discussion on the applicability of that authoritative support in the context of IPSAS 3 for guidance on accounting for libraries. 1 Request added to System-wide team work plan based on Steering Committee approval in Topic request initiated from IAEA. correspondence from M. Jeon (IAEA) to System-wide team on 17/10/2008. Page 3 of 22

4 5 Appendix B provides a comparison of the accounting practices prescribed by the authoritative support. Other Relevant Paper(s) 6 Previously provided guidance papers relevant to the discussion in this paper are as follows: # 17: Intangible Assets; # 19: IPSAS 17 Property, Plant and Equipment Accounting Policies and Practices: First-time Recognition ; # 23: Guidance on First Time Recognition of Property Plant and Equipment ; # 38: System-wide Guidance Note IAS 38: Guidance Note 1 Determination of Intangible Assets Opening Balances for 1 st Time Adopters of IPSAS ; and # 39: IAS 38: Guidance Note 2 Intangible Assets Accounting for Software and ERP Systems. 7 Previously approved Task Force policies relevant to the recognition and measurement of libraries are provided in Appendix C. Library & Finance Units - Classification and Valuation a Joint Effort 8 The valuation of library collections is important for many reasons including accountability, decision making, insurance purposes and, under IPSAS, recognition in the Statement of Financial Position. Most if not all United Nations System organization are likely to have libraries. Under UNSAS 2 it is likely that the contents of libraries were expensed. The focus of this paper is on materials found in libraries such as books, maps, publications etc. in both tangible and intangible forms. The library building and equipment used in the library are not dealt with in this paper but are addressed in other System-wide papers referenced above in the section Other Relevant Papers. 9 In the year prior to IPSAS adoption, which is expected to be 2009 for the majority of organizations, United Nations System organizations should ensure procedures are in place to assign library materials to the three types of classes of library materials (discussed in paragraphs of this paper). 10 The classification and valuation of library materials needs to be a collaborative effort between the finance and library units of an organization (and in some cases valuation using external professionals may also be required). The Library unit has the expertise required to understand the classification of library materials and their service potential to the organization. 3.librarians are well informed through an increasing variety of survey data and usage data of how their collections support teaching, learning and research. This includes the use, by discipline, of different types of resources for current awareness or for historical 2 UNSAS refers to United Nations System Accounting Standards. 3 United Nations Dag Hammarskjold Library web-site: Mandate - The library s primary function is to enable delegations, Secretariat..to obtain with the greatest possible speed, convenience and economy, the library materials and information needed in the execution of their duties. Page 4 of 22

5 research and analysis. This knowledge is invaluable when grappling with the issues of depreciation and the useful life of assets 4 11 Once library materials are classified, both the library and finance units need to work together to determine the appropriate valuation of the collections. Library Collections - General, Reference & Heritage 12 A collection is defined as a group or aggregate. 5 In practice, the management of libraries is naturally oriented towards grouping library materials into collections. The concept of library collections is important because the type of collection will determine the valuation and accounting treatment. It is recommended that entities adopt a pragmatic approach in grouping collections, and try to identify as few collections as possible Most United Nations System organizations are likely to find that their PPE and intangible library contents can be grouped into three collections as follows: Fig 1.0: Classification of Organizational Library Items into Collections 14 The characteristics of each individual library item (whether hardcopy or electronic) will determine to which collection - General, Reference or Heritage an item is assigned. 15 It is likely that sub-collections within the three broad collections presented in this paper may exist and need to be consolidated to the broader collection groupings for financial reporting purposes. For example, the Reference collection might be comprised of a sub-collection of maps and charts, a sub-collection of hardcover books and another 4 Financial Accounting and Library Collections: The Bottom Line. Deakin University Library: A Case Study. Pages 3-4. Deakin University, Anne Horn. 5 Merriam-Webster on-line dictionary: 6 Valuation Guidance for Cultural and Heritage Assets: New Zealand Treasury, November 2002, (The valuation of Library Collections A proposal) Page 5 of 22

6 sub-collection of statistical documents. 7 Reference collection. Together they would comprise the broader 16 The key factors in the determination of library collections are the: item s useful life: is the item used primarily in the 1 st year or over many years? way the item is used or made available for use within the library: is the item available to be borrowed or must it remain within the library? manner in which the item is stored and safeguarded; is the item accessible off the shelf or are special precautions taken with the item? nature of the expenditure on the item to the library: is the item part of a regular replacement or is it a unique acquisition such as a historic publication? the service potential of the item: How often is the item borrowed or what is the availability of the item in the collection? 17 The characteristics of each of the General, Reference and Heritage collection groupings are described below. General Collection 18 A General collection is a collection available for the common use of the organization. It is usually characterized by a large number of low value items which are used in the day-to-day operations of the library (e.g. technical publications). These items, in most instances may be borrowed. Due to a pattern of declining use, obsolescence and of physical deterioration over time, library materials in these collections generally have a short period of service potential (e.g. the greatest usage is within the first year). Individual items are continually being updated and replaced Generally periodicals (including subscriptions) would be regarded as part of the General collection. In some cases however, a different grouping of periodicals might be more appropriate. The judgment of the library unit should be sought to determine the appropriate collection should periodicals be more appropriate in a different classification. Reference Collection 20 Reference collections usually include both general and specialized items. These items are usually not able to be borrowed, but are available for use, even if archived. 21 Generally, these items have variable uses (research purposes) and have a longer useful life than common use collections but are not held indefinitely. They are generally replaced if lost or damaged Items in United Nations System organizations Reference collections should have a useful life of 3 years or more. 7 United Nations Dag Hammarskjold Library web-site: Collections section includes UN System collection, Woodrow Wilson Collection, Oral History collection, External collection, Periodicals collection, Special collection, Legal collection, Map collection and Statistical collection. These could be grouped to the three broader categories presented in this paper. 8 Non-Current Asset Policies, Chapter 13: Accounting for Library Collections. Queensland Treasury. 9 Ibid. Page 6 of 22

7 Heritage Collection 23 A Heritage collection is a permanently retained collection which has heritage, cultural or historic value that is worth preserving indefinitely and to which sufficient resources are committed to preserve and protect the collection and its service potential. The collection is generally held for public exhibition, education, or to provide a service to the community. Heritage collections are not usually available for sale, for redeployment or for an alternative use. 10 Special collections consist of a variety of material regarded as rare, valuable, vulnerable or fragile or of a particular relevance and importance. The inclusion of an item in these collections indicates an intention by the Library to preserve the item for an indefinite time, by placing it in optimal storage conditions and under strictly controlled access These definitions are consistent with the definition of a heritage asset as specified in IPSAS Accounting Treatment for Library Collections - Expense or Capitalize? General Collection Expense 25 General collection items should be expensed on acquisition. 26 Items in a General collection have the highest usage within the first year and a rapid decline over subsequent years. Given their short useful lives and high turnover, items within a General collection are expensed when acquired. 13 Reference Collection Capitalize 27 Reference collections, which may include both PPE and intangible items satisfying the requirements of PPE and/or intangible assets, should be capitalized. Heritage Collection Expense 28 United Nations System organizations have an approved policy not to recognize heritage assets. This Task Force decision will be reconsidered once the IPSASB has done further work on heritage assets either through an amendment to IPSAS 17 or through a separate IPSAS standard. To date, the IPSASB has not produced further guidance on the treatment of heritage assets. 10 Ibid. 11 Financial Accounting and Library Collections: The Bottom Line. Deakin University Library: A Case Study. Deakin University, Anne Horn. 12 IPSAS 17, paragraph 9. Some assets are described as heritage assets because of their cultural, environmental or historical significance. 13 Non-Current Asset Policies, Chapter 13 (13.4.1): Accounting for Library Collections. Queensland Treasury. 14 Refer to FBNetwork papers CEB/2007/HLCM/FB/7(the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). CEB System-wide IPSAS paper: Guidance on First Time Recognition of Property, Plant and Equipment April The Task Force decision on non-recognition of heritage assets due to limitations in IPSAS 17 is shared by others. On the issue of accounting for heritage assets it was felt that IPSAS 17 was not appropriate and required updating. Particular problems included when to recognize heritage assets on a consistent basis, Page 7 of 22

8 Reliable Cost Measurement - 1 Jan 2009 Achievable 29 United Nations System organizations are likely to find that both the items included in and the costs of library collections are determinable from 1 Jan In fact, most United Nations System organizations are likely to use library information management systems (the importance of which is discussed later in this document) from which the contents of library collections are readily determinable. 30 Appendix D provides a quick reference for the grouping of library collections and the corresponding accounting treatment in the context of the IPSAS adoption time-line for most United Nations System organizations. Transfers between Library Collections 31 It is possible that at times items within library collections may need to be moved from one collection to another (i.e. from the Reference collection to the Heritage collection). Appendix E provides a chart showing possible transfer combinations and the appropriate accounting treatment for each. Capitalization Threshold - Material as a Group? 32 United Nations System organizations will find that the vast majority of individual items within their library collections have a value of less than the approved Task Force capitalization threshold. 16 However, when assessing the need to value a collection of items that are perceived to be of low monetary value individually, regard should be given to the potential value of the overall collection before making any decision not to undertake a valuation IFAC Study 14 discusses in paragraphs 6.48 and 6.49 the 'Capitalization of Assets below the reporting threshold as follows: "Some assets may have a lower value, per unit, than the capitalization threshold. However, such assets may be material as a group. In this case, the assets are generally recorded as a single group asset, with one combined value. Examples where the recognition of assets as a single group may be appropriate include: computer networks; furniture and fittings; certain types of equipment; and professional libraries. Despite the fact that such items may be recorded as a single asset in the financial systems, an entity is still able to monitor or control the use and maintenance of these assets via a subsidiary system. how to value them when no market exists, and what additional disclosures might be appropriate. Modernising Accounting in the Public Sector: EC/FEE Conference 28 September Workshop A: Accounting Principles Issues and challenges in the transposition of IPSAS into national and international public sector accounting. 16 Refer to FBNetwork papers CEB/2007/HLCM/FB/7(the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). Capitalization Threshold: Up to a maximum of US $5,000 (or equivalent in currency other than United States dollars). 17 Valuation Guidance for Cultural and Heritage Assets: New Zealand Treasury, November 2002 Page 8 of 22

9 34 United Nations System organizations should value library items as part of organizational collections. Library Collections - PPE or Intangible Assets? 35 United Nations System organizations are likely to find that their libraries include both PPE items such as hardcopy books and periodicals and intangible components such as electronically available books and other materials. Property Plant and Equipment 36 PPE items found in a library may have been internally developed or acquired through donation or purchase. 37 The cost of a PPE component of a library is recognized as a PPE asset only if both of the following are demonstrated 18 : It is probable that future economic benefits or service potential associated with the item will flow to the entity; and The cost or fair value of the item can be measured reliably. Intangible Asset- Electronic Library Media 38 Intangible items in libraries such as on-line publications and audio recordings available through electronic media must satisfy both the definition of an intangible asset and the criteria for recognition of an intangible asset which like PPE include the notion of future economic benefit or service potential and reliably measurable cost. If either of these criteria is not met, the item must be expensed. 19 Electronic Library Media - Donated, Internally Generated, Licensed or Purchased? 39 United Nations System organizations are likely to find that increasingly the proportion of their library collections are or will become electronic in nature as access to on-line databases and other non-print products such as CD-ROMS may relieve the need to maintain hardcopy versions of every publication The materials available on electronic media in United Nations System libraries are likely to be internally generated, donated, licensed and/or purchased. 41 The appropriate accounting treatment for each of these is provided in the January 2008 issued System-wide Guidance Note IAS 38: Guidance Note 1 Determination of Intangible Assets Opening Balances for 1 st Time Adopters of IPSAS. Service Potential - Benefit & Control 42 United Nations System organizations libraries generally speaking exist not to provide future economic benefits to the organization gained through charging user fees for access to library materials but rather are provided without charge to users. 43 The service potential of library items is a key in determining whether library collections qualify as assets. 18 IPSAS 17: Property, Plant and Equipment, paragraph IAS 38, paragraph United Nations Dag Hammarskjold Library web-site: Retention and weeding of the library s collections. Page 9 of 22

10 44 Service potential can be demonstrated in a number of ways including the asset s utilization or its effectiveness in supporting organizational activities Service potential indicators for library collections include how many times items within the collection are borrowed or used or the length of time an item is available for usage Further to measuring service potential, United Nations System Organizations must have control over the service potential of the library collection to the extent that each organization is able to enjoy the benefits and deny or regulate the access of others to the benefits. In addition, the transaction or other event that gives rise to the entity s control must have occurred. First-Time Recognition - Transitional Provisions and Opening Balances 47 As discussed previously in this paper, items acquired for both General and Heritage collections are expensed in the year of acquisition (first year) and thus not a concern for organizations for capitalization purposes. Property, Plant and Equipment 48 The Task Force previously agreed that on first-time recognition when adopting IPSAS organizations recognize their property plant and equipment at either cost or fair value 23. On first-time adoption, United Nations System organizations should account for Reference collections as qualifying capitalizable PPE using either cost at acquisition date or, if that is not determinable, then fair value as acquisition cost or fair value at time of first-time adoption 24. Intangible Aspect 49 In the absence of an IPSAS, IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1) provides relevant guidance on preparing opening balances for intangible assets. IFRS 1 does not provide a transitional period for the progressive recognition of assets. The Cost and Fair Value Choice 50 Although each System-wide organization is able to choose whether they use cost or fair value on first-time recognition, prior to 2009, it is unlikely United Nations System organizations will have the necessary cost information to reliably measure acquisition 21 Government of Victoria, Australia, Asset Management Series: Principles Policies and Practices. 22 Non Current Asset Policies - Chapter 13: Accounting for Library Collections. Queensland Treasury. 23 United Nations Task Force on Accounting Standards approved policy at April 2007 Task Force. Reference, Paper # 19 IPSAS 17 Property, Plant & Equipment Accounting Policies and Practices: First- Time Recognition. 24 IPSAS 3 requires an entity to retrospectively apply accounting policies unless it is impractical to do so. Therefore, when an entity initially recognizes an item at cost in accordance with the standard, it shall also recognize any accumulated amortization and any accumulated losses that relate to that item, as it has always applied those accounting policies. Page 10 of 22

11 cost for individual library materials. It is foreseeable that the use of fair value will be the most pragmatic approach for first-time recognition From 1 January 2009, United Nations System organizations however are likely to find that Reference library collections will satisfy the requirements to be recognized as assets. This reasoning is based on the availability of reliable cost information to determine an appropriate value for capitalization and on the service potential of the collections. A review of authoritative support in New Zealand and Australia shows that for those jurisdictions libraries are initially valued using fair value As a result, most United Nations System organizations should be able to recognize Reference library collections upon first-time adoption of IPSAS and not have to invoke the five year transitional provision available in IPSAS 17. However, there maybe timing issues factors such as improvements to automated library systems and ERP systems which would necessitate the use of the transitional provision primarily because comprehensive information on the existence and valuation of library materials cannot be compiled. 53 For the same reasons of cost determination and service potential provided for PPE library components such as hardcopy books, the absence of a transitional provision for intangible assets such as electronic library media should not preclude United Nations System organizations from recognizing intangible library components in Reference collections from 1 January Financial Statements - PPE and Intangible Asset Categories 54 The Task Force approved recommended accounting practices for asset classification is for United Nations System organizations to use six PPE classes and six Intangible asset classes when preparing IPSAS compliant financial statements No asset classification is required for General and Heritage collections. They are not capitalized and are not reported as assets on the financial statements. 56 Reference collections given their long useful lives should be shown on the Statement of Financial Position as non-current assets. PPE Classification, Useful Lives and Depreciation 57 Research for this paper has shown that in practice the accounting and classification of library collections on the Statement of Financial Position is not consistent. In some cases library materials are capitalized and shown as PPE or as a 25 Active markets for materials found in United Nations System libraries maybe limited. Indexes such as the Bowker Annual Library and Book Trade Almanac may prove useful in determining fair value in some cases. 26 Refer to Appendix B in this guidance note. 27 Refer FBNetwork papers CEB/2007/HLCM/FB/7 (the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). The six approved PPE classes are: Communication including IT Equipment, Vehicles, Furniture and Fixtures, Leasehold Improvements, Buildings, and Land. The six approved (RAP 07/1/3) classes of intangible assets are Software acquired internally, Software internally developed, Intangible Assets under development, Copyrights, and Other Intangible assets. Page 11 of 22

12 separate asset classification within PPE while in others cases they are expensed and not recognized at all Most United Nations System organizations are likely to find that the size of their Reference library collections do not warrant a separate asset classification. However, since library collections do not easily fit into the six approved Task Force PPE classes. The two assets classes that are most appropriate for Reference library collections are Furniture and Fixtures and Communications and IT Equipment. Of these two, it is suggested that Communications and IT Equipment is more appropriate, because of the information providing and communicative purpose of library materials. The Task Force approved useful lives of between 3 to 7 years 29 for assets within this classification is at the lower end but not inconsistent with the useful lives of library materials in practice Should United Nations organizations deem their Reference Library Collection to be significantly material, then a separate PPE asset class called Reference Library Collection should be considered. 60 The recommended accounting practice also states that: Further classes should be added when further significant material groups of assets exist, for example, infrastructure assets, work-in-progress, specialized vehicles, machinery. An organization may need to amalgamate recommended classes, if a class is not material IPSAS 17 does not provide the scope to exempt PPE from being depreciated. The only exception is specifically for heritage assets that are not capitalized and therefore not depreciated. A review of authoritative support from Australia and New Zealand indicates that library collections that are capitalized are depreciated, usually using the straight line depreciation method 32. System-wide organizations therefore should depreciate their Reference library collections using the Task Force approved straight line basis UK Universities sector, Statement of Recommended Practice (SORP) Accounting for further and higher education 2007 does not explicitly address treatment of libraries. However, correspondence with CIPFA indicates that UK public sector entities are most likely expensing their library collections and a review of entities likely to have significant investments in libraries is highly suggestive that they are not recognized. Conversely the National Library of New Zealand June 2007 Annual report shows library collections separately on the Statement of Financial Position as non-current assets and depreciated over their useful lives. The Library Board of Queensland includes library collections as part of PPE on the Statement of Financial Position. 29 Refer FBNetwork papers CEB/2007/HLCM/FB/7 (the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). Refer IPSAS paper # 13 IPSAS 17 Property, Plant and Equipment Accounting Policies and Practices where PPE Class Communication and IT Equipment has a useful life range of between 3 to 7 years and PPE Class Furniture and Fixtures has a useful life range of between 5 to 12 years. 30 Research of entities who are depreciating library collections show that the useful lives range for example from: Auckland City Council 2007 library collection 3 to 12 years; National Library of New Zealand Annual Report June 2007 library collection 5 to 50 years; Sydney City Council Statutory Returns 2006/07 library collection 10 years. 31 Refer to FBNetwork papers CEB/2007/HLCM/FB/7(the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). 32 Refer to Appendix B in this guidance note. 33 Refer to FBNetwork papers CEB/2007/HLCM/FB/7(the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). Page 12 of 22

13 Intangible Classification, Useful Lives and Amortization 62 For those portions of Reference library collections that qualify as intangible assets, the Intangible asset classes that are likely to be applicable are Licenses and Rights and Other Intangibles. 63 The useful life of items within the Licenses and Rights classification determined as the shorter of the license or rights period and 2 to 6 years or in the Other Intangibles classification a useful life depending on the type of item Similar to PPE the scope to not amortize intangible assets is not available in IAS 38. System-wide organizations should amortize the intangible aspects of their Reference collections according to their Intangible asset classification. Library Management Information Systems - Impact on Accounting 65 It is likely that most United Nations System organizations use automated library management software and systems. These systems should be appropriately accounted for and classified depending on whether they were purchased or internally developed Essential to accounting for library collections is a library management information system that accurately tracks the classification of library items, and the additions and removal of individual books and periodicals within each collection. This requirement is usually achievable through electronic coding (i.e. bar code) placed on each individual library item. 67 United Nations System organizations should take at a minimum immediate action to ensure that library items are classified within their library management systems and that the information required to account for library collections is available from the library management system for inclusion in the organization s financial accounts either manually or through an interface to the organization s enterprise resource planning (ERP) system. 68 Should individual item cost information (i.e. cost of an individual book) be captured in an organization s library management system, accounting for transfers, additions, removals etc of the individual item from collections is based on the item s cost and thus relatively straight forward. 69 However, it maybe the case that this detailed type of cost information for reasons including system limitations is not captured on an item by item basis and would not be realistic to track manually. 36 In such cases, the use of a rolling average cost might be the only feasible way to account for Reference collections over time and still reflect the materiality of reference collections on the Statement of Financial Position. Appendix F provides an average cost formula that could be used for this purpose. 34 Task Force approved RAP 07/1/4 useful lives. Reference IPSAS paper # 17: IAS 38 Intangible Assets. 35 Refer to IPSAS System-wide paper IAS 38: Guidance Note 2 Intangible Assets Accounting for Software and ERP Systems for further guidance. 36 In discussions with various United Nations System-wide organizations it was determined that tracking and cost determination of individual library items may not be feasible at this time given current systems. Page 13 of 22

14 Increasing Importance of Electronic Library Media - The Future 70 United Nations System organizations are likely to find that electronic library media will over time become increasingly larger components of library collections and in some cases replace print materials. The replacement of print materials with electronic versions providing web access is the prevailing strategic direction evident across the sector. 37 The increasing move to electronic journals and electronic books by scholarly publishers, coupled with users preferences for online access, is leading the library to question the long term value of print items Another significant factor that may further expedite the move to electronic media is the increasing price of periodicals and books. Many libraries are dealing with periodical price increases by subscribing, individually or consortially, to databases that provide on-demand access to periodical literature as an alternative to paper subscriptions The significance for United Nations System organizations is the possibility that library items in print format that are originally capitalized, may in increasing numbers be deemed disposable from Reference collections in the future. 73 The financial effect of this would be to increase the level of expenditure shown on an organization s financial statements in a write-down year instead of had the print items continued to be capitalized over their originally stated useful lives and service potential. Reference Collections - Periodic Review 74 The determining factor for inclusion or removal in a collection is usually continued service potential. 75 United Nations System organizations should review the contents of their Reference Library collections periodically. Coordination with the library unit is suggested to ensure the library s weeding and discard schedules are understood and compatible with financial reporting requirements. 37 Financial Accounting and Library Collections: The Bottom Line. Deakin University Library: A Case Study. Page 4. Deakin University, Anne Horn. 38 Ibid. 39 Pricing Trends for Public Library Print Materials. November 2004 (ED3/110.10/No. 212). Colorado State Library, Colorado Department of Education. Library and Information Science Program, College of Education, University of Denver. Page 14 of 22

15 APPENDIX A: IFRS & Other Authoritative Support when No Applicable IPSAS A1 Where there is no applicable IPSAS, IPSAS 3 requires that management determine the applicable accounting policy as follows: Paragraph 12: In the absence of an International Public Sector Accounting Standard that specifically applied to a transaction, other event or condition, management shall use its judgment in developing and applying an accounting policy that results in information that is: a) relevant to the decision-making needs of users; and b) reliable, in that the financial statements: I. represent faithfully the financial position, financial performance and cash flows of the entity; II. reflect the economic substance of transactions, other events and conditions and not merely the legal form; III. are neutral, i.e. free from bias; IV. are prudent; and V. are complete in all material aspects. Paragraph 13: Paragraph 12 requires the development of accounting policies to ensure that the financial statements provide information that meets a number of qualitative characteristics. Appendix B in IPSAS 1 summarizes the qualitative characteristics of financial reporting. Paragraph 14: In making the judgment, described in paragraph 12, management shall refer to, and consider the applicability of, the following sources in descending order: (a) the requirements and guidance in International Public Sector Accounting Standards dealing with similar and related issues; and (b) the definitions, recognition and measurement criteria for assets, liabilities, revenue and expenses described in other International Public Sector Accounting Standards. Paragraph 15: In making the judgment described in paragraph 12, management may also consider the most recent pronouncements of other standard-setting bodies and accepted public or private sector practices to the extent, but only to the extent, that these do not conflict with the sources in paragraph 14. For example, pronouncements of the International Accounting Standards Board (IASB), including the Framework for the Preparation and Presentation of Financial Statements, International Financial Reporting Standards and Interpretations issued by the IASB s International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC). A2 IFRS standards are positioned as the primary candidates for application, when no IPSAS standard exists for a topic for three reasons. First, IFRS and IPSAS have the same origins (IFRS) and are each internally consistent. Therefore, they usually treat similar Page 15 of 22

16 and related issues in the same way within and between the two sets of standards. Second, IPSAS applies concepts largely similar to those that under-pin IFRS. The result of these similarities is that IFRS standards are very likely to meet the requirements above. Third, IFRS is the only set of standards specifically mentioned in paragraph 15, which suggests that IFRS are acceptable replacement standards, so long as they meet the requirements of (a) and (b). A3 International organizations that have adopted IPSAS have adopted the relevant IFRS when IPSAS exists. The International Federation of Accountants, the OECD, NATO and the European Commission adopt the relevant IFRS when no IPSAS exists. A4 Accounting for libraries is somewhat of a grey area when applying relevant standards such as IPSAS 17 and IAS 38. The level of detail found in those standards does not address the specifics and nuances of library accounting. Authoritative support below these standards is therefore used to support guidance provided. Authoritative support has been sourced from Australia and New Zealand and they are referenced throughout this guidance note. Specifically, the authoritative support used is from a national government, the Government of New Zealand National Treasury 40 (NZNT) and two state governments, the Queensland Government Treasury 41 (QGT) and the Government of Victoria Treasury and Finance 42 (GVTF). A5 The use of authoritative support from these jurisdictions is within the parameters of paragraphs 14 and 15 of IPSAS 3. This authoritative support has been developed in two jurisdictions that apply the same definitions, recognition and measurement criteria for financial elements as those in IPSAS and the applicable financial reporting standards in the two jurisdictions are very similar to IPSAS. They are an example of accepted public sector practices as described in paragraph 15, which are acceptable so long as they do not conflict with the sources in paragraph 14, which they do not. Their applicability as authority also comes from the fact that they are produced by government organizations responsible for developing prescriptive policies that are applied to and used by public sector entities such as national and state libraries. The policies are made publicly available, the public sector entities applying these policies make their financial statements publicly available and those statements are audited by independent auditors. A6 It is a matter of professional judgment in the circumstances of the organization as to which other sources of authoritative support should be considered, and how conflicts between other sources of authoritative support should be resolved in determining accepted accounting practice. For the purposes of this guidance note, no level of this available government authority is considered to be higher in the application hierarchy than another. However, as shown in Appendix B, although the sources of authoritative support all agree to recognize certain aspects of libraries for capitalization purposes, they 40 Information sourced from New Zealand Treasury Instructions 2007 and New Zealand Treasury Valuation Guidance for Cultural and Heritage Assets. 41 Information sourced from Queensland Government Treasury Non Current Asset Policies for the Queensland Public Sector (Revised February 2008). 42 Information sourced from State Government of Victoria, Department of Treasury & Finance, FRD 103C- Non-Current Physical Assets. Page 16 of 22

17 are not consistent in the specifics of how to do that. There are differences in the number of collections used and which types of collections will be capitalized or expensed. For example, the QGT groups library items into three collections, the NZNT into two and the GVTF does not make reference to collections. The QGT prescribes capitalizing only Reference collections and not General collections, whereas the NZNT does capitalize items that would be considered general as part of their Non-heritage collection grouping. Other differences include the initial valuation of libraries where the QGT and the NZNT prescribe fair value for initial valuation and the GVTF prescribes cost. A7 In the case of the apparent conflicts between these different sources, the approach taken by the QGT to recognize three types of collections and capitalize only Reference collections was deemed the clearest and most relevant to United Nations System organizations, given the use of many types of library collections within the system, previously approved Task Force polices with regards to choice of cost or fair value for first time recognition, PPE classifications and useful lives and the non-recognition of heritage assets. Page 17 of 22

18 APPENDIX B: Authoritative Support Accounting Practices Comparison Suggested Treatment New Zealand Treasury 43 Queensland Treasury 44 Victoria Treasury 45 Recognize Libraries (some or all of the collection) YES YES YES Divide into Collections YES YES Not Specified Types of Collections General and Heritage General, Reference and Heritage Not Specified Capitalized Collections General only Reference only YES Initial Recognition Valuation Fair Value Fair Value Cost Depreciation Taken YES YES YES Subsequent Measurement Fair Value (Depreciated Replacement Cost) Fair Value (Average Replacement Cost) Fair Value (less accumulated depreciation and impairment) Fig 2.0: Authoritative Support Accounting Practices Comparison 43 Information sourced from New Zealand Treasury Instructions 2007 and New Zealand Treasury Valuation Guidance for Cultural and Heritage Assets. 44 Information sourced from Queensland Government Treasury Non Current Asset Polic ies for the Queensland Public Sector (Revised February 2008). 45 Information sourced from State Government of Victoria, Department of Treasury & Finance, FRD 103C- Non-Current Physical Assets. Page 18 of 22

19 APPENDIX C: Previously Approved Task Force Policies - Relevant to Libraries B1 The following previously approved Task Force policies are relevant to accounting for library collections 46 : First-time recognition of PPE: Organizations recognize their property plant and equipment at either cost or fair value. 47 Recognition of heritage assets: Do not recognize heritage assets, but reconsider the policy when the IPSASB has done further work on requirements for reporting heritage assets. 48 Capitalization Threshold: Up to a maximum of US $5,000 (or equivalent in currency other than United States dollars). After two years, each organization reviews and adjusts as necessary. 49 Use of Transition Periods for PPE: Organizations use transition periods only to the extent necessary to ease the difficulty of compliance with that particular IPSAS and thereby make compliance practically speaking more achievable. 50 PPE & Intangible Asset Classification and Useful lives Six classes approved for each with associated useful lives ranges. Discussed in Financial Statements PPE and Intangible Asset Categories section of this paper Refer to FBNetwork papers CEB/2007/HLCM/FB/7 (the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). 47 Refer to IPSAS paper # 19: IPSAS 17 Property, Plant & Equipment Accounting Policies and Practices: First Time Recognition. 48 Refer to IPSAS paper # 13; IPSAS 17 Property, Plant and Equipment Accounting Policies and Practices. (Note that Task Force policy continues in force, and will be reconsidered once the IPSASB has done further work on heritage assets either through an amendment to IPSAS 17 or through a separate standard). 49 Refer to IPSAS paper # 13; IPSAS 17 Property, Plant and Equipment Accounting Policies and Practices. 50 Refer to IPSAS papers # 18 Transitional Provisions and # 19 IPSAS 17 Property, Plant & Equipment Accounting Policies and Practices: First Time Recognition. 51 Refer to IPSAS paper # 13, IPSAS 17 Property, Plant and Equipment Accounting Policies and Practices. Page 19 of 22

20 APPENDIX D: Library Collection Classification and Accounting Treatment Library Collection Classification General Collection a). Pre b). From Jan 1, 2009 Collection Characteristics Large number of individual items Low dollar value Items can be borrowed and used outside of the library Frequently used Greatest usage and benefit of item occurs in 1 st year. Accounting Treatment a). Expense b). Expense 2. Reference Collection a). Pre b). From Jan 1, Heritage Collection a). Pre b). From Jan 1, 2009 Includes general and specialized items Items are permitted for loan/use outside of the library Long useful lives (3 + yrs) Items generally replaced over time Permanently retained Heritage, historic or cultural significance a). Expense b). Capitalize: If total value of collection is >/ $ in the reporting currency. a & b). Expense 53 Intangible - Electronic Media a). Pre 2009 b). From Jan 1, 2009 Electronic media can be found in any of the 3 collection classifications. Electronic media can be purchased, internally developed, donated and/or obtained through a licensing agreement. a). Expense Fig 3.0: Quick Reference showing Library Collection Classifications and Accounting Treatment b). Capitalize if classified as part of Reference collection and as is identifiable, entity has control, cost can be measured reliably and future economic benefit or service potential can be demonstrated is used as a benchmark year because it is generally considered to be the year prior to IPSAS adoption by the majority of United Nations System organizations. 53 Refer to FBNetwork papers CEB/2007/HLCM/FB/7(the recommendations) and CEB/2007/HLCM/FB/10 (the decisions). Page 20 of 22