Rod Hyman Expert Valuer

Under this Framework, all non-current physical Collection Assets, including Digital Assets, are within the scope of valuation. This includes Collection Assets that are currently on loan from the Museum to external parties, including long-term loans. Objects that are on-loan to the Museum and in the Museum’s care at the time of the valuation are generally excluded. However, consideration may need to be given to long-term loans of items to/from the Museum whereby the right to use an asset may effectively reside with the custodial institution.

In general, all assets in a collection have a value defined as fair value through highest and best use. The principles of AASB 13 Fair Value Measurement should be applied including, inter-alia, the “three tier” valuation hierarchy. However, for valuation purposes, collections can generally be separated into three classes summarised below and then discussed in detail hereunder:

a) Highly Significant and Sensitive Collection Assets are those objects which because of uniqueness, sensitivity or legal frameworks need to be regarded as priceless or valueless;

b) High Value Collection Assets are those where the value of the asset exceeds a predetermined threshold amount; and

c) General Collection Assets are those where replacement value represents fair value through highest and best use.

In exceptional situations it will be impossible to place a reliable value on certain Collection Assets. These Assets are likely to be one of the following:

a) Unique, irreplaceable (including in terms of their utility) and of significant cultural, social, historical or scientific value, with no data available to determine a market or replacement value; and/or

b) Sensitive or legally defined Collection Assets (these include but are not restricted to: human remains; secret sacred objects; and objects acquired from a legal seizure under CITES, where the Museum determines, supported by independent expert evidence, that it is inappropriate to record value and/or there is an inability to reliably measure value.

Example: A Museum receives a donation from the State Government of seized wildlife trade items, comprising ivory with a high market value. It is illegal to sell items listed under CITES. Therefore, the institution may choose to identify this material as a Highly Significant and Sensitive Collection Asset.

These Assets should be recorded at nil value. As further support to this statement, AASB 13 requires all the characteristics to be taken into account in determining fair value, one of which may relate to restrictions on the asset which could prevent it from transacting. In coming to this conclusion there is an obligation to prove that if an item came on the market it would not be saleable due to cultural or legal restrictions. This decision should be ideally supported by expert opinion, particularly if the recording at nil value is likely to cause a materially different outcome to the Museum’s financial reports. Assets recorded at nil on this basis should be separately disclosed in the financial report.

A register of Highly Significant and Sensitive Collection Assets should be maintained by the institution. In the case of secret sacred material, a registration or ID number may be used in lieu of a textual identifier. It is sufficient for Highly Significant and Sensitive Collection Assets to be identified in the institutional collection database as such.

Known High Value Collection Assets are those whose fair value can be estimated in the market and where there is an observable market for like objects within the meaning of AASB 13. For many High Value Collection Assets this will be auction price. Institutions should consider whether an individual Collection Asset reaches its highest and best value when considered as part of a collection or as an individual object. There may be cases where assets have a higher value when considered as part of a collection. Typical High Value Collection Assets may include (but are not restricted to) cultural artefacts, minerals and gemstones, taxidermy animals, rare photographs, furniture or artwork.

To be valued as High Value Collection Assets, institutions should establish a threshold value having regard to their own circumstances including the nature, diversity, value profile by category and total value of collections. There are two potential methodologies for establishing a threshold:

a) Establishing assets estimated to have a cost or value of more than a predetermined dollar threshold value eg: $10,000

b) Establishing replacement value (defined under 2.6 below) as the threshold and using individual values where the market price is likely to exceed replacement value.

This threshold methodology should be disclosed to enable comparison between institutions.

Example: A Museum has a rare Soviet-made air defence missile. Despite the item being close to irreplaceable, it does have a market value, which by comparison with recent auction catalogues, is found to be AUD $60,000 (only bid prices are available). This is higher than the Museum’s threshold value for High Value Collection Assets ($10,000) and the item is therefore identified as a High Value Collection Asset. The replacement value is a redundant threshold in this instance as the replacement value is likely to be equivalent to auction price.

Institutions should document the methodology for establishing High Value Collection Asset value. AASB 13 requires that an entity need not undertake an exhaustive search of all possible markets to identify the principal market or, in the absence of a principal market, the most advantageous market, but it should take into account all information that is reasonably available. Auction house prices are a relevant reference that are available. AASB 13 indicates that the most representative value within the bid and ask price range is the one that should be used regardless of the category within the fair value hierarchy. Institutions may wish to use professional valuers, but valuers must document the basis of price estimates by referring to auction house prices or equivalent. This is discussed further in section 6.

There may be limited circumstances where institutions consider applying Historical Cost rather than observable market value when determining a value for Collection Assets. The Cultural Gifts Program is an Australian Government program offering tax incentives to encourage people to donate cultural items to public art galleries, museums, libraries and archives in Australia. The value is established based on two expert market valuations. Institutions may wish to use the valuation attributed to Cultural Gifts rather than re-estimating market value. In such situations, historical cost is considered to be a proxy for fair value as it is based on market valuations. However, as the valuations may be for different purposes, the valuation for Cultural Gifts Program purposes may in some instances need to be calibrated in order to determine an appropriate value for the institution’s recording purposes.

General Collection Assets comprise the balance of most collections and can be defined as assets that can be valued using a cost (replacement value) approach. These include (but are not restricted to) bulk stored materials such as alcohol preserved scientific specimens, archaeological material, material gathered on field work, archival material or cultural material. General Collection Assets can include intangible assets as defined in AASB 138, e.g. digital footage from exploration of a ship-wreck.

Consistent with AASB 13, the cost approach for general collection assets should be the minimum that it would cost, in the normal course of business, to replace the existing asset, specific to the entity and collection being valued. This can include the current salary rates, use of volunteers and experts, costs of materials and curation experienced by a Museum in today’s dollar terms. In addition, historical information on donated time, donated collections, expeditions mounted by third parties, vessel use provided by third parties, costs borne by others (e.g. transportation costs contributed by Government), Type Specimens described by external academics and general costs incurred by a Museum or its staff can be taken into account.

Example: A Museum has two specimens in its natural history collection of the same species, both collected from the Great Victoria Desert, Western Australia. One is a simple scientific specimen and the other is the type specimen of the species. Both specimens have a value calculated at cost of $185, being the replacement value of visiting the same site to recollect a specimen, including staff time, expedition costs and specimen preparation. The Type Specimen (see definition) also has the cost of scientific description and research added, costing $815. The normal scientific specimen has a value of $185, whereas the Type Specimen is valued at $1000.

Most Collections will contain a proportion of objects that are part of the Collection which remain uncatalogued. In many instances, this is a reflection of the significant age of the collection, the advent of electronic recording and the availability of in-house resources. In large collections, this can comprise a substantial proportion of the total holdings of an institution.

In many institutions this remains a valid, integral part of the collection available for core functions of the institution such as research or exhibition.

In most cases uncatalogued objects in a Collection are likely to be organised (e.g. stored on shelves) and have sufficient information available to measure value. Where a Museum can reliably and efficiently measure the number and value of uncatalogued objects, these objects should be included in the Asset portfolio. The valuation is likely to be undertaken using a random sampling technique to determine the total population and the value of the objects (see further details of sampling below – refer 2.9).

There are instances where a Museum has unorganised and uncatalogued objects that cannot be stratified (e.g. donations waiting sorting), these will be excluded from the scope of valuation. Although these objects are in the care of the Museum, there is no reliable and verifiable way to determine the number and value of these objects until they have been organised.

Upon initial acquisition, Collection Assets should be recorded at cost except that donated assets should be recorded at fair value (usually determined by an independent valuer).

Public collections usually hold collections in perpetuity, however there are isolated circumstances in which Collection Assets are disposed by way of destruction or as a result of irrecoverable damage, loss or exchange.

Assets that are deaccessioned and disposed of should be writtenoff and disclosed in the financial report. There must be a transparent and accountable deaccession process.

The value will be reported as a loss against the institution’s asset base, based on the most recent valuation, consistent with the discussion of exit cost in AASB 13.

To measure the value of large numbers of Collection Assets (that are not individually of high value), Museums should apply a Stratified Random Sampling technique. This technique recognises the size and nature of Collections and is used to ensure a reliable, efficient and cost-effective valuation process.

With guidance from Collection Managers, the Collection portfolio is separated into sub-groups that share similar characteristics and value (‘strata’). A census is then taken of each stratum. A randomly generated sample of Assets is selected from each population for valuation and is fully described (including location details). The valuation is then scaled up to the rest of the population.

The Stratified Random Sampling design should be set up so that it is expected to achieve a Relative Standard Error (‘RSE’) of five percent or less in respect of the total Collection Assets to which the sampling technique is applied (as distinct from “subcollections” which may have higher RSEs). The technique should be independently validated (e.g. by a qualified statistician) at each comprehensive valuation.

Any Asset suspected of having a value above the Museum’s threshold value during sampling should be separated and valued individually (see 2.4 - High Value Collection Assets). Their influence on the value of the strata population is thereby nullified.

The methodology must be disclosed in the financial report.

An example of the Stratified Random Sampling technique applied to a Museum’s Collection is provided in Attachment B.

Relative Standard Error is a measure of variability or uncertainty around an estimate. The RSE is the standard error expressed as a fraction of the estimate (expressed as a percentage). The RSE is a useful measure, particularly for comparison of precision between different categories and data items (i.e. value and number of assets). It also provides an immediate assessment of the relative precision of an estimate.

The levels of precision achieved in a sample valuation cannot be predicted with certainty prior to the valuation, so initial sample allocations are based on the listings and the estimated variability in each stratum. Provided this leads to a satisfactory RSE the sample values are projected to estimates of total value within each category. The strata estimates are then calculated by multiplying the total value of the sampled Assets by the ratio of the total number of Assets in that category to the number of Assets valued in the sample. An example of a mathematical formula to determine RSE for single-stage sampling is provided in Attachment C. Other verified formulae are available for museums to use, particularly where they might use multi-staged sampling.

A valuation unit is a logical grouping of similar and related Assets that are treated as a stand-alone Asset for measuring value. (For example, a valuation unit within a natural history collection may be one jar/lot, one tray, or one folder of image files.) A valuation unit applies when it is not reasonable or beneficial to value each Asset as a stand-alone Asset. When establishing valuation units, Museums should consider whether the objects were acquired as a group or individually, the highest and best use of the Assets, and the likely cost of valuing the Assets as a unit versus as individual Assets.

A Museum should use valuation techniques that are appropriate to the circumstances, provide sufficient data, and maximise the use of relevant observable inputs such as the market price (Level 1 and 2 inputs). The value of Assets could be measured using the transaction price (where the transaction price equals Fair Value), the expertise of a qualified valuer (including those approved under the Australian Government Cultural Gifts Program), Collections Managers or auction houses, or through comparable sales data, catalogues and online market places. A combination of available data may be required to determine Fair Value.

Many objects, particularly scientific, archaeological and anthropological specimens cannot be reliably valued using the market approach because they have no observable market value, therefore the current replacement cost approach is to be used for these Assets.

The Museum should estimate how much it would cost to recollect asset(s) (including staffing, permits, equipment, consumables, travel, transportation, documentation, conservation, development and preparation costs).

An example of a practical methodology is to delineate defined cost of replacement in categories, e.g. local, regional, remote and international, as the geographical proximity to the Museum of the collecting activity will radically impact on its cost of recollection. A premium for Type Specimens may be required to reflect the greater effort required to delineate these specimens.

Where possible, the Museum should use fully costed examples of recent acquisitions to inform the recollection cost. For consistency and efficiency, the Museum should determine an average recollection cost on a per object basis for each category of Asset.

Where recollection is not possible, the Museum should consider estimating the cost of reproducing an exact replica of the Asset to the extent possible using the same specifications, design, materials and construction techniques if that approach meets the Museum’s collection development plan.

3. Valuation cycle

In recognition of the significant resources (including staffing costs and professional fees) required to undertake a valuation, comprehensive valuations should occur on a five year cycle.

The first year would be a comprehensive valuation of the Collection to establish a base valuation (at Fair Value). Comprehensive valuations should be conducted in consultation with qualified Valuers, Collections Managers and a professional statistician to verify sampling and stocktake techniques.

In years two, three, four and five, Museums should:

• Annually review the basis for valuation, consistent with AASB 13, to consider if there has been a significant variance in the market or cost method that would require re-evaluation. Consideration should also be given to significant fluctuations in foreign exchange rates where the base markets for items are in foreign countries. Alternatively, institutions could consider appreciating the base valuation for the collection using an index relevant to the nature of the Collection. The Consumer Price Index could be used for this purpose if considered applicable to relevant costs.
• Adjust the base valuation for any expansion of the Collection, including purchases, donations, field collection or other acquisitions using Fair Value. Collection items acquired during the year are recorded at cost or market valuation. A randomised sampling technique could be used for large numbers of new Assets.
• Adjust the base valuation for any impairments and disposals (at Fair Value).

Collection Assets that have incurred substantial expenditure (e.g. conservation costs) may need to be revalued, but as a rule, assets that have already been valued as part of the first year comprehensive valuation are not usually revalued at interim valuations.

Interim valuations may be conducted internally by the Museum, with advice from a qualified Valuer and other independent experts as needed.

• In year six, the cycle begins again with a comprehensive revaluation of all Collection Assets at Fair Value conducted in consultation with a qualified Valuer and using sampling techniques as applicable.
• An alternative to the above would be for Collection Assets to be valued on a ‘rolling’ basis with different categories subject to comprehensive revaluation in each of years one to five such that all assets are subject to valuation over a five year cycle.

4. Depreciation and Impairment of Collection Assets

Depreciation is not usually charged on Collections as the intended useful lives of Collections are indefinite and Museums intend to preserve the Assets in perpetuity. While institutions adopt the general principle that they will preserve objects in perpetuity, this is not always going to be the case. Fragile objects will eventually deteriorate beyond use (e.g. some paper records, nitrate negatives) - digitisation provides another format, but the original object has a limited useful life. While there is an intention to hold in perpetuity, the reality is that some assets will have much lower useful lives and should be depreciated. Any assets with finite lives should be subject to depreciation.

In addition, assets should be assessed for impairment in accordance with AASB136 Impairment of Assets. 

5. Verification of Collections

6. Documentation of valuations

At a minimum, the following should be included in the valuation documentation:

• Name and qualifications of valuer(s);
• The effective date of the valuation;
• Location of items inspected;
• Conformity with the jurisdictionally appropriate state/federal legislation, relevant accounting standards and policy documentation, and Fair Value principles (including the principles about the market and/or the most advantageous market, market participant assumptions, and highest and best use);
• Whether or not the Asset was physically inspected - if so, date(s) of inspection;
• The valuation technique (including whether more than one valuation technique was used, and justification for the technique chosen) and details of the calculations;
• All significant judgements, estimates and assumptions used by the Valuer and supported by a valid reasoning for their use. For instance, if the value of Collection Assets valued using the market approach is adjusted, then the basis, reasoning and appropriateness of the adjustment should be documented;
• The proposed Fair Value hierarchy level of valuation and, where relevant, reconciliations between hierarchies; - details of market sensitive Assets and Asset classes;
• For valuations undertaken using a cost approach - the gross replacement cost and new Fair Value carrying amount; and
• Other relevant information regarding how the valuation was conducted and how the Fair Values were determined.