Asset Management Program ManagerCharleston Water System103 St. Philip Street | Charleston, SC 29403Tel: 843-727-7202Mob: 843-214-4310E: email@example.com
Hi Paul, are you OK with uploading your valuation methodology to the discussion forum so that it is readily available to all?
Chris Champion Non-Executive Director | NAMS Canada
Email firstname.lastname@example.org Website www.namscanada.org Mobile +61 407 207 934; Canada +1 (909) 786-1566
Paul Samaratunge Manager Infrastructure Assets Glen Eira City Council PO Box 42, Caulfield South 3162 T 03 9524 3467 M +61 400 620 176 E PSamaratunge@gleneira.vic.gov.au
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Hi Earl, Et alWe do not agree the approach to valuation for asset management purposes should be Fair Value as defined by Australian Accounting Standards, taken from International Financial Reporting Standards.An apple is not an orange but both grow on trees. Similarly asset management and financial management have different objectives and goals with few commonalities.Fair Value is the market value of an asset and is required to reflect what an entity could sell an asset for (exit price) in the market place.The Asset Management practices undertaken by many in this forum do not seek market inputs, rather a value which assists them to meet their objectives through the cost-effective lifecycle management of assets.We wouldn't expect AM practitioners to use the Market Value (Fair Value) of their assets to undertake the analysis they require or provide the outputs they need, and no doubt many would agree, because it is the incorrect measure.Post the 2008 financial crisis, standard setters, regulators and other leaders in the financial community realised that entities were not correctly recording asset values in their financial statements. The concept of Fair Value was lost on many users of financial statements. The definition of Fair Value pre-2013 was aligned with International Valuation Standards definition of Market Value and defined asFair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.In an attempt to reiterate the significance of Fair Value and to promote its definition, IFRS 13 Fair Value was developed and adopted by the Australian Accounting Standards Board (AASB 13). The definition changed to;the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement dateAnd if you read the Standard it is riddled with references to benchmarking Fair Value to markets.This leads to the globally accepted valuation equation:Fair Value = Market Value = Comparison of Sales Approach = Income Approach = Cost ApproachThe latter needs to adopt the same assumptions prevalent in all other approaches (i.e. market parameters).Glen Eira's valuation methodology for infrastructure is not uncommon but unfortunately does not explore other valuation methodologies which may (or may not) be more market related. It also refers to residual values which should not be included and ignores references to necessary adjustments for backlog capex, future capex, maintenance profiling, risk and a number of other 'market' related factors. Further, componentisation is not a market based output.As the AM community grows, hopefully it can develop its own inputs and definitions to better represent the practices it undertakes.