Use of site valuation for financial reporting purposes


To provide local governments with guidance concerning the use of the Department of Environment and Resource Management’s (DERM) site valuations for financial reporting purposes.

The Bulletin has been produced in response to questions raised during the recent Tropical Illustrative Financial Statements Workshops for 2010-11.


During May and June 2011, the Tropical Illustrative Financial Statements were released and a series of workshops were conducted throughout the State. At those workshops a number of local governments posed the following questions:

Can DERM’s site value for land be used for financial reporting purposes?

Land is recorded at either fair value or cost, for financial reporting purposes, in accordance with AASB 116 Property, Plant and Equipment. Where land is held at fair value, revaluations must be made with sufficient regularity to ensure that its carrying value does not differ materially from fair value.

Accounting standard AASB 116 defines fair value as the ‘amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.’

DERM’s site value is made for statutory purposes. Pursuant to section 6(1) of the Land Valuation Act 2010, the value of land under a valuation is its value for-

These are not performed specifically for accounting purposes under AASB 116 and as such may not be suitable for this purpose.

Before using a site value for financial reporting purposes, local governments need to assess the basis for the valuation (including the specific assumptions used) and ensure that the valuation genuinely represents ‘fair value’ in accordance with the requirements of AASB 116. In particular the following issues, which may affect suitability of the site value for financial reporting, should be considered:

If a local government is satisfied that the site valuation for a particular parcel of land represents its ‘fair value’ in accordance with the requirements of AASB 116, then that value may be used for financial reporting purposes. However, it will be necessary to document how the local government considered the abovementioned issues, including the local government’s assessment of the methodology and the key assumptions used by the valuer, and retain that documentation for audit.

Does the fact that DERM’s land valuations have increased so much this year mean that a comprehensive revaluation of the land needs to be undertaken?

Since the basis for DERM’s land valuations have changed from unimproved capital value to site value, an increase does not necessarily mean that the fair value of the asset has also increased.

Local governments should follow the normal process for ascertaining whether the asset’s carrying value is materially different from fair value. If the land’s site value is considered to be fair value (as detailed above) then this may indicate that a revaluation is required.

Relevant accounting standards

The following accounting standards are relevant to this bulletin:
AASB 116 Property Plant and Equipment

The latest versions of these accounting standards are available from the Australian Accounting Standards Board.