Modelling the financial impact of the application of AASB 102 Inventories to cemetery land

BACKGROUND

The Cemeteries Financial Policy Committee (the Committee), formed by the Department of Human Services and comprising key stakeholder representatives of the cemetery sector, has agreed that it is more appropriate for cemetery land allocated for interment purposes to be recognised and reported as Inventory in accordance with Australian Accounting Standard AASB 102 Inventories and Financial Reporting Direction (FRD) 102 Inventories (made under the Financial Management Act 1994 (FMA)) and be measured/valued at the lower of cost or net realisable value. Cemetery land not recognised as inventory (being land associated with the operation or administration of the cemetery site, such as land linked with buildings, roads, other related infrastructure, and land improvements (not part of inventory)) will continue to be recognised as a non-current tangible asset measured at “fair value” in accordance with AASB 116 Property, Plant and Equipment and FRD 103C Non- Current Physical Assets having regard to the restricted use of that land under Section 34 of the Cemeteries and Crematoria Act 2003 (refer Valuer-General Victoria (VG) Guidance Note - Methodology for the valuation of Victorian cemeteries for financial reporting purposes March 2007).

Australian Accounting Standard AASB 102 Inventories applies to cemetery land allocated/designated/planned for interment purposes (available for sale, under development, or allocated/planned for interment purposes, undeveloped land). Inventory does not include sites sold on a pre-need basis (either specific/reserved sites or unreserved sites). Land designated for interment purposes would be recorded as a current asset – Inventory where it is expected by Trust management that the land would be sold within 12 months. Areas under development, developed land not to be released for sale for more than 12 months, and undeveloped land would be reported as a non-current asset - Inventory. Both current and non-current Inventory would be measured at the lower of cost or net realisable value.

When a Right of Interment (RoI) is sold, the value of the individual site to which the RoI relates (or part thereof in the case of mausolea, crypts, wall niches, and memorialisation) is determined and recognised as an expense of the financial year as part of Cost of sales and the current asset - Inventory is reduced accordingly.

RSM Bird Cameron has been engaged to determine the financial impact of a change in accounting policy on three nominated cemeteries - The Necropolis (Metropolitan), Geelong (provincial), and Bendigo (Rural). The scope of the review is detailed in Appendix E to this report.

Data was requested from three Cemetery Trusts in order to model the financial impact of a change in accounting policy. The data provided by The Necropolis was analysed and returned for further amendment. Subsequently, it was determined that the amended data was not suitably reliable to be used in the modelling process. Bendigo was unable to provide any data for analysis. The data provided by Geelong was analysed and found to be reliable and forms the basis of the findings of the modelling study.