Do Aged Care Bed Licences have a value?

The Aged Care industry has seen no shortage of media attention recently with the Royal Commission being established and reports surfacing that many organisations believe there is inadequate funding to support the growing ageing population in Australia. Lower profits and more scrutiny in the industry has heightened compliance and quality standards and brought an even higher level of responsibility on those charged with governance, the Directors and Boards.

Those charged with governance need to ensure that any areas of contention have been adequately recognised and advice sought. One of the most contentious accounting issues over recent years has been whether bed licences qualify as an intangible asset.

With the introduction of International Financial Reporting Standards (IFRS) many intangible assets were brought onto organisations’ balance sheets including taxi plates, customer lists, copyrights and patents.

On initial recognition, intangible assets are accounted for on a cost basis and then subsequently measured using the revaluation model.

Many aged care organisations did not purchase bed licences as they were allocated to them by government bodies. As such, the licences were not recognised as an asset on the balance sheet of the aged care organisations prior to the introduction of IFRS. Upon introduction of IFRS, the organisation had to interpret if bed licences fit the definition of an intangible asset and if so what value to assign to them.

The three critical attributes of an intangible asset are that they are identifiable, are controlled by the entity and provide future economic benefits. Bed licences are clearly identifiable, are controlled by the aged care organisation and provide economic value.

Where there has been some contention though is the revaluation of bed licences. In order to perform a revaluation an intangible asset must have an active market. This is where the contention arises; some argue there is an active market and others argue there isn’t. The Standard (IAS 38 and AASB 138 – Intangible Assets) states that active markets are expected to be uncommon for intangible assets but lists examples where an active market might exist such as production quotas, fishing licences, taxi licences.

While ASIC has challenged entities on recording bed licences as an intangible asset, no definitive resolution has been made that designates whether an active market exists for bed licences or not.

In the absence of definitive guidance on the existence of an active market, organisations must make an assessment internally and provide adequate evidence on whether they think an active market exists and following that the value that should be placed on their bed licences.

We assist our clients, including Aged Care facilities, to achieve their risk management strategies and governance objectives. If you have any queries in relation to this article, contact our Audit Specialists for more information on (03) 9835 8200.