2015-10-14 Audit & Risk Committee Meeting - Draft Annual Financial Statements

NOOSA SHIRE COUNCIL

Notes to the financial statements
For the year ended 30 June 2015
 14 Fair value measurements continued

     Due to the predominately specialised nature of local government buildings, the valuations have been
     undertaken using a cost approach. This is deemed to be a level 3 input.

     Under this approach the cost to replace the asset is calculated and then adjusted to take account of
     accumulated depreciation. The valuer disaggregated the building into different components and for
     each component determined a value based on the interrelationship between a range of factors. These
     include asset condition, legal and commercial obsolescence and the determination of key depreciation
     related assumptions such as pattern of consumption and future economic benefit.

     Inputs to the valuation include the design and construction, average cost of construction, condition and
     consumption score for each component. As these are supported by observable evidence obtained via
     inspection and market evidence they have been classified as a Level 2 inputs. The unobservable
     inputs (such as estimates pattern of consumption and (based on the asset consumption score) its
     relationship to the assessed level of remaining service potential of the depreciable amount, required
     extensive professional judgement and impacted significantly on the final determination of fair value.
     As such these assets were classified as having been valued using level 3 valuation inputs.

     The consumption rating scales were based initially on the past experience of the valuation firm and industry
     guides and were then updated to take into account the experience and understanding of Noosa Shire
     Council’s own engineers, asset management and finance staff. The results of the valuation were further
     evaluated by confirmation against Noosa Shire Council's own understanding of the assets and the level
     of remaining service potential.

     The following table provides a summary of the unobservable inputs and an assessment of the sensitivity
     of these to the fair value measurement.


                                  Unobservable        Sensitivity to Unobservable
            Asset
                                     Inputs                  Market Inputs                  Amount of Potential Impact
                                                         Lower            Upper              Lower           Upper
  Buildings (Cost Approach)
                                Relationship
                                between asset
                                consumption
  Specialised Buildings         rating scale and
                                the level of
                                consumed
                                service potential.               -2.50%          2.50% -$ 1,489,286.00        $ 1,489,286.00


     Other Infrastructure Assets (level 3)
     Other infrastructure was last comprehensively valued as at 30 June 2012 using the cost approach by
     Aurecon Australia Pty Ltd. This approach involved componentising the assets into significant parts
     with different useful lives.

     Asset values for the period ended 30 June 2015 have been reviewed with reference to relevant cost indices.
     This review indicated that there was no evidence to suggest any material changes to fair value had
     occurred. As a result of this, no indexation has been applied to this class.

     A comprehensive valuation of this class will be undertaken in 2016. The valuation of other infrastructure has
     been determined as a Level 3.

     Accumulated Depreciation
     In determining the level of accumulated depreciation, assets are disaggregated into significant components
     which exhibit different useful lives. Useful lives are an estimate of the total service capacity in years for that
     type of asset.




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