industry & research
The 2011 annual reports of Australia’ s 36 public universities show the aggregate value of their general library collections was about $ 900 million, a drop of about 25 per cent( one-third in real terms) from 2007. Whilst a small part of this decline is explained by the replacement of hard copy with digital resources – which are usually treated differently for accounting purposes – the main explanation is a much more conservative approach to accounting for library collections by most universities.
In 2010, professors Garry Carnegie and Brian West, then of the University of Ballarat’ s School of Business, examined the effect of the adoption within the Australian public sector of full accrual accounting on the quality and consistency of financial reporting. In their paper, Accounting’ s chaotic margins, which examined the 36 university libraries as a case study, they identified four critical accounting issues: defining appropriate asset categories; assigning a money value to each item; accounting for additions to collections; and determining whether each item should be depreciated, and if so how. Practices, they found, varied radically across the sector in all four respects, which resulted in wildly disparate valuations – not just between universities but also within individual universities over time.
Carnegie and West, joined by Shannon Sidaway of RMIT University, have updated their original analysis, which covered 2002-06, to include the period 2007-11. They have also extended it to include heritage and other special collections, in addition to general collections. They conclude that little has changed for the better:“ Financial reporting of the library collections of Australia’ s public universities continues to be characterised by diversity in policy and a lack of reliability, comparability and usefulness,” they say.
Accrual accounting recognises expenses( including depreciation) and revenue( including capital grants) rather than just cash inflows and outflows; it recognises them at the time they are earned or incurred rather than when the cash flow occurs. This is all appropriate for privatesector businesses dedicated to wealth creation. Problems arose when, under the managerialist philosophies of the 1980s, this practice was extended uncritically to public-sector and not-forprofit organisations dedicated to completely different purposes. Proponents of this approach contended that efficiencies and other benefits would flow from its adoption; for example, library managers could calculate the rate of return on the assets their collection represented. However, the empirical evidence offered little support for their optimism.
Not-for-profit organisations such as universities“ generally emphasise the provision of particular services rather than profit maximisation”, and“ the resources under the control of such institutions are typically held for the purpose of pursuing their multifaceted objectives, rather than for commercial gain”. So valuation practices based on acquisition cost, replacement cost, market value or predictions of cash flow, whilst providing valuable insights into a conventional business’ s viability,“ are often problematic within the setting of public sector institutions”.
The historical cost of a library collection, typically accumulated over many decades, is likely to be unknown and unknowable. Some items will be irreplaceable and most will not be available for sale. Access to them is usually all but free, so cash flow estimates are irrelevant. In this context, making non-financial judgements about a library collection based on reported financial values is fraught with risk.
The library is a bit like the family photo album. It means a great deal to the people concerned, but putting a dollar value to it fails to capture its essence and true worth.
This becomes even more fraught if the reported values are used to compare different universities’ collections. At one extreme, the University of Sydney values its collection at $ 427 million; at the other, fellow Go8 member Australian National University and six of the seven Queensland universities place a zero accounting value on their collections.
Similar variations are present in the way depreciation rates and estimated useful lives are applied to collections across the sector. For example, Monash attaches estimates of useful life for depreciation purposes of 30 years for serials and 20 years for monographs, as against just five years at Macquarie, Southern Cross and University of Western Sydney, and two to five years at Newcastle. Not surprisingly, Monash now ranks second to Sydney in the reported value of its collection.
The authors do observe two post-2007 trends that they believe reflect some awareness within universities of the“ chaos” arising from the disparate approaches to valuation across the country. First, there has been a marked convergence in accounting practices in Western Australia and Queensland. In 2010, all four WA universities – apparently by consensus – adopted an idiosyncratic“ sudden death” approach to depreciation, whereby library items are fully depreciated in a single year, three years after acquisition. Oddly, Edith Cowan University broke ranks in 2011 and instead adopted straight-line depreciation over 10 years.
In Queensland, the zero valuation regime – applied from 2006 or 2007 by all seven universities – arose from a Queensland Treasury policy requiring universities to classify their library collections as“ common use”,“ reference” or“ heritage”, with only the last two categories qualifying as assets for financial reporting purposes, and even then only above set thresholds that UQ alone exceeded.
West told Campus Review he is not advocating the abandonment of accrual accounting in not-for-profit organisations; rather, that its implementation in local institutions has been much too cavalier.
“ Many activities and resources within universities are well suited to accrual accounting,” he says.“ But other resources – libraries are a classic example – simply don’ t fit the model. The library is a bit like the family photo album. It means a great deal to the people concerned, but putting a dollar value to it fails to capture its essence and true worth.”
The second post-2007 trend has been the adoption across much of the sector of“ more cautious accounting policies that will help guard against sudden and dramatic accounting debacles” such as the precipitous collection write-downs that occurred at several universities, including Sydney, Melbourne, Queensland, New England and Flinders.( In Flinders’ case, it resulted in the university reporting a net operating loss for 2004, which attracted adverse, if unfair, press comment.)
This“ creeping conservatism” has resulted in 30 of the 36 universities reporting lower carrying values in 2011 than in 2002. It’ s a trend West broadly welcomes.“ Some institutions may have originally put big numbers against their library collections just to impress people,” he says.“ But it came back to bite them in the form of massive writedowns. A more cautious approach now seems to prevail.” n
Jeremy Gilling is a freelance editor and writes on higher and vocational education. campusreview. com. au | 15