17 October 2013
WHITE PAPER: Bed Licences - Do they have a value?
Bed licences or approved places are the basis upon which many aged care providers derive a significant amount of their revenue.
Following the implementation of International Financing Reporting Standards (IFRS) and the Department of Health and Ageing (DOHA) Conditional Adjustment Payment (CAP) financial reporting requirements, many aged care providers have placed a value on their bed licences to comply with the financial reporting framework.
In boom times prior to the “global financial crisis” specialist consultants acted as brokers buying and selling bed licences. These circumstances led many people to believe there was an “active” market for the licences and that under Australian Accounting Standard AASB 138 Intangible Assets, bed
licences could be revalued by reference to that market.
In recent years, the market for trading the licences has been patchy and in some cases there have been stories of aged care providers handing back licences to DOHA. This situation was further aggravated by the Productivity Commission Inquiry Report in 2011 which recommended removal of the restrictions limiting the number of bed licences.
Indeed, the concept of whether an active market exists for bed licences has been discussed at many levels. The general conclusion is that there is no active market, a fact confirmed by The Australian Securities and Investment Commission in its media release ASIC focuses attention on 2010 financial
reports (Media Release 10-147MR).
Even though no “active” market exists for bed licences, this does not mean they have no value. What it does mean is that the bed licences don’t qualify for revaluation under the Revaluation Model in paragraph 75 of AASB 138.