AASB 13, AASB 116 and AASB 140 Summarised: What Each Standard Requires for Property Valuation

Three accounting standards govern how property appears in Australian financial statements: AASB 13 (how fair value is measured), AASB 116 (owner-occupied property, plant and equipment) and AASB 140 (investment property). Accountants, auditors and CFOs search for plain-English summaries of all three constantly — and most of what exists is either the full standard or a firm’s technical alert. This article is the reference we give our own financial reporting clients: what each standard requires, how often property must be revalued, and what the standards actually say — verbatim, with paragraph references — about independent valuers.

What are AASB 13, AASB 116 and AASB 140?

AASB 13, AASB 116 and AASB 140 are the Australian Accounting Standards that determine how property assets are measured and disclosed in financial statements. AASB 13 Fair Value Measurement defines what fair value is and how to measure it for any asset; AASB 116 Property, Plant and Equipment governs owner-occupied property and allows a choice between cost and revaluation models; AASB 140 Investment Property governs property held to earn rentals or for capital appreciation, with a choice between cost and fair value models. Each incorporates its IFRS equivalent (IFRS 13, IAS 16, IAS 40) with Australian-specific paragraphs prefixed “Aus”.

Quick reference: the three standards side by side

AASB 13 Fair Value Measurement — summary

AASB 13 defines fair value as the price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date. It does not decide when property is measured at fair value — AASB 116 and AASB 140 do that — but once fair value applies, AASB 13 dictates how it is measured and disclosed.

Highest and best use — the property core of the standard

For non-financial assets, fair value takes account of a market participant’s ability to generate benefits by using the asset in its highest and best use, or by selling it to someone who would (para 27).

Para 28 sets three tests, in the standard’s own order — a use must be physically possible, legally permissible and financially feasible — and its own examples are drawn from property: physically possible refers to characteristics such as “the location or size of a property”, and legally permissible to restrictions such as “the zoning regulations applicable to a property.” Financially feasible asks whether that use produces the investment return market participants would require.

Current use is presumed to be highest and best use unless market or other factors suggest a different use would maximise value (para 29) — and it is judged from the market’s perspective, not the owner’s, even where the entity intends something else. Highest and best use then sets the valuation premise (para 31): whether the asset delivers maximum value in combination with other assets or on a stand-alone basis. Valuers often call these the “in-use” and “in-exchange” premises; note that AASB 13 itself uses neither term.

The fair value hierarchy — and the two mistakes preparers make

The hierarchy sorts inputs into three levels, giving highest priority to quoted prices in active markets and lowest to unobservable inputs (para 72):

• Level 1 — “quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date” (para 76). Property essentially never qualifies: no two properties are identical.
• Level 2 — observable inputs other than Level 1 quoted prices (para 81). Para 82 lists them, including quoted prices for similar assets in active markets and for identical or similar assets in markets that are not active.
• Level 3 — unobservable inputs (para 86), used where relevant observable inputs are not available, but still aimed at the same exit-price objective and still reflecting market participant assumptions including risk (para 87).

Two errors are common:

Mistake one: assuming the level follows the technique. It doesn’t. “The fair value hierarchy prioritises the inputs to valuation techniques, not the valuation techniques used to measure fair value” (para 74) — a discounted cash flow can sit in Level 2 or Level 3 depending on which inputs are significant.

Mistake two: averaging the levels. A measurement is categorised “in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement” (para 73). One significant unobservable input pulls the whole measurement to Level 3.

This is why ordinary commercial or residential property valued from adjusted comparable evidence often ends up in Level 3 rather than Level 2: para 83 acknowledges that Level 2 inputs get adjusted for “the condition or location of the asset”, and para 84 confirms that a significant adjustment using unobservable inputs can push the measurement down a level — para 75 puts it plainly: an adjustment using an unobservable input that results in a significantly higher or lower measurement lands in Level 3. Specialised assets valued on current replacement cost are Level 3 almost by definition. The level drives the disclosure burden, and Level 3 is where auditor scrutiny concentrates.

AASB 116 Property, Plant and Equipment — summary

AASB 116 covers property occupied by the entity itself — offices, factories, depots — along with plant and equipment. After initial recognition at cost, entities choose one of two models, applied to an entire class of assets (no cherry-picking individual buildings):

• Cost model — carrying amount = cost less accumulated depreciation and impairment.
• Revaluation model — carrying amount = fair value at revaluation date less subsequent depreciation, with revaluations made “with sufficient regularity” so the carrying amount does not differ materially from fair value.

Two points are routinely misstated about AASB 116:

1. There is no prescribed revaluation interval. The operative test is para 31: revaluations “with sufficient regularity” so the carrying amount does not differ materially from fair value — a materiality outcome, not a calendar. The “three or five years” figure people cite does come from the standard, at para 34, but as commentary on assets whose fair value changes only insignificantly, not as a rule. Volatile classes may need annual revaluation.
2. Revaluation gains do not go through profit or loss (except to the extent they reverse a previous decrease recognised in profit or loss). Increases are recognised in other comprehensive income and accumulate in the asset revaluation surplus in equity. Not-for-profit entities apply this at class level under Aus39.1, Aus40.1 and Aus40.2, with increases and decreases offset within a class but not across classes.

On depreciation, the standard requires component depreciation (para 43): “Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.” Depreciation begins when the asset “is available for use” — not when it is first used — and does not stop just because the asset goes idle (para 55). And land is not depreciated: para 58 treats land and buildings as separable even when bought together, land having “an unlimited useful life” (quarries and landfill aside), buildings a limited one. A rise in land value never reduces the building’s depreciable amount.

AASB 140 Investment Property — summary

AASB 140 covers property held to earn rentals or for capital appreciation — the operating standard for REITs, property funds, corporates with investment portfolios, and government land holdings — though Aus9.1 takes not-for-profit property held to meet service delivery objectives out of AASB 140 and into AASB 116. Entities choose the fair value model or the cost model and apply the choice to all investment property, with limited exceptions.

Under the fair value model, fair value changes flow through profit or loss, and the value must reflect market conditions at the end of each reporting period — in effect, an annual re-measurement at minimum, with listed entities commonly revaluing semi-annually or quarterly under continuous-disclosure obligations. For a Tier 1 entity, choosing the cost model does not avoid valuation work: fair value must still be disclosed in the notes (para 79(e)). Appendix A to AASB 140 switches paragraphs 74-79 off for entities applying AASB 1060, and AASB 1060’s own cost-model disclosure list (para 134) does not reintroduce fair value — so a Tier 2 entity has no recurring obligation to disclose it. Two qualifications, and both matter: Tier 2 is an election under AASB 1053 that not every entity qualifies to make, and property carried at cost remains subject to impairment, which can itself call for a fair value. Confirm both with your auditor.

On valuers, the standard is precise, and worth quoting. Paragraph 32:

“An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer.”

And paragraph 75(e) requires disclosure of:

“the extent to which the fair value of investment property is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall be disclosed.”

So — do you need an independent valuer?

Not as a matter of law under any of the three standards. But the architecture pushes hard in that direction:

• AASB 140’s paragraph 75(e) makes the absence of an independent valuation a disclosable fact — a line in the financial statements that boards, auditors and lenders read.
• AASB 116’s paragraph 77(b) does the same for revalued property, plant and equipment: an entity carrying assets at revalued amounts must disclose whether an independent valuer was involved. The valuation is optional; disclosing its absence is not.
• Level 3 measurements under AASB 13 carry quantitative disclosure of unobservable inputs, and audit files need defensible support for capitalisation rates and market rent assumptions. Independent evidence is the cleanest support.
• Directors sign off on the accounts. An independent valuation to RICS Red Book and API standards transfers the technical judgement to a qualified specialist whose workfile is built for audit review.

That is the honest framing: the standards make independent valuation the path of least resistance for material property holdings, without mandating it.

Not-for-profit and public sector entities

For not-for-profit and public sector entities, AASB 13 as modified for NFP application accepts current replacement cost as a measure of fair value for specialised assets with no active market — courthouses, depots, community facilities — where service potential rather than cash generation is the relevant basis. This underpins the rolling revaluation programs of councils and government agencies, and is the accounting home of depreciated replacement cost (DRC) valuations. AASB 2022-10 rewrote this area for not-for-profit public sector entities from 1 January 2024 — the reference asset and modern equivalent asset rules, heritage assets and economic obsolescence all sit in the new Appendix F. We cover that separate rulebook in AASB 13 fair value for not-for-profit public sector entities.

Methodology

• Standard texts read directly: Compiled AASB 13 (Compilation No. 3, compilation date 31 December 2023, Authorised Version F2024C00046), Compiled AASB 116 (Compilation No. 6, compilation date 31 December 2022, Authorised Version F2023C00192) and Compiled AASB 140 (Compilation No. 7, 31 December 2022, F2023C00417), on the Federal Register / AASB standards portal. All paragraph numbers and quoted extracts are to those compilations. Extracts are quoted briefly for commentary and attributed by paragraph; the standards are IFRS Foundation and AASB copyright material and should be read in full at the source.
• Frequency statements distinguish the standards’ operative words (“sufficient regularity”; “reflect market conditions at the end of the reporting period”) from non-mandatory commentary (AASB 116 para 34’s “three or five years”) and from market practice (REIT quarterly revaluations), each labelled as such.
• This article summarises measurement and disclosure requirements relevant to property; it is not a complete summary of any standard.

Frequently asked questions

Does AASB 116 require property to be revalued every three years?

No. AASB 116 requires revaluations “with sufficient regularity” so that the carrying amount does not differ materially from fair value — it prescribes no fixed interval. Three-to-five-year cycles are common industry practice for stable asset values, with annual revaluation where values are volatile.

Does AASB 140 require an independent valuer?

No. Paragraph 32 states an entity is “encouraged, but not required” to use an independent valuer. However, paragraph 75(e) requires the financial statements to disclose the extent to which fair value is based on an independent valuation — and to state the fact if there has been none.

What fair value hierarchy level are property valuations?

Almost never Level 1 — no two properties are identical. Beyond that the answer turns on the inputs, not the technique: a measurement sits in the same level as the lowest level input that is significant to it (para 73). Comparable evidence is routinely adjusted for the condition or location of the asset (para 83) without leaving Level 2 — but where that adjustment is significant to the whole measurement and itself uses unobservable inputs, para 84 puts the measurement in Level 3, which is a common outcome for commercial and residential property. Specialised assets valued on current replacement cost are Level 3 almost by definition. Level 3 carries the heaviest disclosure requirements.

Is land depreciated under AASB 116?

No. Para 58 treats land as having an unlimited useful life (with narrow exceptions such as quarries and landfill sites), so land is not depreciated even when it is bought together with a building. The building is depreciated over its own limited useful life, and an increase in the land’s value does not change the building’s depreciable amount.

What is the difference between AASB 116 and AASB 140 for property?

Occupancy and purpose. Property the entity occupies for its own operations falls under AASB 116 (cost or revaluation model; revaluation gains to other comprehensive income). Property held to earn rentals or for capital appreciation falls under AASB 140 (cost or fair value model; fair value gains and losses through profit or loss).

How often must investment property be revalued under AASB 140?

Under the fair value model, the carrying amount must reflect market conditions at the end of each reporting period — annual re-measurement at minimum. ASX-listed entities commonly revalue semi-annually or quarterly given continuous-disclosure obligations. Under the cost model, a Tier 1 entity must still disclose fair value in the notes; a Tier 2 entity applying AASB 1060 has no such recurring obligation. But Tier 2 is an election under AASB 1053 that not every entity qualifies to make, and cost-model property remains subject to impairment, which can itself require a fair value.

What is current replacement cost under AASB 13?

For not-for-profit and public sector entities, current replacement cost — the cost to replace an asset’s remaining service potential — is an accepted measure of fair value for specialised assets with no active market. It is the basis of depreciated replacement cost valuations used in council and government asset revaluation programs.

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Sources:

• AASB 13 Fair Value Measurement — AASB standards portal
• AASB 116 Property, Plant and Equipment — AASB standards portal
• AASB 140 Investment Property (compiled, Dec 2022) — AASB standards portal
• AASB 1060 General Purpose Financial Statements — Simplified Disclosures (Tier 2)

This article is general information about accounting standards as they relate to property valuation — it is not accounting, audit or financial advice. Confirm treatment for your entity with your accountant or auditor. Last verified 4 September 2026. We update this article when the standards are amended.

See also: Council Asset Revaluation Requirements by State · Asset Valuations · Financial Reporting Valuations · DRC Valuations · Plant & Equipment Valuations · RICS vs API Standards in Australia · How Commercial Property Is Valued · Australian Property Valuation Statistics 2026