To prepare their balance sheets, local authorities often have to value a variety of assets for the first time. Usually there is no comparable business data to refer to or tried and tested processes to turn to for valuing property. In a similar way to industry, the solution is to lay down detailed valuation guidelines and identify valuation methods that do fulfill requirements. This is particularly important with certain types of works of art, cultural possessions and collections owned by the community. Prof. Dr. Bärbel Held, the Steinbeis Transfer Institute head of the Institute of Economics, was invited to join forces with a commercial enterprise and not only work out a method for documenting works of art and cultural possessions – in a way that would work in practice – but also create a model for valuing objects, all of which had to be prepared for the balance sheets.
The project team was asked to document around 1.6 million objects, enter them into a table and then value them. The objects were held in seven museums, some of them renowned beyond the local area, at a variety of locations in a major city in the east of Germany. Some 470,000 of the objects were classified as works of art. Once the objects had been logged on the inventory list, they were valued. Doing this can involve a number of techniques. The most common is the “One Euro Principle,” although Prof. Dr. Held has her doubts about the method. “With the One Euro Principle, the underlying purpose of capturing information on the balance sheet, from the shareholders’ point of view, is ignored,” states the Steinbeis expert.
To arrive at the best model, the team looked at a valuation model used in the State of Hesse, where officials lay down value categories and corresponding values. There are three categories. A is for extremely valuable objects, B1-B6 for medium-value objects, and C for low-value objects. The main problem with this method is figuring out which bands to put works of art into. What are the criteria for putting art objects into each value category, and in which order should objects be valued? The team had to define the right criteria for putting objects into each category and lay down procedures which would work in practice. They suggested the following valuation sequence, which is also designed to take current legal requirements into account when preparing local authority balance sheets:
According to the German statutes, equity held by local authorities is common property and must therefore be preserved and sustained for following generations. The model chosen by the team values objects by taking the significance of a work of art or cultural possession into account in a way that also considers the obligations of the local authority in preparing balance sheets. The team’s proposal included one approach based on an indicative model. This centered on the possibility of using a special technique for evaluating immaterial assets in trade balances. But unfortunately, there is no standard technique for doing this kind of evaluation either, and there is no reliable or understandable way to value immaterial assets. As a result, the team decided that the most sensible method would be to use criteria and indicators to value art objects and cultural possessions. Objects’ significance on an overall societal level could loosely be described as “social value” and with the multi-level model proposed by the team, this social value can be broken down into different categories. To provide a basis for decision-making, Prof. Dr. Held reviewed literature on the issue of valuing art and cultural objects and assessed models used by insurance companies and auction houses. Ten different types of museums and establishments were surveyed using qualitative methods developed by Mayring. The Steinbeis consultants carried out two different types of interviews with experts. They encouraged interviewees to talk freely. This allowed the experts to work out the subjective criteria respondents use to judge specific situations, which would not have been perceivable through system- commuatic questioning. The interviews focused on problems and were based on a discussion guide which pointed the respondents toward certain issues but allowed them to respond with open answers, i.e., without prompts. Based on this case-study approach, the following indicators were selected for valuing works of art:
This is particularly important when works are being valued for sale or they will be subject to similar market-based activities. Economic factors can include:
Scores are awarded during valuation based on numerical methods. For each indicator, scores are given using the German school grade system. This applies to all art categories. To do this, the project team made a proposal. Then, a weighting had to be given separately, for each criteria, for every work of art. For this part, a matrix was used for each art category, with weighting factors and reasoning behind each factor. Finally, the total score was calculated by multiplying grades by the weighting factor. The score was then put into an individual value category, from A to B1 and then all the way up to B6. To aid decision-making when evaluating pieces of art, a catalog was also set up. An Excel spreadsheet captured each item on a list, backed up by the corresponding scoring model. Accordingly, the evaluators only needed to know the category shown in the catalog, based on school grades in five categories. The value of the work of art is then calculated automatically and is transferred, again automatically, to the inventory list.
Professor Dr. Bärbel Held
Steinbeis Transfer Institute of Economics (Berlin/Dresden)