The objects in museum collections are assets, yet they are often seen as priceless since they are unique and irreplaceable. So how does a museum account for its collection on its balance sheet? To answer this we must look a little closer at what a museum collection is, and how it is used.
Recently I was trawling through annual reports of the major UK museums and galleries. There’s just over twenty of these public bodies, all in receipt of funding from central and devolved governments. Anyway, it struck me that very few of these organisations were listing their collections in their financial statements. Or rather, financial disclosure was patchy and usually accompanied by wordy text citing ‘FRS 30’. I thought this was curious, and it ties in with an interest I have in how we can think about a museum collection in business terms.
In operations management the stuff that an organisation has is thought of as inventory. Think factories and warehouses, car parts, table legs, tins of beans. Accountants list such inventory items as current assets, more commonly known as ‘stock’. However, any curator would baulk at the idea that a museum collection is stock. The terms ‘stock’ and ‘current assets’ suggest that items are disposable and can be liquidised (i.e. converted to cash), an idea that is anathema to most museum professionals.
Having said that, cultural economist Bruno Frey, in his comments on museum behaviour, wondered why museums didn’t do this more often. He pointed out that having all this stock hanging around in museum stores locks up capital and is expensive. If only museums would dispose of this unused stock they could buy more items that they would actually use.
The fundamental flaw that I see in his argument is that I don’t believe museum collections are stock. Stock, or inventory, is the stuff that’s hanging around before it gets sold, consumed or assembled into goods. Operations managers prefer not to have lots of inventory for the reasons given by Frey. So, inventory management typically aims to keep inventory moving as much as possible so as to maximise efficiency, avoid all the hanging around and keep inventory levels low.
However, museum collections don’t move in the same way. There isn’t the same flow or throughput. After an object has been used (for display, loan or research) it is returned to store. Furthermore, it is rare for a museum to dispose of an object, and they can get into a lot of trouble if they do. In recent years a museum was stripped of its Accreditation after selling an Egyptian statuette. This case has prompted calls for more stringent sanctions against museums that act unethically, such is the strength of feeling amongst the museum sector.
I should add that it is perfectly feasible for a museum to dispose of items as part of responsible management of a collection. The Museums Association offers guidance on how to do this ethically. But it is not the same as the stuff in, stuff out model normally seen in operations management.
If museum collections are not stock, inventory or current assets, then what are they? The other type of asset on a balance sheet are the fixed assets, or to be more precise, tangible fixed assets. These are the property, plant and equipment assets that a firm utilises in the long term. Their value to the organisation is likely to decrease over time due to wear and tear, and eventually they are replaced when the cost of maintaining them surpasses their value.
This, then is how we can think of museum collections. Okay, so the value of a collection is more likely to go up rather than down as the collection develops and grows, and research adds to its value. But nevertheless, I think we can see where the collection fits in the museum balance sheet. The trouble is, it is very hard to put a financial value on a museum collection. This is where FRS 30 comes in.
Those helpful folks at the UK Accounting Standards Board have issued Financial Reporting Standard 30: Heritage Assets in order to clarify what museums and galleries can be expected to disclose in their financial statements. FRS 30 recognises the challenges of valuing cultural heritage assets that may be both numerous and diverse (more on these challenges at a later date).
Instead, FRS 30 takes the highly pragmatic approach that museums and galleries should disclose valuations of heritage assets when they have the information or can obtain that information. For everything else they can provide a written description, along with an account of how they manage and care for these assets. So there you have it. This is why most of the annual reports I saw do not include a complete valuation of heritage assets on their balance sheets. They don’t know the full value and it would be too difficult to find out.
A bit of a fudge maybe, and I am left wondering if the Accounting Standards Board could have done more to insist that museums and galleries should be more fully accountable. Still, for me this just highlights the fact that museums, and heritage organisations in general, are sometimes treated as exceptional, special, different. And I’m wondering if they really are that different, and if so, what makes them different.Back to top of article