Reliability Concerns and Enhancement Initiatives in National Property Revaluation

Published on April 12, 2023
Published by Public Institution EvaluationDivision

   At the end of 2021, the government undertook a comprehensive revaluation of national property, aligning with the provisions outlined in the 「2022 National Property Comprehensive Plan」 as specified in Article 9 of the 「State Property Act」, and the resulting increase in net assets attributable to the asset revaluation amounted to 148.3 trillion won. If the reliability of the revaluation of national property is deemed low, it jeopardizes confidence in the accuracy of the nation's total asset valuation, and compromises the precision of future fiscal revenue forecasts. Therefore, a review of the appropriateness of the 2021 national property revaluation is necessary.
   In the 2021 national property revaluation, an unreliability amounting to 95.8 trillion won was identified. The reassessment was based on acquisition cost or book value, and the largest proportion of the unreliability, totaling 62.5578 trillion won (65.30%), was attributed to assets estimated to have not been re-evaluated. Additionally, there was an amount of 16.6302 trillion won (17.36%) representing the revision and revaluation of the usable period for amortized assets. The Ministry of Land, Infrastructure and Transport's error in residual value ratio for elapsed years and the error in selection of the price multiple method for social infrastructure (roads) accounted for 16.581 trillion won (17.31%). Furthermore, an error in valuation of 29.3 billion won (0.03%) was recognized in the Saemangeum Development Agency's case, where the same revaluation amount was used despite differences in land area.
   Next, issues related to the application of the revaluation method were examined. Firstly, there is a reliability issue in the revaluation amounts when applying fair value. A significant 76.3% of the asset revaluation amounts, as applied at fair value by central government agencies, closely align with the book value or acquisition cost, rendering the revaluation amounts unreliable. Secondly, there are challenges associated with alternative evaluation methods. ① The adoption of market standard amounts, which are predetermined & announced for calculating the tax base of certain local taxes, thus, this approach may lead to substantial valuation losses during revaluation. ② The absence of detailed interpretation in the relevant guidelines regarding the condition for selecting the price multiple method, specifically, 'when the acquisition cost can be measured reliably.' ③ If asset values rise (e.g., capital expenditures) after the initial acquisition, using an alternative valuation method may result in revaluation losses, as these increased assets could be treated as expenses during the revaluation process.
   The unreliable revaluation amount within the national financial statements for the year 2021 is estimated to be 95.7983 trillion won. This constitutes approximately 10.8% of the book value before revaluation, which stands at 886.4152 trillion won. In light of this, concerted efforts from all stakeholders involved in national settlement are imperative to enhance the reliability of national financial statements. The Board of Audit and Inspection should focus on enhancing the quality of settlement inspections in the national settlement of accounts report. Introducing an opinion expression system on the national financial statements can strengthen the accountability of the settlement inspection process and contribute to overall reliability. The national property management office (Ministry of Economy and Finance) needs to assess the use of publicly announced prices with low price realization rates. Additionally, there is a necessity to define clear conditions for selecting the price multiple method and streamline regulations pertaining to details of asset increase. Property management officers at both central and front-line government offices should actively participate in education programs to improve the accuracy of revaluation-related work.