From DRC to CRC: what the shift in cost approach terminology actually means
You will still hear depreciated replacement cost used in conversation around public sector valuation, particularly by clients and auditors who learned the trade pre-2022. The substance of what valuers now produce, however, is current replacement cost - and the shift from DRC to CRC is more than a terminology refresh.
What DRC meant
Depreciated replacement cost was the term used under the older AASB 116 framework for valuing specialised assets that do not trade in active markets. The mechanics were familiar: estimate the gross replacement cost of the asset, deduct accumulated depreciation for wear and consumption, and treat the result as fair value.
The conceptual frame was entity-specific. The question being answered was, in effect, "what would it cost us to replace this asset, less what we have consumed of it?" That framing carried two practical consequences. First, valuation outputs varied between firms because the depreciation calculation was often applied as little more than straight-line physical wear. Second, the reference asset chosen for replacement frequently mirrored the existing asset: a like-for-like replica rather than a modern equivalent.
What CRC is
Current replacement cost is the AASB 13 Fair Value Measurement-aligned successor. The maths often looks similar to a DRC calculation, but the conceptual anchor has shifted from the entity to a hypothetical market participant.
Under AASB 13, fair value is an exit price - the amount that would be received in an orderly transaction between market participants at the measurement date. For specialised public sector assets where no active market exists, the cost approach delivers that fair value by reference to:
the modern equivalent asset (MEA) a market participant buyer would actually construct today, using current cost-effective materials and techniques, to deliver the same service capacity; and
adjustment for all three categories of obsolescence - physical deterioration, functional obsolescence, and economic obsolescence - not just physical wear.
The change in perspective is the substantive change. CRC asks what a market participant would pay to acquire the service capacity, not what the entity itself would spend.
What AASB 2022-10 added
AASB 2022-10 amended AASB 13 specifically for not-for-profit public sector entities, inserting Appendix F into the standard. Appendix F is what gives valuers explicit, codified guidance on cost-approach measurement for the public sector - guidance that under the older DRC framework was left to professional judgement and varied between firms.
Among the things Appendix F formalised:
the modern equivalent asset is the default reference, not a replica;
the reference asset is assumed to be acquired or constructed at the existing location, even where a cheaper site is feasible;
site preparation costs are included in the replacement cost measurement (earthworks, demolition of existing structures, and similar), unless those costs are already reflected in the land valuation;
disruption costs that would necessarily be incurred during a hypothetical replacement are included (traffic management when relaying a buried pipe under a road, for example); and
costs to restore third-party assets disturbed by the hypothetical replacement are included, except where the asset belongs to a related entity within the consolidated group.
None of these points were absent from good valuation practice before 2022 - but they were not standardised, and they were not binding.
Practical consequences
Five points are worth keeping in mind.
The reference asset is the MEA, not a clone. A 1970s brick-veneer toilet block is not replaced today by a brick-veneer toilet block. The current replacement reference is whatever an entity would actually build now to deliver the same service - typically a smaller-footprint, modular or prefabricated structure with different finishes and services. Replica valuations remain defensible only for genuinely heritage or culturally sensitive assets, where reproduction cost may be the appropriate measure.
Obsolescence is broader. Economic obsolescence - loss of value driven by external factors such as declining population or shifting demand - is explicitly within the cost approach measurement, not just physical wear and tear. The AASB 13 carve-out for surplus capacity held for stand-by or safety purposes (BC37d(ii)) still applies, but where it does not, valuers are expected to identify and reflect economic obsolescence.
Disruption and restoration costs are in. A drainage pipe under a major road carries a real replacement cost premium because traffic management, road reinstatement, and adjacent service protection would all be necessary in practice. Those costs now sit in the fair value measurement, where under loose DRC application they were often ignored.
Site preparation sits with the building, not the land - unless the land valuation already reflects it. Earthworks specific to a built asset, and demolition costs where the asset would not be replaced as-is, fall into the cost approach calculation rather than the land parcel.
Documentation matters more. Because CRC is exit-price-aligned and grounded in market participant assumptions, the inputs are unobservable (Level 3 on the fair value hierarchy) for most specialised assets, and the rationale for each significant input - useful life, RSP score, MEA selection, obsolescence adjustments - needs to be defensible to auditors. The gap between a well-documented CRC and a poorly-documented one is wider than the equivalent gap under DRC was.
What this means for entities
Most public sector entities will see the substance of their cost-approach valuations look different from a strict DRC application even where the headline number does not change dramatically. The mechanics of MEA selection, the inclusion of disruption and site preparation costs, and the explicit consideration of functional and economic obsolescence often offset each other. The bigger change is in the audit trail - and in the conversation with auditors about why a particular figure has been reached.
Reports issued by Australis adopt CRC terminology and the Appendix F framework as the default. Older reports referencing DRC remain valid for their date of measurement but are not a guide to current methodology.
For more information on cost-approach valuation under AASB 13 and AASB 2022-10, or to discuss how the changes apply to your asset register, contact the Australis property team.
References
Australian Accounting Standards Board, AASB 13 Fair Value Measurement (compiled standard incorporating AASB 2022-10), particularly Appendix F.
Australian Accounting Standards Board, AASB 2022-10 Amendments to Australian Accounting Standards - Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities.
Australian Accounting Standards Board, AASB 116 Property, Plant and Equipment.
