The Treatment of Artwork under IFRS

Author: DM Technical Team : October 2025

In financial reporting, the treatment of artwork under IFRS raises unique questions, as no specific standard directly addresses its accounting.

In this article, the DM Technical Team explore how IFRS standards, particularly IAS 2, IAS 40 and IAS 16 apply to artwork held from the perspective of an investment entity and a non-investment entity.

Artwork’s appeal as an alternative asset class

Artworks and other alternative assets have become a growing part of investment portfolios. While equities and fixed income remain central, investors increasingly seek diversification through less conventional assets offering unique returns and lower correlation with public markets. Alongside wine and collectibles, artworks attract interest from both institutional and private investors, reflecting a shift toward alternative strategies that target niche markets and enhance portfolio resilience.

Accounting for artworks under IFRS poses challenges for entities, as these assets blend cultural and market value, complicating classification and measurement. The key issue is how to report artworks in line with IFRS and the entity’s investment strategy.

Investment Entities Vs Operating Entities

For an investment entity, the accounting choice for artwork lies in the type of strategy it plans to execute. Where an investment entity has adopted a strategy of actively buying and selling as opposed to long-term holding and invests in artwork with higher liquidity, that have the potential to generate short-term gains, artwork falls under IAS 2 – Inventories (“IAS 2”). If an investment entity, however, has a stated strategy of holding artwork for the purpose of long-term capital appreciation, as a store of value or to hedge against inflation, the principles of IAS 40 – Investment property (“IAS 40”) present a sound basis for an accounting policy.

An operating entity will classify artwork consistent with its intended use. If artwork is expected to be used in the entity’s operations and to yield future economic benefits within the principal business model, then it meets the recognition criteria of IAS 16 – Property, plant and equipment (“IAS 16”). IAS 40 provides an appropriate accounting framework where an operating entity has invested in artwork with the view of long-term holding for capital appreciation and the investment is expected to generate cash flows for the entity independent of its operating cash flows. Entities holding artwork for sale in their ordinary course of business, such as art dealers or galleries, should apply IAS 2.

Accounting for artwork by an investment entity

An investment entity is an entity whose business purpose is to make investments for capital appreciation, investment income, or both [IFRS 10.27(b)]. Investment entities are governed by a shared investment objective and typically have certain characteristics, including multiple unrelated investors and holding multiple investments. An investment entity is expected to acquire pieces of artwork with the sole purpose of realising gains from their appreciation in value either in the short term or in the longer term in line with the relevant investment strategy.

Artwork is an alternative asset class that is relatively illiquid and has the potential to appreciate over a longer time horizon as compared to traditional equity and fixed-income securities. Unlike classic artwork, contemporary art can have more immediate returns as its value is often influenced by current shifts in market trends and hence, more volatile.

According to IFRS [IAS 32.11] a financial instrument is defined as a contract that creates a financial asset for one party and a financial liability or equity instrument for another. Since investment in artwork lacks the contractual element and the inherent right to cash inflows, it does not fulfil the definition and does not qualify as a financial instrument. Therefore, investment entities are unable to measure artwork at fair value as artwork does not constitute a financial instrument, instead is a tangible non-financial asset i.e. a physical item not a contractual right or obligation.

As discussed earlier, there is no dedicated IFRS accounting standard that directly addresses the accounting treatment for artwork, including the recognition, measurement and disclosure requirements. In the absence of any specific guidance, management must use their judgement in developing and applying an accounting policy that results in relevant and reliable information [IAS 8.10]. In making this judgement, management must refer to the requirements of the IFRSs dealing with similar and related issues, and the Conceptual Framework [IAS 8.11]. Following the above, an investment entity should base its accounting policy for artwork on the closest fitting IFRS guidelines by carefully considering the investment’s intended purpose in the context of the overall investment strategy.

IAS 2 Inventories

Inventories are physical assets held for sale in the ordinary course of business [IAS 2.6(a)]. It can be argued that pieces of artwork held by an investment entity meet the definition of inventories and should be accounted for as such in accordance with IAS 2.

The following circumstances further enhance the appropriateness of the IAS 2 classification.

The investment entity’s core or supplemental strategy involves the acquisition and sale of artwork, and the investment entity regularly acquires pieces of artwork with a view of resale.

The investment entity engages in speculative trading and short-term holding of the artwork with the aim to generate value from short-term price fluctuations, market inefficiencies, current art trends, etc.

Based on the criteria above typically under IAS 2, investment entities would measure the inventory i.e. the artwork at the lower of cost and net realisable value.

IAS 40 Investment Property

Pursuant to IAS 40, investment property is property (land or a building) held to earn rentals or for capital appreciation or both, rather than to be used in the production or supply of goods or service or for sale in the ordinary course of business [IAS 40.5].

It can be argued that investment in artwork is closely aligned with investment in real estate as both are tangible non-financial assets and their value is based on market demand, uniqueness and scarcity, not on future contractual returns. Additionally, both artwork and real estate are considered an illiquid asset class that requires longer sale cycles and often involves higher transaction costs due to fees payable to intermediaries such as dealers, auction houses and real estate agents. Hence the guiding principles of IAS 40 may be used as a basis for forming an accounting policy relevant to artwork. Indeed, some investors buy pieces of artwork expecting their value to increase over time, normally in the long run, akin to real estate investments that appreciate and generate capital returns. Although contemporary art has the potential to appreciate faster due to its sensitivity to current market trends, traditional art tends to increase in value at a slower but steadier pace, and it can take years before an investor is able to realise any substantial capital gains. In theory, an investment entity could justify classifying its investment in artwork as investment property under IAS 40 if the investment objective is to passively hold the artwork over a longer time horizon as a means of wealth store and capital appreciation. Furthermore, IAS 40 allows for the fair value model for measuring the investment property which would result in relevant information for an asset held for capital gains realization [IAS 40.32A].

Management should apply judgement in deciding on the suitability of IAS 40 for the accounting treatment of artwork [IAS 40.14]. Special consideration should be given to the investment horizon and the expected regularity of trade. IAS 40 explicitly scopes out property intended for sale in the ordinary course of business or acquired with a view to subsequent disposal in the near future or for development and resale [IAS 40.9(a)].

To conclude, the classification of artwork as investment property in line with IAS 40 would only be appropriate if the investment entity intends to hold it for long-term capital appreciation as opposed to short-term trading, and it is able to substantiate its intent.

Accounting for artwork by a non-investment entity

The key difference between investment and non-investment (operating) entities lies in their business model and objective. Investment entities exist to generate returns from investing in assets through capital appreciation, investment income or both, and use fair value measurement extensively. In contrast, non-investment entities generate revenue through business operations and measure most of their assets based on historical cost adjusted for depreciation and impairment as needed.

IAS 16 Property, Plant and Equipment (PPE)

Property, plant and equipment (“PPE”) are tangible items that are (a) held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period [IAS 16.6]. Artwork, such as paintings, sculptures or ornamentations are by their nature tangible, non-financial assets and therefore, following the above definition an operating entity may consider classifying artwork as PPE if its acquisition is expected to result in long-term benefits for the entity in line with its operating model. For example, a luxury hotel chain may install high-quality artwork in lobbies and guest rooms with the aim to enhance the brand image and customer experience, which can lead to a rise in occupancy rates and an increase in revenue. In the context outlined above it is appropriate to treat the art pieces as items of PPE in line with IAS 16 because they are intended for long-term display (i.e. use), and their addition to the interior will indirectly contribute to the revenue generation and long-term value creation for the business.

IAS 40 Investment Property

Provided that an operating entity acquires artwork with the objective of long-term holding but it is difficult to establish a link with the entity’s operations (i.e. it is hard to demonstrate how the investment in artwork fits in the operating business model), then classification under IAS 16 will not be appropriate. Instead, the entity will need to develop an appropriate accounting policy by reference to the guidelines of the closest fitting IFRS and the Conceptual Framework. IAS 40 provides a relevant accounting model in this case as it allows entities to measure investment property at fair value which more accurately reflects current market conditions. Many operating entities holding artwork will judge the fair value model more appropriate than cost for financial reporting as artwork generally has significant fluctuations in fair value and using the fair value model more accurately reflects the true economic value of the asset.

IAS 2 Inventories

Some non-investment entities like art dealers or galleries operate under a business model of acquiring, marketing and selling artwork with a view to resell in the near future realising short-term gains from trading. The accounting treatment for artwork that is acquired and held within the aforementioned context falls under the scope of IAS 2.

Pursuant to IAS 2.3(b), if the entity qualifies as a broker trader, the entity can apply the broker-traders exception and measure the inventory, i.e. the artwork, at fair value less costs to sell, similar to broker traders who principally acquire inventories with the purpose of selling in the near future and generating a profit from fluctuations in price or margin. Changes in fair value less costs to sell are then recognised in profit or loss in the period of change.

Conclusion

Exploring the accounting treatment of artwork under IFRS serves as a compelling reminder that the classification and measurement of certain asset classes is anything but straightforward, particularly when the asset in question is as culturally rich, unique and inherently subjective as a work of art.

About the DM Technical Team

DM Financial’s Technical Team supports clients with specialist guidance on complex accounting, financial reporting and regulatory matters. Our insights combine technical accuracy with practical application, helping firms navigate an evolving financial landscape.