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Brief Case Studies - Week 7
Finance & Accounting
Pages 3 (753 words)
International Fair Value Accounting (Case 15-2) a) Nowadays there is a recent trend prevailing in accounting standards which is known as harmonization of accounting standards among the leading accounting standards setting bodies across the globe. There are two major accounting standard setting bodies i.e.
They are listed in different stock exchanges of the world as well. Under such circumstances, it becomes quite complicated as well as costly to prepare the financial statements under different reporting requirements. IFRS issued by IASB provides the treatment of fair value accounting of property, plant and equipment which is currently not supported US GAAP issued by FASB. However, with the increasing adoption of IFRS, it is very likely that US GAAP will also add the similar treatment for fair value accounting of Property, Plant and Equipment. b) Fair value accounting has the biggest disadvantage of valuing property, plant and equipment on the basis of subjectivity. When measuring fair values of the property, plant and equipment, several subjective assumptions are taken by the evaluators which pose question marks upon the objective approach towards financial statements. Thus, the financial statements become less attractive to be compared with other financial statements of other entities due to lack of objectivity element. c) The fair value accounting for property, plant and equipment has the similarity with that of investment accounting. Under both types of accounting, if the fair values of the asset are increased, then stockholders’ equity is also increased directly such that it has no impact on the net profit of the entity. ...
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