A Review of Ifrs and Gaap Regulatory Systems

A Review of IFRS and GAAP Regulatory Systems

Tonya Bullock

ACC/291

06/16/2014

Michael Mosley

A Review of IFRS and GAAP Regulatory Systems

The regulatory systems created by the various accounting regulatory boards have many differences and similarities. This assignment will review the financial methods required by the boards of the IFRS and GAAP, and describe their effect on how organizations use these methods as important tools to reveal their financial statements.

FASB and IASB - Move to the Fair Value Measurement

Both the FASB and IASB have worked to implement the fair value measurement. Due to the negative opposition they have received, the boards have chosen to take a piecemeal approach toward their regulation of these items. "The first step is disclosure of fair value information in the notes. The second step is the fair value option, which permits, but does not require, companies to record some types of financial instruments at fair values in the financial statements" (Kimmel, 2013).

To date both boards, FASB and IASB, seem to maintain a sense of importance of how fair values are recorded on financial instruments. The concur that financial statements “would be more transparent and understandable if companies recorded and reported all financial instruments at fair value” (Kimmel, 2013)

Component Depreciation

“Component Depreciation includes dividing real estate improvements into various components like plumbing, electrical systems, and building shells, and depreciating each component separately for tax purposes” (Bland, n.d.). The land would not be considered to be depreciable. It allows real estate investors the option to depreciate their rental property and enjoy a positive cash flow resulting from the write-off of tax depreciation (Bland, n.d.). This method was removed by the 1981 Tax Act for any properties purchased after 1980 (Component depreciation, n.d.). A company would be able to utilize this tax reduction for any properties they purchased prior to 1980, when it was removed.  

Revaluation of Plant Assets

An IFRS revaluation is an adjustment where a company must change or alter the value of a fixed asset such as a company's property, plant or equipment. This valuation of a plan asset can decline over the years, and the book value can be much less than the fair value. The purpose of this adjustment is to present accounting information in the most accurate way available. Previously companies would delay recording their losses on these revaluations until it was financial viable for them to do so. This process is known as earnings management. Unfortunately, this practice can result in a company reporting minimized losses and misrepresent their assets. Currently, financial consultants now have accounting standards that require the company taking immediate recognition of their losses on impaired assets. (Kimmel, 2013)