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International Accounting Standards. An Introduction and the concept of "Fair Value"
International Accounting Standards. An Introduction
and the concept of “Fair Value”
On 1 January 2005 Australia adopted International Accounting Standards, renumbered them, removed most of the elements of choice by giving certain selections from the standards mandatory status and added some clauses to allow their application to not-for-profit entities.
The new aligned International Accounting Standards are a complete replacement for the Australian Accounting Standards and have been written in identical terms to the International Standards, but with two exceptions:
• In some cases the International Accounting Standards allow for reporting entities to elect the method by which they treat some assets, but the Australian standard in almost every case has selected a single choice and made it mandatory.
• In some cases the AASB has added some clauses for the sake of clarity, but almost all these relate to the not for profit sector adoption which was not contemplated by the International Accounting Standards.
The new International Accounting Standards adopt “Fair Value” for accounting purposes, but specifically, be aware that its definition does not accord with either:
• IVS 1 of the International Valuation Standards Committee definition of market value, as adopted by the Australian Property Institute
• The definition of Fair Value under AASB 1041.
The International Accounting Standard relating to the reporting of values for property, plant and equipment are incorporated in AASB 116 (which equates to IASB 16). It should not be assumed that all of the rules governing valuations under the new International Accounting Standards are encapsulated within this standard as there are other standards which are relevant.. There are rules that relate to the application of Fair Value which are generally the responsibility of the entity.
AASB 116
Objective
The objective of the international accounting standard is to describe the accounting treatment for property, plant and equipment so that users of the financial reports can discern information about an entity’s investment in its property, plant and equipment and the changes in such investments. The principle issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation of charges and impairment losses to be recognised in relation to them.
Scope
The scope of the international accounting standard is that it applies in accounting for all property, plant and equipment except where another standard requires or permits a different accounting treatment.
AASB102 INVENTORIES
The objective of [AASB102] is to prescribe the accounting treatment for inventories.
This international accounting standard applies to all inventories, except:
(a) Work in progress arising under construction contracts …;
(b) Financial instruments; and
(c) Biological assets ...
Inventories are described as assets:
6 (a) Held for sale in the ordinary course of business;
(b) In the course of production for such sale; or
(c) In the form of materials or supplies to be consumed in the production process or in the rendering of services.
Net Realisable Value is the estimated selling price in the ordinary course of business as the estimated costs of completion and the estimated costs necessary to make the sale.
