Question

Under the United States Generally Accepted Accounting Standards (U.S. GAAP), property, plant and Equipment are reported at historical cost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been impaired.Several other countries, including Australia, Brazil, England, Mexico and Singapore, permit the revaluation of property, plant and equipment to their current cost as of the balance sheet date. The primary argument in favor of revaluation is that the historical cost of assets purchased ten, twenty, or more years ago is not meaningful. A primary argument against revaluation is the lack of objectivity in arriving at current cost estimates, particularly for old assets that either will or cannot be replaced with similar assets or for which there are no comparable or similar assets currently available for purchase.

Contrast and compare the qualitative characteristics identified by the International Accounting Standards Board (IASB) with the qualitative Characteristics identified by the Financial Accounting Standards of Statement of Financial Accounting Concepts (SFAC) No. 2.(10 marks)

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Answer 1

The four qualitative characteristics identified by IASB are:     Understandability, Relevance, Reliability and Comparability.

Understandability means that a qualified financial report should be easily read and should let the reader understand.

Relevance means that the content of a qualified financial report should be highly related with the financial elements.

Reliable means that the data of a qualified financial report should be reliable and true.

Comparability means that a qualified financial report should be comparable with other financial documents.

Contrast and compare these qualitative characteristics with the qualitative characteristics identified by the FASB in SFAC No. 2 The content are more than IASB. The meaning of relevance, reliability in IASB are similar with SFAC. However, the qualitative characteristics are more detailed in SFAC. In SFAC No.2, the qualitative characteristics are relevance, reliability,comparability, consistency, materiality, costs and benefits. The financial report under SFAC No.2 should not only be reliable and relevant to readers, but also should be consistent and each financial information should uniquely present its value. Also, in SFAC, it is estimated that better ways of pursuing benefit is being seek.