Measurement is becoming increasingly critical issue in financial reporting. Particularly, there has been a strong debate amongst research academics and alike (Christensen & Nikolaev, 2013) with respect to the choice between measurement methods (e.g. fair value and historical cost accounting). This is partly due to the two reasons - First, they are two different measurement methods, each underpinned by different assumptions and second, International Accounting Standard Board (IASB) 2010 conceptual framework, which Australia is subject to, does not prescribe a specific measurement base to account for the financial reporting elements. In fact, IFRS and therefore AASB provides a free choice between fair value and historical cost accounting for the non-financial asset groups - property, plant and equipment (PPE) (see IAS 16) and intangibles (see IAS 38). This has resulted in variations in valuation practices for PPE and intangible assets. Accordingly, consistency and comparability of financial reports, which is one of the key qualitative characteristics of the financial reports, is being questioned.
Task 1:
Write a literature review on the following research issue;
'The current accounting reporting approach that allows reporting entities to choose between measurement methods (e.g. fair value, or historical costs, or mixed of both) with respect to measurement of PPE and intangibles, is a problematic and therefore should be removed - do you agree?"
Task 2:
Identify and analyse valuation (measurement) practices with respect to the use of historical cost and fair value for the PPE and intangibles by carefully examining the 'Accounting Policy' sections of the companies listed in Australia and the USA.
(Note: Choose a company, each from listed in the Australian Stock Exchange (ASX) and the New York Stock Exchange (NSYE) and download their annual report for the period ending 2015 to answer this task).
Task 3:
Based on your observation and analysis in Task 2, provide your opinion on the free choices between historical cost and fair value accounting for PPE and intangibles. Do you think such free choice be continued or abandoned? Justify your arguments.