IFRS

Quoted from International Financial Reporting Standards (IFRSs®) Including International Accounting Standards (IASs®) and Interpretations as approved at 1 January 2008:
“The IASB achieves its objectives primarily by developing and publishing IFRSs and promoting the use of those standards in general purpose financial statements and other financial reporting. IFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements.
IFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit-oriented entities. Although IFRSs are not designed to apply to not-for-profit activities in the private sector, public sector or government, entities with such activities may find them appropriate. The International Public Sector Accounting Standards Board (IPSASB) prepares accounting standards for governments and other public sector entities, other than government business entities, based on IFRSs.”

Upon adoption of IFRS, an entity does have some flexibility when measuring an item of property, plant and equipment. An entity can use a previous GAAP revaluation as deemed cost at the date of the revaluation as long as the revaluation fairly reflected either the fair value or cost or depreciated cost under IFRSs possibly adjusted by changes in a general or specific price index. Under this process, previously reported revaluation reserves may not apply and carry forward.

An entity may also elect to measure an item of property, plant and equipment at the date of transition at its fair value and use this value as its deemed cost. However, if the entity uses fair value in its opening statement of financial position as deemed cost, the entity must disclose, for each line item in the opening statement, the sum of those fair values and any adjustment to the carrying amount formerly reported under previous GAAP.

With regards to depreciation methods, as long as those rates used under previous GAAP refl ect a reasonable estimation of the asset’s useful life, they should also be acceptable to IFRS. However, if the rate was determined for other reasons, for example tax reasons and the necessary change is material, then the entity must adjust the accumulated depreciation in its opening IFRS statement retrospectively to comply with IFRS from that point forward.

IAS 16 requires each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item to be depreciated separately. However, there is also no firm definition of ‘significant’ and as such a judgment on what is required when applying the recognition criteria must relate to each entity’s specific circumstances.

IFRS are used in many parts of the world, including the European Union, Hong Kong, Australia, Malaysia, Pakistan, Russia, South Africa, Singapore and Turkey. Currently, over 113 countries across the globe require or permit IFRS reporting.

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