Assignment background
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