ACCOUNTING POLICIES & IFRS

Accounting Policies and IFRS

Accounting Policies and IFRS

Introduction

Careful choice of accounting policies is crucial as it aids in the comparability, analysis and interpretation of Financial Statements. Choice of accounting policy is now more linked to the region of a company and the region in which the subsidiaries of those companies operate in. The choice of accounting policies is further influenced by the regulatory environment of the region in which the company operates in. For greater clarification of the research it has to be kept in mind that the subject area of the research talks about subsequent measurement which differs from initial measurement. More than 113 countries have adopted IFRS to date and greater convergence is in progress. Convergence relates with US GAAP. Subsequent measurement of accounting policies is discussed in turn which later follows by a research into 15 countries which are following IFRS and the adoption of accounting policies in practice.

Discussion

Subsequent measurement of Property, plant and equipment (IAS 16)

Subsequently measured at cost less depreciation accumulated and impairment losses. It may subsequently be recorded at fair value less depreciation accumulated and impairment losses. When it is subsequently measured at fair value all classes of assets should be revalued and revaluation gains should be credited to equity (Icaew, 2013).

Subsequent measurement of Intangible assets (IAS 38)

After recognition an entity may opt for cost model or revaluation model. As per cost model it may be recorded at cost less any accumulated depreciation. As per revaluation model an asset may be valued at fair value at measurement date (Accaglobal, 2013).

Subsequent measurement of Investment property (IAS 40)

Initially an investment property may be measured at cost model or fair value model. Any subsequent changes in fair value will be credited to equity and any subsequent changes in costs will be attributed to depreciation or amortisation. In cost model after initial recognition an asset is carried at carrying amount less amortisation or depreciation (Icaew, 2013).

Cost formulas for inventories (IAS 2)

IAS allow after initial recognition at cost, inventory to be measured either on First in, First out (FIFO) basis or Weighted Average Cost (AVCO) basis. Both figures may give different profit levels if prices for inventory have been falling or increasing consistently (Readyratios, 2013).

Initial measurement of non-controlling interest (IFRS 3)

Minority interest in a subsidiary may be measured initially at fair value. Alternatively it may also be measured at proportionate share of the acquiree's net identifiable assets (Accaglobal, 2013).

AFC Energy

The company is listed and situated in United Kingdom. It comprises of only 25 employees and operates in the alternative energy sector. Following are the accounting policies in each of the following International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

IAS 16 - Property, Plant and Equipment

The main noncurrent assets of AFC energy comprise of the powerhouse and power stations that comprise of complex and valuable machinery such as turbines, power generators, emitters etc. Along with this other noncurrent assets include spare land which is owned by the company. AFC initially and subsequently uses fair value method ...