Accounting to the FIRS standards, understanding the differences is crucial. What follows is an overview of the differences between the two accounting standards, GAP and FIRS. Fair Value Measurement of Assets (Dominic Patterned) Fair Value measurements provide users of financial statements with an accurate picture of the value of a company’s assets. As part of this ongoing and complex cooperative effort, there is currently a joint project between the FAST and the SAAB to develop a common measurement and reporting structure for fair value accounting (Metzger, n. Fair value accounting has been around for any years and has been used for many asset and liability accounts. Due to the expanding use and misuse of financial reporting, the FAST and the SAAB have worked to implement a common approach. The first step is disclosure of fair value information in the notes. The second step is the fair value option, which permits, but does not require, companies to record some types of financial instruments at fair values in the financial statements (Skimmed, Weakened, & Skies, 2013).
Currently FIRS uses a two-tier approach and GAP does not use the same approach. FIRS and GAP still differ in the criteria used to determine how o record a factoring transaction. Looking forward, finding common ground and aligned terminology and philosophy is an important issue to work toward a single defined process. Component Depreciation (Jason Hammock) Under FIRS, component depreciation specifies that any plant asset that has components that have different useful life expectancies need to be depreciated separately (Skimmed, Weakened, & Skies, 2013, Chapter 9).
Within the rules of FIRS it is mandatory that it is utilized. Component depreciation is recognized by GAP but is not widely used. This can be used for the depreciation of building if you plait the depreciation of the building into land improvements and the actual building. Revaluation of Plant Assets (Jason Hammock) The International Accounting Standard (AS) – 16 sets the policy for “Property, Plant and Equipment” revaluation. The AS – 16 policy sets standards for revaluations of plant assets to its fair value at the reporting date (Diarists & Solicitors, 2012).
Under FIRS the revaluation of plant assets prevents the carrying value of the asset being exponentially different from the fair value. It is important that companies using revaluation ensure they apply the changes o all plant assets in the same class (Skimmed, Weakened, & Skies, 2013, Chapter 9). Another aspect of revaluation is when plant assets experience rapid price changes they must be reevaluated on an annual basis. Product Development Expenditures (Anne Riesel) Under GAP all research costs are expenses in the current reporting period and impact the income statement.
The difference under FIRS is that companies capitalize any development costs into a project that are incurred prior to feasible capitalization (before the company could feasibly make money off the technology) are recorded as development expenses. Skimmed, Weakened, & Skies, 2013, Chapter 9) Any expense incurred after feasible capitalization of the product is recorded as development costs. The impact to a company in reporting is that the development costs aren’t expensed until the resulting asset is used up.
In this methodology only the development prior to technical feasibility is achieved impacts the income statement. The preparation of financial statements, in conformity with FIRS, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of intention assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Contingent Liabilities (Jennifer Brown) Contingent liability refers to an outstanding liability or obligation that is not recognized in financial statements, but has met one or more criteria indicated by FIRS to which that obligation has to be disclosed (Skimmed, Weakened, & Skies, 2013, Chapter 10). Some of those criteria, but are not limited to are liabilities from prior events that are brought to the attention here in the present or sibyl in the future or a present liability a present liability that arises from prior events that cannot be measure with appropriate dependability.