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International Accounting Standard.

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Introduction

Professional Skills - Topic 4 International Accounting Standard IAS 16 Explain The Nature and Purpose of this Document and Provide A Critical Evaluation The International Accounting Standards Committee (IASC) was founded in 1973 and comprises of 34 International Accounting Standards. IAS 16 deals with property plant and equipment, examples of other IAS' are 1, which provides the framework for the Preparation of Financial Statements, and 2, which describes how to deal with Inventories. Much revision of these accounting standards has taken place, in December 1993 IAS 16 was revised as part of a project on 'Comparability and Improvements of Financial Statements.' More recently revisions have occurred to ensure consistency with other standards and to keep it up to date with amendments, for example in July 1997 when IAS 1 was approved, one of the paragraphs in IAS 16 was changed. These standards are a guideline to ensure consistency amongst numerous nations. It is also important that financial reporting (the product of financial accounting) is accessible to all users of the information for example, managers, investors, employees, suppliers, the government and the public. Accounting is the process of identifying, measuring, recording and communicating economic transactions. Measurement is normally made in monetary terms, and the accountant will prepare records in the form of financial statements such as a profit and loss account and a balance sheet. ...read more.

Middle

Significant costs to be incurred at the end of an assets useful life should be reflected as an expense. The document also considers how re-valuations should be dealt with, it says that they should be made with sufficient regularity such that the carrying amount does not differ from that which would be determined using fair value at the balance sheet date. If an item of PPE has been revalued the entire class to which the asset belongs must be revalued and revaluations should be credited to equity. Decreases in valuation should be charged to income unless reversing a previous credit to equity. Other factors covered in the document are as follows. If an assets recoverable amount falls below its carrying amount (the balance sheet value of an asset or liability), the decline should be recognised and charged to income. Gains or losses on retirement or disposal of an asset should be calculated by reference to the carrying amount and finally the document says that required disclosures are, reconciliation of movements, capital commitments, items pledged as security and a change in revaluation surplus. The nature of this document is very formal because it is a form of legislation that must be followed internationally, it can be described as accounting law, so it is an informed description of what to do and what not to do when preparing final accounts. ...read more.

Conclusion

Understandability suggests that the financial reports must be readily comprehensible by its users who are assumed to have a reasonable knowledge of business and economic activities. The presence of this accounting standard therefore has a great purpose in the accountancy profession and on an international scale. There are however some downsides to an accounting standard like IAS 16. Firstly there is a lot of information in it, so accountants have to be aware of every detail in order to keep to the guidelines. Parts of it can be a little bit complex, especially where it is necessary to refer to another standard in a situation where there has been an amendment or revision for example paragraph sixty-eight says 'This standard supersedes IAS 16, Property, Plant and Equipment, approved in 1993', in addition, in paragraph four, it indicates that one must refer to IAS 15 for 'Information Reflecting the Effects of Changing Prices'. To conclude, International Accounting Standards are of the utmost importance as a form of regulation of financial reporting. IAS 16, Property, Plant and Equipment is in itself very important as it concerns items that usually make up the most substantial part of the final accounts in terms of monetary value. In my opinion although it does have a few down points, any form of regulation that is important has to be quite detailed and thorough. ...read more.

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