Case Scenario: International versus U.S. Standards: 350+ words
Under U.S. GAAP, property, plant, and equipment are reported at historical cost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been impaired.A number of other countries, including Australia, Brazil, England, Mexico, and Singapore, permit the revaluation of property, plant, and equipment to their current cost as of the balance sheet date. The primary argument favoring revaluation is that the historical cost of assets purchased ten, twenty, or more years ago is not meaningful. A primary argument against revaluation is the lack of objectivity in arriving at current cost estimates, particularly for old assets that either will or cannot be replaced with similar assets or for which there are no comparable or similar assets currently available for purchase.
Required:
Q1. Discuss the qualitative concept of comparability. In your opinion, would the financial statements of companies operating in one of the foreign countries listed above be comparable to a U.S. company's financial statements? Explain.
Q2. Discuss the concept of reliability. In your opinion, would the amounts reported by U.S. companies for property, plant, and equipment be more or less reliable than the current cost amounts reported by companies in England, Mexico, or elsewhere?