Running head: CASE 3-5 INTERNATIONAL VERSUS U.S.

STANDARDS 1

Case 3-5 International versus U.S. Standards

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Abstract

Accounting standards are different in all parts of the world. In the United States it is common to

report assets such as property, plant, and equipment at their historical cost less the accumulated

depreciation of said assets, while in many parts of the world the value of the asset is revalued at

the specific balance sheet date and then reported based on the revaluation. In applying the

qualitative characteristics concepts of comparability, reliability, and relevance an opinion can be

expressed if the accounting standards of the United States generally accepted accounting

principles (GAAP) make more sense to be used in comparison to those used by other parts of the

globe. The presentation of these assets are important as if the amounts are not correct or

misrepresented then the public interest will not have reliable and relevant information being

presented to them. As the Financial Accounting Standards Board (FASB), and the International

Accounting Standards Board (IASB) continue to work together to find a common ground on

financial statement presentation, in which property plant, and equipment will be reported,

completing a comparison as it applies to the concepts of comparability, reliability, and relevance

will help determine the best viable option in the reporting of property, plant, and equipment.
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Case 3-5 International versus U.S. Standards

International versus U.S. accounting standards is a topic of importance as, accounting

information can be easily misconstrued if the user of the financial statements does not understand

the differences of what is being presented to them from an international company versus a U.S.

company. The accounting standards for the recording of property, plant, and equipment vary

between international and U.S standards. Qualitative characteristic concepts such as

comparability, reliability, and relevance can be reviewed to determine if the accounting standards

of the U.S. or those set forth internationally, make more sense to use and apply to properly

record the assets known as property, plant, and equipment.

The concept of comparability “is the qualitative characteristic that enables users to

identify and understand similarities in, and the differences among, items” (Schroeder, Clark, and

Cathey, 2014, p. 52) International and United States companies both have a set of accounting

standards to follow. International companies use accounting standards set forth by the

international financial reporting standards (IFRS) these standards are issued by the International

Accounting Standards Board (IASB), and United States companies use accounting standards set

forth by the Financial Standards Accounting Board (FASB), who sets the concepts and standards

for generally accepted accounting principles (GAAP). FASB and the IASB, continue to work

together to find a global common ground. FASB chairman Russell Golden, states, “by 2013, we

had come to realize that the ideal of single set, high-quality global accounting standards was just

that: an ideal. Different starting points, different cultures, and different legal systems made

bilateral convergence impossible to achieve” (Golden, 2019, p.23). Even though the ISAB and

the FASB are working diligently to find common ground for users both in the U.S. and abroad,

when asked if an international companies financial statements would be comparable to that of a

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U.S. companies financial statements as it relates to the recording or property, plant, and

equipment, one would say that the recording of the assets is too different. The U.S. currently

reports property, plant, and equipment based on the historical cost less accumulated depreciation,

international companies currently report these same assets based on a method know as

revaluation which at a given point in time the assets are revalued to there current value at that

point in time. Because of the difference in asset recording, the financial statements may not be

comparable, as the U.S. is recording over a period time down to the fair value, the international

company evaluates the value of each asset at a given point in time that the balance sheet is render

complete. The concepts can be too different for comparability purposes. One should also take

caution when comparing the financial statements as it is not known who’s interest the

international company took into account when revaluing the assets or if the international

accounting professional was using their professional judgment when they arrived at the current

value for the reporting of the assets. The statement may be at least comparable to an extent but

are that does not mean they are necessarily reliable with respect to the recording of the assets.

“In its glossary of terms, Concepts Statement 2 defines reliability as the quality of

information that assures that information is reasonably free from error or bias and faithfully

represents what it purports to represent” (Johnson, 2005, p. 2). With respect to how the U.S.

records property, plant, and equipment versus how international companies record these same

assets, concern should be raised with the amount of times England, Mexico, and elsewhere

revalue the value of these same assets. It is stated that at the balance sheet date these assets are

reduced to their current cost. This could leave room for too many errors given the fact of how

many times the assets are adjusted to the balance sheet date. GAAP, requires the company to

depreciate these assets over a given period of time. Following the GAAP rule allows you to
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provide reliable information in the reporting of these assets, where the international principle

does not necessarily. One must also consider that each time the international company revalues

the cost of these assets it will have an impact on the income statement as each gain or loss will

need to be recorded. Since the international companies are consistently changing the value of

these assets one could question if the information provided is truly reliable. “In contrast,

opponents of fair value accounting argue that fair value measurements are less reliable,

especially when active markets do not exist, and significant management estimation is involved

in assessing the value of certain assets and liabilities. Management manipulation of fair value

accounting can lead to reduced reliability relative to historical costs” (Hlaing and Pourjalali,

2012, p. 560). In this case the information provided by U.S. standards is more reliable than that

of the international company. In accounting the information provided must not only be reliable

but relevant.

As accounting professionals, we are to use our best professional judgment along with the

code of conduct established by the AICPA, it is our duty to ensure the information we are

providing to the users is not only reliable but relevant. In regard, to the question at hand

regarding relevance, “The adoption of fair value accounting provokes intense debate. The

conflict between fair value and historical cost measures can be linked to the qualitative

characteristics of relevance and faithful representation described in Concept Statement No. 8.

Proponents of fair value accounting argue that fair values provide more relevant and timely

measures of assets, liabilities, and earnings than do historical costs.” (Hlaing and Pourjalali,

2012, p. 559). It seems that even though the international reporting of these assets may not be

completely reliable, the principles followed may provide relevance, “The Board has required

greater use of fair value measurements in financial statements because it perceives that
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information as more relevant to investors and creditors than historical cost information. Such

measures better reflect the present financial state of reporting entities and better facilitate

assessing their past performance and future prospects. In that regard, the Board does not accept

the view that reliability should outweigh relevance for financial statement measures” (Johnson,

2005, p. 4). Although many in the accounting sector do not seem to be on board with the

measures taken by international companies to record property, plant, and equipment, it does

seem to be provide relevance to the users, there again being based on principles and reliant on

the calculations of others for the revaluation cost associated with these assets, many would be

uncomfortable stating that the international financials in this case are more relevant than those of

the United States financials.

Overall in this case one can conclude that while the information provided by both the US

and international companies may be useful to the end users, it is of the opinion of many

accounting professionals, that GAAP rules are still more reliable and relevant. “In a survey of

CFOs of U.S. firms on whether they would choose the fair value option for nonfinancial assets,

Daniel et al. (2010) report that although a significant majority of CFOs would not select the fair

value option, some would do so if they knew that their competitor was doing it and that not

doing it would put them at a disadvantage” (Hlaing and Pourjalali, 2012, p. 558). The CFO’s

surveyed would need a reason as mentioned to consider moving to this method and would only

do so if they were at a disadvantage. As accounting professionals, we have a professional code

to adhere to, it is our duty to the public interest to provide them with the most accurate, faithful,

relevant and reliable information as possible. One should also keep God and there Christianity in

mind as they work. “Whatever you do, work at it with all your heart, as working for the Lord, not

men” (Col. 3:23).

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References

Golden, R. (2019). The Road to Better Financial Reporting: Reflections on Comparability and

Convergence: Certified public accountant. The CPA Journal, 89(8), 23-25. Retrieved

from https://search.proquest.com/docview/2271772942?accountid=6363

Hlaing, K. P., & Pourjalali, H. (2012). Economic Reasons for Reporting Property, Plant, and

Equipment at Fair Market Value by Foreign Cross-Listed Firms in the United

States. Journal of Accounting, Auditing & Finance, 27(4), 557–576.

https://doi.org/10.1177/0148558X11423681

Johnson, L. T. (2005). Relevance and Reliability. The FSAB Report, 1–4. Retrieved from

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1218220178558

Life Application Study Bible NIV (1997). Carol Stream IL: Tyndale House Publishers, Inc.

Schroeder, R. G., Clark, M., & Cathey, J. M. (2014). Financial Accounting Theory and Analysis:

Text and Cases (11th ed.). Hoboken, NJ: Wiley.