International Financial Reporting Standards
Adhering to the IFRS has considerable impact on the financial statement formats and on valuation methods of various balance sheet and income statement items. Fixed assets and intangible assets are two of the items most affected by the IFRS.
Currently, companies may decide whether to account for fixed assets at historical cost (amortized cost method) or revalue them regularly (valuation method). Opting for one or the other can lead to significant changes to equity. The valuation method used will depend on the nature of the asset.
When implementing the IFRS, companies will need to restructure the information provided for fixed asset accounting; therefore, they will need to reclassify the items under new classes (such as Property, Plant and Equipment, Real Estate Investments, Biological Assets). These reclassifications will include new accounting policies for their valuation. In this sense, intangible assets will undergo similar impacts to those of the current fixed assets. It should be emphasized that one of the requirements affecting both fixed and intangible assets is the estimation of impairment.
What impact does IFRS have on fixed assets?
A new breakdown of fixed assets, each with its own valuation method:
- Fixed assets (IAS 16): Tangible assets kept by a company for a variety of purposes.
- Investment property (IAS 40): Real property held for rental.
- Assets available for sale (IFRS 5): Assets expected to be sold in certain time (e.g. 12 months).
- Intangible assets (IAS 38): Company software, for example.