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Should It Be Available in U.S. GAAP?
The two most widely recognized sets of accounting standards - U.S. GAAP and IFRS - address the measurement of nonfinancial assets differently, and compelling arguments exist in favor of each approach. Despite the challenges to auditing fair value estimates, some suggest mat FASB should conform more closely to current IFRS procedures by allowing the revaluation of certain nonfinancial assets; more specifically, mis article's authors propose that FASB should allow the upward revaluation of fixed assets - such as property, plant, and equipment (PP&E) - that have extended economic lives. The following is a description of the current accounting under U.S. GAAP and IFRS, and an argument in favor of extending the IFRS approach to U.S. GAAP.
Treatment under U.S. GAAP
The current treatment of fixed-asset valuation has developed since the inception, in the mid- 1930s, of the SEC as the governing body for reporting, accounting, and disclosure of financial information by publicly held companies. The concern of early leaders of both the SEC and the Committee of Accounting Procedure, a predecessor of FASB, was to limit management's attempt to manage earnings through the use of replacement cost depreciation (Richard G. Schroeder, Myrtle W. Clark, and Jack M. Cathey, Financial Accounting Theory and Analysis, Wiley, 2011). There are also critics who argue mat fair value is inherently uncertain, or mat auditors cannot effectively judge fair value estimates. Concerns regarding overvalued assets can still be seen in the standards applied today; under U.S. GAAP, the cost model is the only allowable method for measurement of nonfinancial assets like PP&E.
There are two classifications of fixed assets under current U.S. GAAP: assets held for sale, and assets to be held and used. For an asset to be considered held for sale, it must meet the following criteria under Accounting Standards Codification (ASC) 360-10-45-9:
* It must be available for immediate sale in its present condition.
* The entity is actively trying to locate a buyer, and other actions required to complete the plan to sell the asset have been initiated.
* The sale of the asset must be probable, and the transfer of the asset is expected to qualify for recognition as a completed sale within one year.
* The...