Internal Control of Fixed Assets: A Controller and Auditor's Guide

CHAPTER THIRTEEN 13

Control of Fixed Assets under International Financial Reporting Standards

THE INITIAL RECOGNITION AND measurement of Property, Plant, and Equipment (PP&E) is generally the same under International Financial Reporting Standards (IFRS) as it is in the United States under generally accepted accounting principles (GAAP). Assets to be capitalized must have future benefit to the firm, and must be reliably measurable. Equipment required to meet legal and environmental regulations, even though it may not generate specific cash flows or direct future benefit, can still be capitalized because without them other assets could not be used.

According to a recent book¹ the initial capitalized cost for IFRS includes:

• Purchase Price

• Purchase taxes, including duty

• Less supplier discounts and rebates

• Transportation inbound

• Installation and assembly

Ordinarily the cash price paid is the cost, but in the case of an exchange, the transaction is to be measured at fair value of the acquired asset or the net book value of the asset(s) given up. If any government grants are involved, reducing the net cost to the acquirer, only the reduced net amount can be capitalized.

IFRS permits expensing of items under a certain minimum amount, similar to what GAAP permits and we recommend in this book.

Essentially, the IFRS rules parallel those of U.S. GAAP. At this point using the barebones definition, there are few practical differences between accounting for PP&E as between GAAP and IFRS. ...