Question

The valuation of plant and equipment to allow for fair market value will be reference to IFRS IAS 16. Does the standard differ from GAAP valuation? Do you see this debate getting settled soon? Please take a side and defend your position.

Answer 1

Yes, GAAP and IFRS / IAS differ.

IFRS
Under IFRS property, plant and equipment may be revalued to fair values. All the items in the same class are revalued.

US GAAP
The revaluation of property, plant and equipment is NOT ALLOWED.

This debate may get settled when uniformly IFRS is adopted. But that's not happening anytime soon.

In my opinion, the IFRS position is better than the GAAP. For starters, IFRS gives an OPTION to select one of the options. A company may choose not to exercise this option. Also, bringing the assets that a company owns to the CORRECT MARKET VALUE gives a better option to the investors. An investor can evaluate the correct position if the items on the balance sheet are on the correct market value.

Imagine a situation

An investor is evaluating a company for investment. he finds that the book value of the shares is very less and does not invest in it.
Had the company been following IFRS the values would probably be higher. The investor would be able to make proper evaluation.