International accounting generally requires companies to use international financial reporting standards (IFRS), which is a set of accounting principles that varies in some places when compared to generally accepted accounting principles (GAAP). There are not large differences in certain sections between IFRS and GAAP. For example, accounting for assets in IFRS is very similar when compared to traditional GAAP methods. A few differences do exist, however, such as the ability to not work with a strict accounting policy. Fixed assets in IFRS accounting allow a company to select which method to use, such as cost basis or revaluation policy.
Assets in IFRS accounting still carry the normal definition of assets in other accounting methods. In general, an asset is a resource controlled by an entity by which future economic benefits will occur. IFRS accounting principles still separate assets into two general classes, current and long term. The first group represents items that last less the 12 months, while the latter group includes items that generally last longer than 12 months. Companies must report assets on a balance sheet in order of liquidity, such as cash, marketable securities, and receivables, with other types falling in between these items.
Fixed assets include property, plant, and equipment (PPE), meaning long-term assets in IFRS principles. Here, a company may generally select between a cost basis method or revaluation method in order to book these items into the general ledger. Again, there are some differences to GAAP, mostly in how a company applies certain IFRS principles. IFRS requires companies to use a stable currency when recording these assets so that no accounting for inflation must occur in the dollar values for these items. A company must disclose which method it chooses to use when accounting for PPE assets in IFRS.
Cost basis accounting for PPE assets means a company records assets at the acquisition cost plus small charges to place the asset into use. An estimate for residual value and useful life for each asset is necessary in order to depreciate the item properly over time. The revaluation method requires a company to record and periodically adjust the basis of the PPE asset based on market values in an open market. Adjustments for assets in IFRS under the revaluation method require the gains and losses to be written against income for the period in which the adjustment occurs. Assets with no open market in which a company can gauge current values cannot use this method in IFRS accounting.
