With development of accounting standards and surrounding, the International Accounting Standard has updated several times in accordance with changing situation. Therefore, the new IASB Conceptual Framework, published in 2010, replaced IASB Framework for the Preparation and Presentation of Financial Statements. (Melville,p17)
Financial statement, which is usually contained in entity’s annual report, is prepared for existing and potential investors to make their economic decisions. At this point of view, company has obligation to provide any information users need and as possible as free of error achieved. If company refuse to do so, users of financial statement would suffer economic crisis because of inappropriate information disclosed which mislead them during decision making. Information provided about financial position and financial performance of entity must in accordance with characteristics of conceptual framework, such as relevance and faithful presentation which are fundamental ones.
Materials disclosed in financial statements comprehensively explain how flexibility which often characteristics of IAS 16 can be expressed in terms of tangible assets compared with intangible assets. Thus, the assessment is aiming to illustrate two standards of IAS (IAS 16 and IAS 38) with appropriate examples. This essay will discuss how entity's financial information reflect connection between qualitative characteristics and accounting standards.
IAS 16 Property, Plant and Equipment
IAS 16 defines Property, Plant and Equipment as tangible assets. Apparently, most of non-current asset items shown in balance sheet are classified as PPE. Therefore, how to measure and record PPE has significant influence in entity’s financial statement. On the ground of recognition of PPE in financial position, two criteria must be met in the meantime:
First, future cash inflow or economic benefit generated by this item has possibility to occur.