IFRS (International Financial Reporting Standards), which will be mandatory for EU-listed, Australian and certain Russian companies from 2005, makes constant reference to value: recoverable value, residual value, fair value and so on. Entities are now formally required to evaluate for all assets whether the future economic benefits expected justify the value attributed to the asset. Of course, entities were always required to consider whether the carrying value of an asset in the accounts was appropriate, but now this process will be more transparent.
New transparency and communication
In the past, the basis of comparability was historical cost. Now, comparability depends not just on what was paid for assets, but more on assumptions management makes about the future. The fair value of assets is thought to give a better indication of an asset's current and future value. The greater transparency required in the valuation process will require disclosure about an entity's future plans. The values recorded by an entity in many cases derive from its business strategy. This requires more than interpreting the accounting rules: an entity must be transparent about what it intends to do in the future.