Revaluations

Gill Gittings

If a client changes from historical cost as a basis for accounting for fixed assets but then opts to value under Market value is this a change in accounting policy therefore going back to previous years accounts?

I'm confused with how to apply this.

Steve Collings

Hi Gill,

The change you describe is, clearly, a change in accounting policy. FRS 18/IAS 8 both take a similar stance on changes in accounting policy(ies), i.e. retrospective application. However, the provisions in FRS 18/IAS 8 do not apply to initial application of a change from depreciated historic cost to fair value. A fair value as at 31 March 2011 may well be materially different than as at 31 March 2010.

Be careful - some clients think that they can do a switch back from fair value to depreciated historic cost when things get a bit "too much" for them to maintain market values. There is no more a reliable value than fair value, and a change in accounting policy under FRS 18/IAS 8 is undertaken because management consider the revised policy to present a true and fair view (or "present fairly" if you're talking IFRS speak). This "stance" that both standards take (i.e. you change a policy because it gives a more fairer view) suggests that once you are on the revaluation road, you are there for good due to the inherent uncertainty with depreciated historic cost.

Best regards
Steve

Gill Gittings

Thanks Steve

Barry

Gill and Steve thanks for this as I had a similar situation. A really good reply from Steve. Not challenged either by a certain forumite.