Chapter 2: Literature Review
2.1 Introduction
This chapter identifies the literature reviewed to explain relevant aspects of the research
study. A literature review is a step by step process where either published or unpublished
work from secondary sources related to the study is collected.
2.2 Overview
2.2.1 The IAS
IAS is the acronym for International Accounting Standards and was issued by the antecedent
IASC. The IAS was endorsed and amended by the IASB. The IASB also reissued some
standards where they thought appropriate.
The IAS’s first standards were IAS 3 and IAS 5 both issued in 1976. IAS 16: Property, plant
and equipment was issued in the year 2003. Their last issued standards were IAS 19, IAS 27
and IAS 28.
The main objective of the IAS is to achieve convergence in presenting a fair picture for
businesses through financial statements. Accepting IAS can have a broad impact on firms.
Firms experience greater market communication because every disclosure should be more
deeply explained by management. This suggests that management becomes more accountable
for running a business and for its results when IAS is adopted.
IAS could be accepted in regards of decision- making processes and with regards to
management. Some businesses found that greater disclosure to IAS decreased the cost of
capital. According to Easley and O’Hara firms that applied IAS had the opportunity to
impinge their cost of capital. Through the IAS selection they adopted policies of corporate
disclosure.
14
,The adoption of IAS adds value to a firm and improves a firms financial reporting and
decreased the cost of preparing financial statements. IAS make financial statements a lot
more credible. There are a lot of articles, like Hung and Subramanyan, 2004 and Barth et al,
2005, that examined the effects of implementing IAS in statements. It was found that when
adopting IAS for the first time some firms saw significant results. These articles found the
total assets and the book value of equity were higher under IAS. Companies who have
adopted IAS experience more volatility in their net income. Operating income can increase
for IAS 16 when adopting IAS.
There have been some improvements made to the IAS throughout the years. The IASB
published an exposure draft. This draft was about improvements made to 12 of the existing
standards. EFRAG (European Financial Reporting Advisory Group) considered the proposed
changes. They developed initial views that are set out in the paper.
The IAS has 5 values. They are accountable, partners, inclusive, evidence-based and human
rights-focused. According to The IAS – Five IAS Values these values stand for the following:
• Accountable
They expect high and ethical standards from themselves and their partners. They are also
clear about their expectations. Their ethical guidelines and requirements are clearly
outlined.
• Partners
They seek to facilitate collaboration and partnerships, to bring people together, to bring
organisations from all fields and levels together to drive progress. They believe that
everyone is better and stronger together.
• Inclusive
They are committed to representing the diversity of those involved in the global HIV
response. They support the greater involvement and, also the engagement of people living
with HIV.
15
, • Evidence-based
Data-driven and consistent with a role as an independent voice of HIV professionals.
They strive to ground all their actions in evidence, and they advocate for the HIV
response. They do this to prioritise science over ideology.
• Human rights-focused
They support people that are working on all fronts of the global HIV response. They support
those who share their vision and their mission. They are committed to human rights,
specifically the rights of those affected by HIV.
2.2.2 IAS 16 – Property, Plant and Equipment
One of the many IAS standards are IAS 16: Property, Plant and Equipment. It is an
international financial reporting standard issued by the IASB. It concerns the accounting
treatment for this standard. Property, Plant and Equipment are fixed assets. The treatment
includes recognition, determination of the carrying amounts, depreciation charges and
impairment losses. IAS 16 was first issued in August 1980 by the IASC in an exposure draft.
In March 1982 the IAS officially issued IAS 16 and it became effective in January 1983.
Another exposure draft was issued in May 1992. It was revised again in December 1993. The
effective date was 1 January 1995. In December 2003 the IASB issued a revised version of
IAS 16. This became effective on 1 January 2005. The IASB amended IAS 16 on 22 May
2008.
Property, plant and equipment is classified as being tangible items. It is used in the
production and supply of goods and services, for rental to others or for administrative
purposes. Some items are not considered to be part of PPE. These items include biological
assets related to agricultural activities and mineral rights and reserves.
2.3 Definitions
• Cost – this is the amount of the cash and cash equivalents or the fair value of the other
consideration that is given to acquire an asset at the time it was acquired or constructed.
• Depreciable amount – this is the cost an asset or other amounts substituted for cost, less
impairment and the residual value.
16
2.1 Introduction
This chapter identifies the literature reviewed to explain relevant aspects of the research
study. A literature review is a step by step process where either published or unpublished
work from secondary sources related to the study is collected.
2.2 Overview
2.2.1 The IAS
IAS is the acronym for International Accounting Standards and was issued by the antecedent
IASC. The IAS was endorsed and amended by the IASB. The IASB also reissued some
standards where they thought appropriate.
The IAS’s first standards were IAS 3 and IAS 5 both issued in 1976. IAS 16: Property, plant
and equipment was issued in the year 2003. Their last issued standards were IAS 19, IAS 27
and IAS 28.
The main objective of the IAS is to achieve convergence in presenting a fair picture for
businesses through financial statements. Accepting IAS can have a broad impact on firms.
Firms experience greater market communication because every disclosure should be more
deeply explained by management. This suggests that management becomes more accountable
for running a business and for its results when IAS is adopted.
IAS could be accepted in regards of decision- making processes and with regards to
management. Some businesses found that greater disclosure to IAS decreased the cost of
capital. According to Easley and O’Hara firms that applied IAS had the opportunity to
impinge their cost of capital. Through the IAS selection they adopted policies of corporate
disclosure.
14
,The adoption of IAS adds value to a firm and improves a firms financial reporting and
decreased the cost of preparing financial statements. IAS make financial statements a lot
more credible. There are a lot of articles, like Hung and Subramanyan, 2004 and Barth et al,
2005, that examined the effects of implementing IAS in statements. It was found that when
adopting IAS for the first time some firms saw significant results. These articles found the
total assets and the book value of equity were higher under IAS. Companies who have
adopted IAS experience more volatility in their net income. Operating income can increase
for IAS 16 when adopting IAS.
There have been some improvements made to the IAS throughout the years. The IASB
published an exposure draft. This draft was about improvements made to 12 of the existing
standards. EFRAG (European Financial Reporting Advisory Group) considered the proposed
changes. They developed initial views that are set out in the paper.
The IAS has 5 values. They are accountable, partners, inclusive, evidence-based and human
rights-focused. According to The IAS – Five IAS Values these values stand for the following:
• Accountable
They expect high and ethical standards from themselves and their partners. They are also
clear about their expectations. Their ethical guidelines and requirements are clearly
outlined.
• Partners
They seek to facilitate collaboration and partnerships, to bring people together, to bring
organisations from all fields and levels together to drive progress. They believe that
everyone is better and stronger together.
• Inclusive
They are committed to representing the diversity of those involved in the global HIV
response. They support the greater involvement and, also the engagement of people living
with HIV.
15
, • Evidence-based
Data-driven and consistent with a role as an independent voice of HIV professionals.
They strive to ground all their actions in evidence, and they advocate for the HIV
response. They do this to prioritise science over ideology.
• Human rights-focused
They support people that are working on all fronts of the global HIV response. They support
those who share their vision and their mission. They are committed to human rights,
specifically the rights of those affected by HIV.
2.2.2 IAS 16 – Property, Plant and Equipment
One of the many IAS standards are IAS 16: Property, Plant and Equipment. It is an
international financial reporting standard issued by the IASB. It concerns the accounting
treatment for this standard. Property, Plant and Equipment are fixed assets. The treatment
includes recognition, determination of the carrying amounts, depreciation charges and
impairment losses. IAS 16 was first issued in August 1980 by the IASC in an exposure draft.
In March 1982 the IAS officially issued IAS 16 and it became effective in January 1983.
Another exposure draft was issued in May 1992. It was revised again in December 1993. The
effective date was 1 January 1995. In December 2003 the IASB issued a revised version of
IAS 16. This became effective on 1 January 2005. The IASB amended IAS 16 on 22 May
2008.
Property, plant and equipment is classified as being tangible items. It is used in the
production and supply of goods and services, for rental to others or for administrative
purposes. Some items are not considered to be part of PPE. These items include biological
assets related to agricultural activities and mineral rights and reserves.
2.3 Definitions
• Cost – this is the amount of the cash and cash equivalents or the fair value of the other
consideration that is given to acquire an asset at the time it was acquired or constructed.
• Depreciable amount – this is the cost an asset or other amounts substituted for cost, less
impairment and the residual value.
16
