rouse company a real estate developer is well known as 253857

Rouse Company, a real estate developer, is well known as one of the few U.S. companies to have reported the current value of property and equipment in its financial statements. As mentioned in the text of the chapter, IAS 16 permits the inclusion of upward asset revaluations, based on appraisals, in the financial statements. And IAS 40 allows real estate companies to both record investment property in the balance sheet at its fair value and include the associated unrealized gains in the income statement. In Germany, as in the United States, upward revaluations are not allowed. In fact, before being replaced by IASB standards, German rules were seen as encouraging write-downs, resulting in the creation of so-called hidden reserves, which constitute a systematic understatement of assets. In March 1993, Daimler-Benz (one of the two companies that merged into DaimlerChrysler) disclosed that it had hidden reserves of $2.45 billion.

1. Why might real estate companies be among the leaders in encouraging the disclosure of the current value of property and equipment?

2. If German companies have ?ohidden reserves,?? why do you think Daimler-Benz chose to reveal the magnitude of its hidden reserves in March 1993? What is the advantage of having hidden reserves?

3. As an auditor, how would you feel about auditing the financial statements of a company that uses appraisal values instead of historical costs?

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