1 IFRS Flashcards
Where is the first place management should look for guidance on international recognition and accounting policies?
The International Financial Reporting Standards (IFRS) issued by the IASB
What is the objective of the IFRS framework?
To provide users with information on international accounting.
- Develop single set of high quality, understandable, enforceable, and globally accepted fin report stds
- Promote use and rigorous application of IFRS
- Consider range of size/type of entities
- Convergence
What are the criteria for recognition on IFRS financial statements?
recognized if meets one of element definitions
AND both following 2 recognition criteria:
- It is probable that a future economic benefit associated w/ item will flow to/from entity
- Item has a cost/value that can be measured w/ reliability
When transitioning to IFRS what type of financial statement must be produced for the first reporting period?
A full comparative statement using IFRS.
If IFRS was implemented in June 2012 for use in the December 31 2012 financial statements what is the Date of Transition?
January 1 2011 because a full year of comparative statements is required from the previous year
For Property Plant and Equipment which election is the most efficient method for converting assets to IFRS?
The Fair Value election
Where on the financial statements are adjustments for adopting to IFRS made?
In the entity’s retained earnings or equity
How is going concern different under IFRS than from GAAP?
GAAP: an assumption, unless otherwise stated
IFRS: is an assumption
How is the completed contract method used under IFRS?
Completed contract method is not allowed under IFRS.
How is LIFO treated under IFRS?
IFRS does not allow LIFO.
How does IFRS treat gains?
They are treated the same as revenue and
are not separated on the financial statements.
How does IFRS treat losses?
In IFRS losses are treated the same as expenses
but they ARE separated on the financial statements.
How does refinancing of current liabilities to long-term liabilities under IFRS differ from GAAP?
Under IFRS current liabilities can only be refinanced into a non-current liability if the refinance agreement is EXECUTED prior to the balance sheet date. GAAP requires only *intent* to refinance not actual execution.
How do contingent liabilities differ between GAAP and IFRS?
Under GAAP there are three classifications of contingent liabilities - Probable Reasonably Possible and Remote. Under IFRS contingencies are uncertain future events and are classified as a provision if probable and measurable even if uncertain in timing or amount.
How are bonds recorded under IFRS?
Bonds may be recorded on the Statement of Financial Position using one of two methods Fair Value through profit or loss *Liability revalued at the end of each period *Gain or Loss recognized in period Amortized Cost *Using Effective Interest Method
How are deferred taxes treated under IFRS?
They use the liability method - all deferred tax liabilities must be reported but only probable deferred tax assets can be reported. They are non-current on the statement of financial position.
When can deferred tax assets and liabilities be netted under IFRS?
ONLY if they are related to the same country/taxing authority For example China Deferred Tax Assets can’t offset Japan Deferred Tax Liabilities
Which tax rates are used for calculating deferred tax assets/liabilities under IFRS?
The enacted rate or substantially enacted tax rate. (GAAP is the enacted tax rate only)
Which items are recorded on the Income Statement in IFRS?
Income Finance Costs Tax Expense Discontinued Ops Profit/Loss Non-controlling interest in Profit/Loss Net profit/loss attributable from equity
How are property plant and equipment (PP&E) recorded and valued under IFRS?
Recorded at cost Valued using either: Cost model - asset carried at cost less accumulated depreciation and impairment loss Revaluation model - asset adjusted to fair value less accumulated depreciation
What are the requirements for using the revaluation model for PP&E under IFRS?
Asset must be able to be reliably measured Must be applied to whole class of assets not just one asset No guidance on how often assets should be revalued under IFRS
How is investment property reported under IFRS?
Initially recorded at cost Revalued using either Fair Value model or Cost model
How is profit or loss recorded in the current period for investment property under the Fair Value model of IFRS?
Recorded on the Income Statement Investment P/L : IS PP&E P/L : OCI
Under IFRS how is investment property reported under the Cost Model?
Carried at Cost minus Accumulated Depreciation Fair Value must still be disclosed in the notes to the financial statements
How are leases reported under IFRS?
Operating Leases can be recorded as Investment Property if measured at Fair Value All other investment property must use Fair Value Model if one asset uses it
How are intangible assets valued under IFRS?
Using either the Cost Model (cost less Accumulated Depreciation and Impairment Loss) or the Revaluation Model (Fair Value less Accumulated Depreciation)
How is internally generated goodwill reported under IFRS?
It is not recognized.
How is amortization of intangibles handled under IFRS?
If asset has a finite life it is amortized over useful life. If asset has indefinite life it is not amortized but is tested for impairment at the reporting date.
When must a lease be recorded as a Finance Lease under IFRS?
If the substantial risks of ownership have passed to the Lessee then the Lease must be accounted for as a Finance Lease
How are defined benefit plans recorded under IFRS?
Project-unit-credit method calculates the PV of the defined benefit obligation
How are interest expense and/or finance costs classified on an IFRS statement of cash flows?
They can be classified as either Operating or Financing Once a classification is chosen all future costs must be classified there
How are significant non-cash transactions recorded on an IFRS statement of cash flows?
They must be included in the notes to the financial statements.
What is required for a component or group of components to be included on discontinued operations? What are some examples?
A “strategic shift” is required. Examples include: 1) Discontinued operations in a major geographical region 2) Discontinuing a major product line 3) Disposing of an equity method investment
Are discontinued operations displayed before or net of taxes?
Net of taxes (it’s the first item on the multiple step I/S that is net of taxes)
Can a business component that hasn’t been disposed of still be included in discontinued operations?
Yes! If it qualifies as being “held for sale”: 1) Commitment of plan to sale 2) Component is in salable condition 3) Actions to complete plan for disposal has been initiated and byer is being sought 4) Sale price is reasonable 5) Unlikelihood that significant changes will be made to plan or that it will be withdrawn
Are expected gains and losses on discontinued operations recognized before they occur?
Usually not, unless there is an anticipated impairment loss (CV > NRV) at the anticipated disposal date.
When might an expected future amount be included in income from discontinued operations?
When there is an anticipated impairment loss (CV > NRV) at the anticipated disposal date.
Following the disposal of a component, how are comparative financial statements prepared?
The operating income attributable to the component from prior years will be moved into the discontinued operations category for the prior year in order to compare “apples to apples”
How do IFRS and GAAP differ with regard to extraordinary items?
No! Extraordinary items don’t exist under IFRS
What qualities must a transaction possess in order to be booked as an Extraordinary item?
1) Unusual in nature 2) Infrequency of occurrence 3) Material
How is comprehensive income required to be displayed?
In one of two ways: 1) As a separate statement of comprehensive income (immediately following the income statement) 2) In a combined statement of income and comprehensive income
What comprises other comprehensive income (OCI)?
“D-E-N-T” 1) Derivative cash flow hedges 2) Excess adjustment of Pension PBO and FV of Plan assets at year end 3) Net unrealized gain/loss of Available-for-sale Securities 4) Translation gains and losses
What comprises comprehensive income?
Net income + OCI
Are prior period adjustments included in comprehensive income?
Despite being a form of comprehensive income, isn’t reported in the OCI section of the statement, but rather is reported on the Statement of Retained Earnings
What type of expense is interest expense?
Non-operating (not G&A)
How does IFRS refer to interest expense?
Finance or financing costs
What did the 1933 Federal Securities Act establish?
“S-P-I-N” Companies satisfying the following are required to register with the SEC: 1) Securities 2) Public Issue 3) Interstate commerce 4) No exemptions
What did the 1933 Federal Securities Regulation Act establish?
Ongoing reporting requirements for publicly traded companies
What does Regulation S-K establish?
Requirements for the content of nonfinancial data that companies with registered securities must file with the SEC.
What does Regulation S-X establish?
Requirements for the content of financial data that companies with registered securities must file with the SEC.
What are the filing deadlines for filing a form 10K?
60 days if > $700M (large accelerated filer) 75 days if >$75M, but
What are the filing deadlines for filing a form 10Q?
40 days if large or accelrated (>$75M) 45 days if small (
When is an 8K filed? What are the filing deadlines associated with its filing?
When there is an event of major significance, such as a bankruptcy, change in directors, acquisition or disposal of assets, change in executive officer or auditor. Required to be filed within 4 days of event.
Under IFRS, what comprises a complete set of financial statements?
1) Statement of financial position 2) Statement of profit or loss and OCI 3) Statement of changes in equity 4) Statement of cash flows 5) Notes containing significant accounting policies and other info
Under IFRS, can assets and liabilities or income and expenses be offset against each other?
No, neither are permitted under IFRS unless they apply to allowance accounts (depreciation, etc.)
Does IFRS also use the term net income?
No, PROFIT is the preferred term
Do GAAP and IFRS recognize biological assets?
Only IFRS statements do.
Under IFRS, are deferred tax liabilities and assets ever current?
No, they are always non-current
How do IFRS and GAAP differ in reporting interest received on the statement of cash flows?
Under GAAP, interest received is an operating activity, whereas it can be either an operating activity or investing activity under IFRS (just has to be consistent).
How do IFRS and GAAP differ in reporting interest paid on the statement of cash flows?
Under GAAP, interest paid is a financing activity, whereas it can be either an operating or financing activity under IFRS (just has to be consistent).
How do IFRS and GAAP differ in requiring comparative information?
IFRS requires comparative information, whereas it is optional under GAAP
IFRS Hierarchy
Level 1
- IFRSs and implementation guidance dealing with specific issues or similar situations
Level 2
- definitions, recognition criteria, and measurement concepts for A, L, income and expenses in the framework
Level 3
- pronouncements from other standard setting bodies using similar framework
IASB standard setting process
- Similar to FASB, 6 stages
- Set agenda
- Plan project
- Develop/publish discussion paper
- Develop/publish exposure draft
- Develop/publish standard
- Address unanticipated issues after std is issued
-
International Organization of Securities Commissions, IOSCO
- Global cooperative body of national securities regulatory agencies
- Agreement w/ IASC to endorse use of international stds for cross border listings on stock exchanges
IFRS general purpose FS
- Balance sheet
- Income statement
- Statement of changes in financial position (cash flows)
- Notes/supplementary material
IFRS v GAAP
Big convergence project common conceptual framework,
- 8 phases
- Objective/qualitative characteristics
- Elements/recognition
- Measurement
- Reporting entity
- Presentation/disclosure
- Framework for a GAAP hierarchy
- Applicability to not for profit sector
- Remaining issues
- First phase complete: objectives, qualitative characteristics, constraints all same in IASB
IFRS Framework
Similarities to GAAP
Objective
- decision usefulness
Qualitative characteristics
- relevance, faithful representation
Enhancing Characteristics
- comparibility, verifiability, timeliness, understandability
Constraint
- cost-benefit
Financial Statements
- reports that provide info about A, L, equity, income, expenses
Elements
- A, L, Eq, Income, expenses
IFRS Framework
differences from GAAP
only 2 assumptions
- accrual method used
- entity is going concern
explicitly describes PRUDENCE
- exercise of caution when making judgements under conditions of uncertainty
Income Statement
- primary source of info about performance during reporting period
IFRS vs GAAP
INCOME
ELEMENT
- IFRS: Income is an element, includes revenues and gains
- GAAP: not used, rev/gains are separate elements
as a CALCULATION
- GAAP:
- a calculation: Net Income, Comprehensive Income
- or specific type: interest income
- IFRS: uses profit instead of Net Income
IFRS
5 elements
(definitions)
Assets: a resource controlled by entity as result of past events and from which future economic benefits are expected to flow to entity
Liabilities: present obligation of entity arising from past events, settlement is expected to result in outflow of resources embodying future benefits
Equity: residual interest in A after subtracting L.
- Subcategories: shareholder contributions, RE, reserves for appropriations or capital maintenance
Income: increases in economic benefits deriving from increases in assets/decreases in L, that result in increases in equity
- Can be realized/unrealized
- Both revenue (ordinary activities) and gains (can be ordinary activities, or not)
Expenses: decreases in economic benefit from decreases in A/increases in L, result in decreases in equty (not distributions to SH)
- May be realized/unrealized
- Both expenses (ordinary) losses (both ordinary or not)
4 Frameworks
- standard setting body
- users
- applicability (required/elected)
- authoritative guidance
US entity that is NOT required to use either US GAAP or full IFRS can use one of 4 bases of accounting
- Elect to use US GAAP
- Elect to use full IFRS
- Use Other Compre Basis of Acc
- Use IFRS for SMEs
Each would be considered application of GAAP and can be audited by US CPA
IFRS for SMEs
who can use
Used by entities do NOT have public accountability
Following CAN’T use b/c would have public accountability
- If required to file FS w/ securities commission (or other reg body)
- Entities that hold assets in fiduciary capacity for broad group of outsiders:
- Banks, insurance companies, broker/dealers of securities, pension funds, mutual funds
- Not-for-profit or govt entities
IFRS for SMEs
characteristics
Based on accrual basis, but less complicated/long
Simplifications from GAAP ex:
- Use of cost to account for (instead of FV)
- financial A/L
- investments w/ signif influence
- inventories at FIFO or weighted avg, no LIFO
- capitalization of interest incurred during construction of asset not required
- PPE components depreciation based on components approach if have different consumption
- GW/intangible A amortized w/ limited life, if not estimated use 10yr period
- Impairment of GW is 1 step, can be reversed in some cases
- Simplified approach to temp differences in income tax accounting
- Restriction of hedge types allowed
- No requirement on EPS or segment disclosures
IFRS Financial Statements
emphasis
format
Emphasizes long-run perspective
Assets
- Noncurrent (PPE, intang, Inv)
- Current (inventories, trade rec, cash/cash equiv)
- Total assets
Equity
- Equity attrib to owners of parent (share capital, RE, noncontrolling interest(
Noncurrent liaiblities
- long-term borrowings, deferred income taxes
Current liabilities
- trade payables, short-term borrowings, current tax payable
Total equity and liabilities
IFRS
definitions
- current asset
- current liability
Current asset: meets one of:
- Realized in normal operating cycle, or w/in 12 m after reporting period
- Held for purpose of being traded
- Cash or equiv unless restricted to settle L 12 m ore more later
Current liability: meets one:
- Settled in normal operating cycle or w/in 12 m after reporting peiord
- No unconditional right to defer settlement for at least 12m after
IFRS v GAAP
Income Sheet
General
- GAAP: single-step or multiple-step format w/ defined bottom portion
- IFRS no madate
Terminology
- Bottom line:
- GAAP = net income (loss)
- IFRS = profit/loss for period
- Sales
- GAPP = revenue
- IFRS = some use “turnover”
Requirements
- if material, in I/S or footnote
Expense classifications by either
-
Function: activity to which expense relates: cost of sales, distrib costs, admin expense
- More prevalent
- Nature: type of expense: changes in inventories of FG and WIP, RM and consumables used, employee benefit expense, depreciation/amort expense
IFRS v GAAP
St of Comprehensive Income
Comprehensive Income per share:
- GAAP: prohibited
- IFRS: allowed
5th OCI** item - **Revaluation Surplus
- GAAP prohibits
- IFRS: Can revalue plant assets and intangibles to FV
IFRS v GAAP
St of Shareholders’ Equity
are similar
- GAAP: can be in footnotes
- IFRS: must have separate statement
IFRS v GAAP
St of Cash Flows
difference in classification
