1 IFRS Flashcards
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
Does IFRS also use the term net income?
No, PROFIT is the preferred term
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
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
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
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 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
How is going concern different under IFRS than from GAAP?
GAAP: an assumption, unless otherwise stated
IFRS: is an assumption
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.
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.
