F10:IFRS

Question 1

Which organization’s standards are the most authoritative in the hierarchy of international accounting?

Answer 1

The International Accounting Standards Board (IASB)

Question 2

Where is the first place management should look for guidance on international recognition and accounting policies?

Answer 2

The International Financial Reporting Standards (IFRS) issued by the IASB

Question 3

Which framework helps to develop standards for international accounting?

Answer 3

The IASB Framework * The framework is NOT a standard itself * The framework does not supersede any standard’s authority

Question 4

What is the objective of the IFRS framework?

Answer 4

To provide users with information on international accounting.

Question 5

What basis of accounting is allowed under IFRS?

Answer 5

Only the Accrual Basis of Accounting is allowed under IFRS.

Question 6

What are the Qualitative Characteristics of accounting information within IFRS?

Answer 6

Relevance & Faithful Representation Relevance - Makes a difference to the user Includes: Predictive Value - Future Trends Confirming Value - Past Predictions Faithful Representation Includes: Completeness - Nothing omitted that would impact the decision-making of a user Neutrality - Information is presented is without bias Free from Error - No material errors or omissions

Question 7

What are the Enhancing Characteristics of IFRS?

Answer 7

Comparability - Allows users to compare different items among various periods Verifiability - Different people would reach a similar conclusion on the information presented Timeliness - Information is made available early enough to impact the decision making of users Understandability - Information is easy to understand

Question 8

How does comparability differ under GAAP versus IFRS?

Answer 8

Comparative information from prior year is required under IFRS. GAAP requires that if multiple years are presented they are consistently prepared however it doesn’t require prior year comparative statements.

Question 9

What is the Pervasive Constraint within IFRS?

Answer 9

Cost vs. Benefit

Question 10

Which items are considered reporting elements under IFRS?

Answer 10

Asset Liability Equity Income Expense

Question 11

What are the criteria for recognition on IFRS financial statements?

Answer 11

Probable future economic benefit Can be measured reliably If the value or outcome cannot be measured reliably IFRS requires the use of the Cost Recovery Method.

Question 12

When transitioning to IFRS what type of financial statement must be produced for the first reporting period?

Answer 12

A full comparative statement using IFRS.

Question 13

If IFRS was implemented in June 2012 for use in the December 31 2012 financial statements what is the Date of Transition?

Answer 13

January 1 2011 because a full year of comparative statements is required from the previous year

Question 14

For Property Plant and Equipment which election is the most efficient method for converting assets to IFRS?

Answer 14

The Fair Value election

Question 15

Where on the financial statements are adjustments for adopting to IFRS made?

Answer 15

In the entity’s retained earnings or equity

Question 16

How is the completed contract method used under IFRS?

Answer 16

Completed contract method is not allowed under IFRS.

Question 17

How is LIFO treated under IFRS?

Answer 17

IFRS does not allow LIFO.

Question 18

Which financial statements are required under IFRS?

Answer 18

Statement of Comprehensive Income Statement of Changes in Equity

Question 19

How is the term income used in IFRS?

Answer 19

Income is used instead of revenue and encompasses BOTH revenue and gains.

Question 20

How is the term profit used in IFRS?

Answer 20

In IFRS the term profit is used instead of Net Income.

Question 21

How does IFRS treat gains?

Answer 21

They are treated the same as revenue and are not separated on the financial statements.

Question 22

How does IFRS treat losses?

Answer 22

In IFRS losses are treated the same as expenses but they ARE separated on the financial statements.

Question 23

How does refinancing of current liabilities to long-term liabilities under IFRS differ from GAAP?

Answer 23

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.

Question 24

How do contingent liabilities differ between GAAP and IFRS?

Answer 24

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.

Question 25

How are Financial Assets recorded under IFRS?

Answer 25

Recorded on the Statement of Financial Position using one of three methods 1. Amortized Cost 2. Fair Value through OCI or 3. Fair Value through Profit or Loss

Question 26

How are deferred taxes treated under IFRS?

Answer 26

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.

Question 27

When can deferred tax assets and liabilities be netted under IFRS?

Answer 27

ONLY if they are related to the same country/taxing authority For example China Deferred Tax Assets can’t offset Japan Deferred Tax Liabilities

Question 28

Which tax rates are used for calculating deferred tax assets/liabilities under IFRS?

Answer 28

The enacted rate or substantially enacted tax rate. (GAAP is the enacted tax rate only)

Question 29

Which items are recorded on the Income Statement in IFRS?

Answer 29

Income Finance Costs Tax Expense Discontinued Ops Profit/Loss Non-controlling interest in Profit/Loss Net profit/loss attributable from equity

Question 30

How are property plant and equipment (PP&E) recorded and valued under IFRS?

Answer 30

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

Question 31

What are the requirements for using the revaluation model for PP&E under IFRS?

Answer 31

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

Question 32

How is investment property reported under IFRS?

Answer 32

Initially recorded at cost Revalued using either Fair Value model or Cost model

Question 33

How is profit or loss recorded in the current period for investment property under the Fair Value model of IFRS?

Answer 33

Recorded on the Income Statement Investment P/L : IS PP&E P/L : OCI

Question 34

Under IFRS how is investment property reported under the Cost Model?

Answer 34

Carried at Cost minus Accumulated Depreciation Fair Value must still be disclosed in the notes to the financial statements

Question 35

How are leases reported under IFRS?

Answer 35

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

Question 36

How are intangible assets valued under IFRS?

Answer 36

Using either the Cost Model (cost less Accumulated Depreciation and Impairment Loss) or the Revaluation Model (Fair Value less Accumulated Depreciation)

Question 37

How is internally generated goodwill reported under IFRS?

Answer 37

It is not recognized.

Question 38

How is amortization of intangibles handled under IFRS?

Answer 38

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.

Question 39

When must a lease be recorded as a Finance Lease under IFRS?

Answer 39

If the substantial risks of ownership have passed to the Lessee then the Lease must be accounted for as a Finance Lease

Question 40

How are defined benefit plans recorded under IFRS?

Answer 40

Project-unit-credit method calculates the PV of the defined benefit obligation

Question 41

How are interest expense and/or finance costs classified on an IFRS statement of cash flows?

Answer 41

They can be classified as either Operating or Financing Once a classification is chosen all future costs must be classified there

Question 42

How are significant non-cash transactions recorded on an IFRS statement of cash flows?

Answer 42

They must be included in the notes to the financial statements.

Question 43

How are Investments in Subsidiaries Valued?

Answer 43

Investments in Subsidiaries under IFRS are valued three ways: 1. Cost 2. Fair Value 3. Equity Method