IFRS Flashcards
How does IFRS view Interim Financial Reporting?
IFRS does NOT mandate Interim Reporting. GAAP does.
IFRS views each interim periods as a discrete reporting period.
GAAP views Interim Periods as an Integral part of an Annual period
IFRS definition of Value in Use
The present value of the asset’s expected Cash Flows.
The recoverable amount of an asset is the gerater of it
Fair Value MINUS Cost to Sell
or
Value In Use
How does IFRS report the stmt of Comprehensive Income?
- Revenue
- Finance Costs
- Share of Profits and Losses of Equity Method
- Tax Expense
- After Tax Profit Loss on Disc. Ops.
and After Tax Gain on disposal
- Profit or Loss (Not Net Income)
- Each Component of OCI classified by nature
- Share of the other OCI equity method
- Total Comprehensive Income
How does IFRS calculate the amount of provision for a Liability?
An entity is subject to warranty claims. A reliable estimate is that between $1 million and $3 million will probably be paid out. No estimate of loss within this range is more likely than any other.
IFRS takes the mid point, of $2million between 1 and 3 Mill….whereas GAAP takes the low point of $ 1 million or most likely estimate.
Under IFRS, the impracticability exception applies to which of the following?
Retrospective Application of a New Accounting Policy
Retro. App. of a Prior Period Error
Retrospective application of a new accounting policy is not done if it is impracticable to determine period-specific effects or the cumulative effect. Impracticable means that the entity cannot apply a requirement after making every reasonable effort
When an Investor is presumed to have a Significant Influence, how must the Interest be accounted for under IFRS?
Under IFRS, when an entity is presumed to have signficant influence over its investee it must account for its investement under only the EQUITY METHOD
GAAP may use Fair or Equity Method when it has significant influence
Under IFRS which policies may an entity apply to measure INVESTMENT PROPERTY?
Cost Model or Fair Model.
Cost Model= Cost - Accum Depr. - Impairments
Fair Model- Remeasured at Far Value
G/Ls are recognized immediately in Profit or Loss
How does IFRS determine the cost of Inventory?
Lower of Cost or Net Realizeable Value
NRV Under IFRS:
the estimated selling price in the ordinary course of business minus the estimated costs of completion and sale.
Which methods does IFRS use to evaluate Plant Property and Equipment (PPE)?
Cost or Revaluation Model
Cost= Cost - Accum Depr. - Impairment Losses
Revaluation Model
Increases in Value - OCI
Decreases in Value - Expense
Must be applied to whole class, no guidance to how often it must be revalued
When are loss contingency provisions required for IFRS?
recognition of provisions is required when (1) the entity has a legal or constructive present obligation resulting from a past event (called an obligating event), (2) it is probable that an outflow of economic benefits will be necessary to settle the obligation, and (3) its amount can be reliably estimated. Thus, no obligation described meets the recognition criteria for a provision. Hence, each is a contingent liability and requires disclosure unless the possibility of the outflow of resources is remote. Thus, items I and II but not III are disclosed.
What is the difference between IFRS guidance for Business Combos and GAAP?
IFRS requires a subsidiary’s stmts used in preparation must be adjusted to reflect uniform acct. policies with the parent
GAAP does not require the Parent to adjust the subsidiary’s accounting policies to make them uniform with theirs
How dsoes IFRS treat interest income on plan assets for the period?
IFRS, interest income on plan assets for the period is recognized in profit or loss.
It equals the fair value of the plan assets at the beginning of the year (adjusted for contributions and benefit payments during the year) times the same discount rate used to discount the defined benefit obligation.
What is the difference between GAAP and IFRS carrying amounts of PPE?
GAAP cannot carry an item of PPE at an amount above its historical cost.
IFRS can carry an item at its revalued amount, which can be greater than its historical cost
Under IFRS an asset is impaired when its carrying amount exceeds its recoverable amt.
The recoverable amt under IFRS is:
The greater of its
fair value minus cost to sell
or value in use***.
The present value of the asset’s expected cash flows
What is the difference between GAAP and IFRS valuation of Non Controlling Interests?
According to IFRS, at the acquisition date the acquirer may measure NCIs at
(1) fair value or
(2) their proportionate share of the fair value of the acquiree’s identifiable assets and liabilities.
GAAP can only use Fair Value
What is the difference between GAAP and IFRS regarding Impairment of Long Lived Assets
IFRS allows impairment reversals in subsequent period on Long Lived Assets if a change in the estimates to measure the recoverable amount changes.
Under GAAP the reversal of Impairment Losses is PROHIBITED.
How does IFRS measure and report Intangible Assets?
Cost or Revaluation Model.
Revaluation model may be chosen only if the intangible asset has an active market
What is the difference between IFRS and GAAP adjustments of Inventory.
IFRS permits the reversals of adjustments in a subsequent period, allowing Inventory to be written up to the extent of the previous write down.
GAAP does not allow the reversal of a previous write- down on inventory.
Cash paid for For Interest or Dividends under IFRS may be in what category?
Operating or Financing
Cash received for Interest or Dividends may be reported in what category?
Operating or Investing
Which items do NOT qualify to be Depreciated under IFRS?
Investment Property accounted for under the Fair Value Method
Non Current Asset held for Sale
What is the Residual Allocation Method?
Proceeds of bonds issued with detachable share purchase warrants must be assigned based on the residual allocation method.
The Liability Account is measured at Fair Value
and the residual proceeds is assigned to the equity component.
Impairment Method for IFRS?
Carrying Amount
MINUS
the greater of
FV MINUS Cost of Disposal
or Value in Use
=Impairment Loss
What is the difference between IFRS and GAAP in regards Going Concern?
Under IFRS, auditors assume the entity is a going concern.
Under GAAP the auditor makes that determination, if it is indeed a going concern
What are the 5 elements under IFRS?
Asset
Liability
Equity
Income (NOT REVENUE) (contains gains)
Expense (contains losses)
How does IFRS recognize Revenue?
Probably Future Economic benefit and can be measured reliably.
Cost Recovery method if the value or outcome cannot be measured reliably. NO COMPLETED CONTRACT
GAAP uses completed contract method.
Which statements are required under IFRS and not under GAAP?
Comparative Financials required under IFRS
Statement of Comprehensive Income Required
Statement of Changes in Equity Required
These are not required under GAAP
What is the IFRS date of transition?
If IFRS is implemented in June 2010 for use in 2010 financials,
the date of transition is actually January 1, 2009 because a full year of comparative stmts are required from the previous year
How are bonds reported under IFRS?
Fair Value through profit or loss
or
Amortized Cost
How are Deferred Taxes reported under IFRS?
Use the Liability Method
All Deferred Tax Liabilities must be reported
Only Probably Deferred Tax Assets can be reported
Deferred Tax Assets and Liabilities are NON CURRENT
Deferred Tax Assets and LIabilities can be netted only if they are related to the same taxing authority
What does Tax Rates are used under IFRS?
The Enacted Tax Rate
or Substantially Enacted Tax Rate
GAAP only uses the Enacted Tax Rate only
How are Operating Leases treated under IFRS?
Can be recorded as Investment Property if measured at Fair Value
Where are significant non-cash transactions recorded under IFRS?
Must be included in the Notes to Financial Stmts
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT…. an increase in the value would go under other comprehensive income.
Losses> Income Stmt
Gains> OCI
Under IFRS, a contingent loss must be recognized if it is…
More likely than not. Even just 51% vs 49% meets this criteria
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
How are bilogical assets valued under IFRS?
Fair Value Less Costs To Sell
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
at amortized cost
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, THe IFRS Advisory Council and the IFRS Interpretations Committe.
The trustees serve 3 year terms
What are the objects of the IFRS foundation?
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
What does the IASB do?
They establish IFRS reporting standard but they do NOT have enforcement power.
ENforcement is the responsibility of the securities regulators in the national jurisdictions
What does the IFRS interpretations committee do and who appoints the members?
They are similiar to the FASB’s emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
What are the statements required for a first time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity.
Basically they need 3 balance sheets and 2 of everything else.
IFRS and Borrowing Costs
Must be capitalized if meeting certain criteria
If not meeting criteria…
Must be expensed
Borrowing costs must be capitalized if they are related to the acquisition of a qualifying asset
Finance Costs (interest expense must be disclosed
IFRS Acceptable Methods of Accounting for T-Stock
- Par Value
- Cost Method
- Constructive Retirement Method
How is compensation expense calculated for Stock Options?
Options are measured at the Fair Value at the GRANT DATE, allocated over service period
How is ending ARO balance calculated?
BEGINING ARO
+ DISCOUNTED CASH FLOW ESTIMATES OF CURRENT ASSETS PURCHASED
- PAYMENTS
+ ACCRETION EXPENSE
=ENDING BALANCE ARO
Under GASB Concepts Stmts, what is an essential characteristic of a liability?
A liability is a present obligation to sacrifice resources.
Under GASB what defines a Deferred Outflow of Resources?
A liability that involves a consumption of net position by the government.
Stock Dividends vs Stock Splits
Stock splits decline the par value of the stock in proportion to the stock split
NO EFFECT ON A=L+SE
Stock dividends do NOT change par value.
How is Net Patient Service Revenue calculated?
Net Patient Service Revenue
Gross Patient Service Revenue 860
Bad Debts Expense 10
Contractual Adjustments 100
Allowance for discounts for hospital employees 35
860 - 100 -35 = 725
Bad Debts is an operating expense, not a contra to gross patient service revenue.
How is Royalty expense calculated?
10% of Net Sales
Returns Estimated to be 1%
Gross Sales 600,000
Royalty Income=
600 * .99% = 594,000
594,000 * .10% = 59,400
How are costs to develop software for internal use treated after the app development stage?
Amortized over the economic life o the product
What are the four conditions necessary for accrual of employees compensation for future absences according to FASB?
- rights to compensation vest or accumulate,
- payment of compensation is probable,
- amount of payment can be reasonably estimated, and
- the compensation is attributable to employees’ services already rendered.
What is the primary measurement focus of the Govt?
The governmental fund reporting focuses primarily on the sources, uses, and balances of financial resources.”
The financial statements for governmental funds use the current financial resources measurement focus
Flows and balances of financial resources
if a government facility uses cash basis for the budget….
it can use it for the actual.
GASB 2400.103 requires modified accrual basis, so the government facility needs to include a separate schedule or notes to the required supplementary information that reconcile the budget amounts with the GAAP amounts (modified accrual basis).
How are losses related to to Discontinued Operation treated?
In a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business entity or statement of activities of a not-for-profit entity (NFP) for current and prior periods shall report the results of operations of the component, including any gain or loss recognized in accordance with paragraphs 360-10-35-40 and 360-10-40-5, in discontinued operations. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income
Under a pledge, an account receivable is used as collateral for a loan…who retains control of the Receivables?
The company that pledged the receivables
What are the characteristcs of a Govt organization>
Status as bodies corporate and politic
Power to enact and enforce a tax levy
Promised contributions to be collected in a future year…
Should be classified as temporarily restricted assets
Prospective fiancial statements include which disclosures?
Both summary of signficant accounting policies and summary of signficant assumptions
Purpose of the notes to the Financial Statements?
Provide Disclosures required GAAP
When a Subsidiary’s Functional Currency is its Local currency?
Is it translated or remeasured?
Translated at the Current Rate
If the Sub’s functional currency was its reporting currency, it would be remeasured.
Non Monetary….Historical Rates
Monetary….Current Rates
Impaired long-lived assets to be disposed of by sale that are subject to FASB ASC 360-10-35 are measured at:
Lower of:
Fair Value LESS Costs to Sell
or
Carrying Amount
Bale CO. incurred 100,000 of acqusition costs related to the purchase of the net assets of Dixon Co.:
The 100,000 Acquisitions Costs should be:
Acquisition of Net assets are Expensed as incurred in the current period
The costs to acquire stock or bonds must be included in the cost of the stock or bonds
How are transfers from the General Fund recorded?
Other Financing Uses
NOT expenditures
What are the following functional expense categories for a non governmental not for profity entity?
Program services
Management and General
Fundraising
Are inter governmental revenues included in the General Fund?
YES
Governments usually prepare their budgets showing estimated revenues and estimated expenditures or appropriations on a basis consistent with financial reporting. This budget includes revenues, increases in the general fund resources not matched by decreases in another fund resources, and also expected interfund transfers.
Interfund transfers are recognized in the records as “other financing sources” and result from a movement of resources from one fund to another. Property taxes, licenses and permits, and intergovernmental revenues will all be represented in the budget as “estimated revenues.” The expected transfers in will be represented by “estimated other financing sources” in the budget.
A. A. Corporation has a loading dock that is situated next to a local highway. Recently, a new major highway was completed nearby, which bypasses the loading dock, and has thus made the installation of questionable future value to the corporation. The carrying amount of the loading dock is $400,000. The undiscounted present value of the future cash flows related to the loading dock is $410,000. The discounted present value of the future cash flows related to the loading dock is $380,000. The loading dock could be sold for $401,000 right now, less a broker’s commission of $6,000. If A. A. Corporation applies IFRS, does it need to recognize an impairment loss?
“No, since the undiscounted cash flows are larger than the carrying value,” is wrong, but would be the rule under U.S. GAAP today, IFRS does not use undiscounted future cash flows.
The answer choice, “No, because the dock can be sold for its carrying value,” is wrong because IFRS uses net realizable value, not gross sale proceeds, for impairment tests. An asset is tested under IFRS for impairment, when there is reason to suspect loss in value. The test is to determine if the carrying value is recoverable.
The recoverable amount is the greater of value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). Here, that is $401,000 less the broker commission of $6,000, or $395,000. Since this is greater than the value in use ($380,000), the recoverable amount is $395,000, which is $5,000 below the carrying value, and thus A. A. recognizes an impairment loss of $5,000.
In preparing combined financial statements for a governmental entity, interfund receivables and payables should be:
Reported as amounts due to and from other funds
NOT eliminated
does not affect the fund balance or net position of either fund involved.
Not reported as other financing sources or uses in the Govt fund stmts
Entities under common management of a parent should disclose…
Should disclose the fact that they are under common management and a consolidated part of the Parent Entity, regardless if transactions took place.
What constitutes Internal Service Funds?
They are Enterprise Funds used to account for activities in which one department in a governmental unit provides services exclusively to other departments within the governmental unit, generally on a cost reimbursement basis.
Unrealized gains on investments which are permanently restricted as to use by donors are reported by a private, non profit hospital on the…..
Investment Returns RESTRICTED by donors are reported on the Statement of Changes in Net Assets
Investment Returns NOT restricted by donors are reported on the Statement of Operations.
If a state or local government files for bankruptcy under Chapter 9 of the US bankruptcy Code,
accounts payable should be:
Remeasured based on the Plan of Adjustment
Which is NOT a similiarity between interim reporting for US GAAP and IFRS?
For interim reporting
GAAP allows an inventory loss from a market decline to be deferred even if the market decline is expected to reverse by years end.
IFRS uses lower of cost or NRV even if a market decline is expected to reverse by year end
Similarities between US GAAP and IFRS Interim Reporting
A. Revenue from long-term construction contracts should be recognized as earned during an interim period on the same basis as followed for the full year.
B.Material seasonal fluctuations may not be smoothed in interim information.
C.Ordinarily, the results for an interim period should be based on the same accounting principles the entity uses in preparing annual statements.
D.Interim partial liquidation of a LIFO layer need not be reported if it is expected to be recovered by year end.
IFRS should adjust the statements for the following scenarios that happen before Issuance
Jan 1 thru February 28th*** Issuuance of Stmts
Stock Splits
Write off of a receivable for a debtor that claimed bankruptcy in January and was know to be deterioarting
Settlement of extended litigation in excess of a previous liability
HOWEVER a business combo that happens in January is applied to the next year, not the previous
What is required for Acct Policies for IFRS?
Uniform accounting policies are required for like transactions and events in similar circumstances
Under IFRS when does an entity derocognize a Financial Asset when transferring the rights to the cash flows of the Investment?
If the entity does not retain
or does transfer substantially all risks and rewards of ownership and does not retain control.
Under IFRS, a chgange from FIFO to Weright Average Inventory Cost Formula when costs are falling has what effect?
Maximizes profits.
In a period of falling costs, FIFO results in higher cogs tahn the weight average method
How does IFRS measure Investment Property?>
Fair Value or Cost Model
FV MODEL- all Gains and losses are recognized immediately in profit or loss
Intangibles, PPE, Inventory: Cost or Revaluation
GAINS to OCI, LOSSES to expense
IFRS Value in Use
The presented value of the future cash flows expected to be derived from an asset
GAAP vs IFRS
Impairment Loss Reversals
Under IFRS an impairment loss on an asset may be reversed in subsequent periods if a change in the estimates used to measure the recoverable amount has occured.
GAAP prohibits the reversal of impairtment losses
UNder IFrs, an entity may use the revaluation model for subsequent measurement of an INTANGIBLE ASSET only if:
An active market exists for the intangible asset
Impairment Test for a CGU with Good Will under IFRS?
The carrying amount of a CGU exceeds its recoverable amount.
NO differnt than any other impairment
Under IFRS, which of the following statements is true regarding remeasurements of plan assets by an entity that sponsors a defined benefit pension plan?
They must be recognized in OCI and must not be reclassified to profit or loss in subsequent periods.
Interest rates to discount pensions under IFRS vs GAAP
Under U.S. GAAP, different interest rates ordinarily are used to calculate interest cost and the expected return on plan assets.
Under IFRS, the same rate is used to discount the defined benefit obligation (interest cost) and to calculate interest income on plan assets
Interest income on plan assets for IFRS…
Recognized immeditaely in profit or loss
Under IFrs Certain Bank Overdrafts may be conisdered Cash and Cash Quivalents if:
- rapayable ond emand
- part of an entitys cash management
What is the difference between IFRS and GAAP treatment of Bond Issue Costs?
GAAP puts them in a deferred charge asset account and amortizes them
IFRS nets them and they reduce a premium or add to a discount.
