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IFRS Flashcards

1
Q

What are the first three measures to ensure public accountability for the IFRS Foundation?

A

Trustees monitor governance arrangements

Trustees are assessed annually by Due Process Oversight Committee

Trustees are connected to Monitoring Board, composed of various public capital market authorities

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2
Q

What are the second three measures to ensure public accountability for the IFRS Foundation?

A

The Constitution requires trustees to make a formal, public, five-year review of it

Due process for IASB, IFRS Interpretations Committee, and others (e.g. requiring public consultation, such as comment letters)

All meetings are publicly held and webcast

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3
Q

What did the IFRS Foundation used to be called?

A

The IASC Foundation

IASC = International Accounting Standards Committee

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4
Q

What is the 12-person group of the IASB that helps interpret standards?

A

International Financial Reporting Interpretations Committee (IFRIC)

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5
Q

What is the 40-person group of the IASB that provides accounting advice on standards?

A

Standards Advisory Committee (SAC)

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6
Q

What is the 22-person group that oversees operations of the IASB?

A

Trustees Appointments Advisory Group

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7
Q

What are the six stages of forming IFRS?

A
  1. Setting the agenda
  2. Planning the project
  3. Developing and publishing the discussion paper
  4. Developing and publishing the exposure draft
  5. Developing and publishing the standard
  6. After the standard is issued
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8
Q

What is the main criterion for the IASB adding an item to its agenda?

A

The needs for users of financial statements

Secondary is the usefulness to financial statement preparers

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9
Q

What is IFRS 1, and when was it published?

A

First-Time Adoption of IFRS – published in 2003

Not a static standard, but changes to ease the burdens of adopting IFRS

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10
Q

What is the general principle of IFRS 1?

A

That IFRS effective at the date of a company’s first IFRS financial statements should be applied retrospectively

Goal is to make it as if the company had followed IFRS from its inception

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11
Q

What are the two restrictions on retrospective application for IFRS 1?

A

Mandatory exceptions and optional exemptions

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12
Q

What are the mandatory exceptions for IFRS 1?

A

Accounting estimates

De-recognition of financial assets/liabilities

Hedge accounting

Noncontrolling interests

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13
Q

What does IFRS 1 define as a company’s first IFRS financial statements?

A

The first annual financial statements in which the company adopts IFRS by an “explicit and unreserved” statement of compliance

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14
Q

What are some borderline cases that are considered first financial statements by IFRS 1?

A

Statements…

  • with the explicit statement that also abide by national requirements inconsistent with IFRS
  • conforming to IFRS in all respects but lacking an explicit statement
  • containing an explicit statement for some, but not all, IFRS
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15
Q

What are some cases that are not considered first financial statements by IFRS 1?

A

Basically, any statements that already complied with IFRS in previous statements, whether with an explicit statement or not

This is the case even if auditors had a qualified opinion on those statements

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16
Q

What is the date of transition for the first IFRS balance sheet?

A

The beginning of the earliest period for which a company presents full comparative info under IFRS

E.g., if the current-year B/S is under IFRS and has last year’s info for comparative purposes, the beginning of last year is the date of transition (even though the B/S date might be for the year ENDING on Dec. 31, XX)

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17
Q

What might IFRS require a company to do with their assets and liabilities?

A

Derecognize them, recognize new ones, reclassify them, and/or remeasure them

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18
Q

In applying IFRS 1, what may be done with assets carried at cost?

A

Assets may be revalued to FV – that is, FV becomes the “deemed cost” under IFRS

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19
Q

How should a company report adjustments made from applying IFRS?

A

Recognize them in RE

Exception: don’t do this for reclassifications between goodwill and intangible assets

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20
Q

What are the required statements that must be included in a company’s first IFRS statements?

A 
3 balance sheets (including one at date of transition)
2 statements of profit or loss and OCI
2 separate statements of profit or loss
2 statements of cash flows
2 statements of changes in equity
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21
Q

Under IFRS 1, if a company presents certain info from previous years, does it have to comply with IFRS?

A

No, although the company must clearly state that it is not IFRS and how the figure would be adjusted to comply with IFRS

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22
Q

What general disclosures are required by IFRS 1?

A

Companies must provide reconciliations clearly explaining how the change from GAAP to IFRS affected their balance sheet, income statement, and cash flows

Reconciliations must identify any errors in the previous statements

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23
Q

How many years of comparative information are first-time issuers required to present?

A

At least one

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24
Q

What is IFRS 1’s guidance on accounting estimates?

A

Estimates made under previous GAAP cannot be adjusted simply because the company now has better knowledge at a later date

They can be adjusted for other reasons (e.g. correcting an error), however

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25
Q

What is IFRS 1’s guidance on hedge accounting?

A

Something counts as a hedge only if it has been designated and proven to be effective on or before the date of transition (e.g. can’t be done retrospectively)

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26
Q

For the IFRS, what is the hierarchy of sources to use in seeking guidance for an accounting situation?

A

Besides, IFRS directly covering the situation…

  • guidance in other IFRS covering similar situations
  • info contained in the IFRS conceptual framework
  • pronouncement of other bodies similar to IFRS, as well as other practices
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27
Q

How is IFRS different on the presentation of expenses in financial statements?

A

Expenses can be presented according to function or nature (GAAP requires function)

If function is chosen, nature must still be disclosed

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28
Q

What does IFRS forbid from appearing on the income statement?

A

Extraordinary items

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29
Q

How are GAAP and IFRS different in their income statement requirements?

A

GAAP requires three years, IFRS requires two

Income attributable to a NCI is required under IFRS, but not under GAAP

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30
Q

What are six differences between GAAP and IFRS regarding the balance sheet?

A

(1) IFRS requires a third B/S when the company restates its financials or retroactively applies a new policy
(2) IFRS lists current assets in reverse order of liquidity
(3) IFRS permits liabilities before assets, and noncurrent items before current
(4) IFRS requires net current liabilities to be offset against net current assets (working capital)
(5) IFRS requires bond discounts/premiums to be netted against the liability, not stated separately
(6) IFRS requires debt issuance costs to reduce debt’s carrying amount (rather than be a separate item and amortized)

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31
Q

How do GAAP and IFRS differently treat noncash activities on the statement of cash flows?

A

IFRS does not include noncash investing and financing activities (they’re included in notes), while GAAP requires them at the bottom of the statement

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32
Q

On the statement of cash flows, how do GAAP and IFRS differently treat bank drafts?

A

GAAP doesn’t count them as cash, but IFRS does if the company uses them in cash management

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33
Q

How do GAAP and IFRS differ on the direct or indirect methods on the statement of cash flows?

A

GAAP permits indirect method, but IFRS requires direct method

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34
Q

How do GAAP and IFRS differ in classifying activities on the statement of cash flows?

A

GAAP = interest exp/rev and dividend rev are operating, dividend exp is financing

IFRS = interest and dividend exp can be either operating or financing
-interest and dividend rev can be either operating or investing

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35
Q

How are IFRS and GAAP different on day-one gains/losses regarding FV?

A

GAAP allows day-one gains/losses for any difference between cost and FV, but IFRS restricts these gains/losses when FV is measured with unobservable inputs

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36
Q

For FV measurement, how do IFRS and GAAP differ regarding alternative investments?

A

GAAP provides extra practical help on measuring alternative investments, which IFRS lacks

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37
Q

Which FV disclosure requirements are different for IFRS and GAAP?

A

GAAP does not require quantitative measurement uncertainty analysis, but IFRS requires it for financial instruments measured with a level 3 FV measurement

GAAP exempts nonpublic companies from various disclosures, but IFRS does not

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38
Q

How do IFRS and GAAP differ in their conceptual assumptions?

A

GAAP has four, but IFRS has only two: going concern and accrual basis

Going concern is one of four GAAP assumptions

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39
Q

How do IFRS and GAAP differ in their qualitative characteristics?

A

GAAP has two fundamental and four enhancing, but IFRS has four total: understandability, relevance, reliability, and comparability

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40
Q

How do IFRS and GAAP differ on explaining the qualitative characteristic of relevance?

A

They don’t – both see it as comprised of:

  • predictive value
  • confirmatory role
  • materiality
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41
Q

How do IFRS and GAAP differ on explaining reliability?

A

GAAP doesn’t have reliability as a distinct characteristic

IFRS has four parts to it:

  • faithful representation
  • substance over form
  • neutrality
  • prudence
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42
Q

How do IFRS and GAAP differ on their requirements for comparative financial statements?

A

IFRS requires them, GAAP does not

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43
Q

How do IFRS and GAAP differ on their constraints?

A

GAAP has cost/benefit and materiality (primary) and consistency and comparability (secondary)

IFRS has timeliness, cost/benefit, and fair presentation

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44
Q

How does IFRS define an “element”?

A

An asset, liability, equity, income, or expense item

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45
Q

What is required for an element to be recognizable under IFRS?

A

Must have future economic consequences and be reliably measurable

If unable to be measured reliably, then cost-recovery method must be used

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46
Q

How do IFRS and GAAP differ on inventory?

A

IFRS prohibits LIFO (and specifically requires a method that fits the inventory)

GAAP uses lower of cost or market, but IFRS uses lower of cost or NRV

IFRS allows inventory impairments to be written back up

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47
Q

How do IFRS and GAAP differ on revaluing assets?

A

GAAP prohibits it, but IFRS permits periodic revaluation based on FV

48
Q

How do IFRS and GAAP differ on component depreciation?

A

GAAP rarely uses it, but IFRS requires it if applicable

49
Q

Which financial statements does IFRS require that GAAP does not?

A

Statement of Comprehensive Income

Statement of Changes in Equity

50
Q

Which terminology on the income statement does IFRS use differently?

A

IFRS refers to revenue as “income” and to net income as “profit”

Also, IFRS records losses separately from revenue (“income”), but not gains

51
Q

Under IFRS, what is the most efficient method to convert PP&E to IFRS?

A

Fair value election

52
Q

How do IFRS and GAAP differ on contingent liabilities?

A

GAAP requires accrual if a loss contingency is probable, but IFRS requires accrual if it is >50% probable

Both still require disclosure for remote contingencies

For a range of contingent loss, GAAP requires lowest amount, while IFRS requires midpoint

53
Q

How do IFRS and GAAP differ on reporting bonds?

A

IFRS allows bonds to be reported one of two ways:

  • amortized cost (required by GAAP)
  • period-end FV, with gain/loss recognized in period
54
Q

How do IFRS and GAAP differ on reporting convertible bonds?

A

Extra money given for the conversion feature is reported as equity in IFRS and a liability in GAAP

55
Q

How do IFRS and GAAP differ in regarding enacted tax rates for income taxes?

A

GAAP regards them only if enacted, but IFRS regards them if enacted or substantially enacted

56
Q

How do IFRS and GAAP differ in reporting deferred tax assets/liabilities as current or noncurrent?

A

IFRS requires all to be reported as noncurrent

GAAP requires current or noncurrent depending on the related taxable asset/liability

57
Q

How do IFRS and GAAP differ in choosing whether to report deferred tax assets/liabilities?

A

Under IFRS, all DTLs are reported, and DTAs are reported only if probable

58
Q

How do IFRS and GAAP differ in revaluing PP&E?

A

IFRS permits fixed assets to be revalued at FV at period-end

-gains go to OCI, losses to income statement

59
Q

How do IFRS and GAAP differ on capitalizing or expensing costs for intangible assets?

A

IFRS requires all costs to defend an intangible asset to be expensed

IFRS has costs capitalized at technical and economic feasibility (rather than technological), though this is probably not very different

60
Q

How do IFRS and GAAP differ in recognizing sales?

A

IFRS prohibits the installment method

61
Q

How do IFRS and GAAP differ in reporting consolidation?

A

IFRS prohibits push-down accounting

62
Q

How do IFRS and GAAP differ in recognizing computer development costs?

A

IFRS has no specific rules for it, but simply applies R&D rules for software development

63
Q

How do IFRS and GAAP differ on recognizing impairment for AFS debt securities?

A

GAAP recognizes impairment due to interest rate changes or credit loss/default, while IFRS recognizes changes only due to credit loss/default

IFRS allows impaired securities to be written back up

64
Q

How do IFRS and GAAP differ on hedging?

A

GAAP permits shortcut method but IFRS forbids it

GAAP codifies which risks can be hedged, but IFRS flexibly allows any risks affecting FV to be hedged

GAAP permits options’ time value to be included in calculations, but IFRS does not

65
Q

How do IFRS and GAAP differ on recognizing interest for loans and receivables?

A

IFRS requires effective interest method for all (with a few exceptions), while GAAP requires different approaches (catch-up, retrospective, prospective) depending on the item

66
Q

How do IFRS and GAAP differ on measuring loans and receivables?

A

GAAP requires them (if the FV option isn’t elected) to be classified as held for investment (amortized cost) or held for sale (lower of cost or FV)

IFRS carries them at amortized cost unless they are “fair value through profit or loss” or AFS, which are carried at FV

67
Q

How do IFRS and GAAP differ on derecognizing receivables?

A

GAAP depends on loss of control, while IFRS assesses risk/reward first and then a test of control

IFRS allows partial derecognition

68
Q

How do IFRS and GAAP differ on their terminology for allowance accounts?

A

IFRS calls them “provisions” – the term refers to liabilities of uncertain timing or amounts

69
Q

What separate inventory categories does IFRS have that GAAP lacks?

A

Biological and agricultural – carried at NRV at point of harvest

70
Q

What separate PP&E categories does IFRS have that GAAP lacks?

A

Biological assets and investment property (among others)

71
Q

What are IFRS rules governing PP&E revaluation?

A

Should be done frequently enough to ensure no material differences between BV and FV

If one asset is revalued, whole class should be revalued

Any gains on revaluation go to revaluation surplus in stockholders’ equity

72
Q

How do IFRS and GAAP differ on measuring eligible borrowing costs for interest capitalization?

A

IFRS includes exchange rate differences from foreign loans

IFRS has borrowing costs offset by investment income from those borrowings

73
Q

How do IFRS and GAAP differ on the amount to capitalize for borrowings from a specific asset?

A

GAAP capitalizes (average accumulated expenditures) x (borrowing rate)

IFRS capitalizes actual borrowing costs

74
Q

What is investment property under IFRS?

A

Property held for rent or capital gains (can include leased property)

Can be reported on cost basis or FV basis, although property in operating leases must be on FV basis

75
Q

How do IFRS and GAAP differ on revaluation for intangible assets?

A

GAAP prohibits it, but IFRS permits it for intangibles besides goodwill

However, usually rare, since it requires a market for the asset

76
Q

How do IFRS and GAAP differ on testing impairment for long-lived assets?

A

GAAP uses two-step approach, IFRS uses one

same difference exists for testing goodwill impairment

77
Q

How do IFRS and GAAP differ on the calculation of impairment loss for long-lived assets?

A

GAAP = difference between carrying amount and FV

IFRS = difference between carrying amount and “recoverable amount” – which is greater of (a) FV minus selling costs or (b) value in use

78
Q

How do IFRS and GAAP differ on the allocation of goodwill?

A

GAAP allocates goodwill to a reporting unit (operating segment or one level below it)

IFRS allocates goodwill to a cash-generating unit (or group of CGUs) for the lowest level at which goodwill is monitored – can’t be larger than operating segment

79
Q

How do IFRS and GAAP differ on the amount of impairment loss for goodwill?

A

For both, impairment loss = difference between carrying amount and FV (for GAAP) or recoverable amount (for IFRS)

For IFRS, after reducing goodwill to zero, assets in the CGU are reduced pro rata

80
Q

How do IFRS and GAAP differ on the amount of impairment loss calculated for indefinite intangible assets?

A

GAAP = difference between carrying value and FV

IFRS = difference between carrying value and recoverable amount

81
Q

How do IFRS and GAAP differ on impairment recoveries?

A

GAAP prohibits all recoveries, IFRS prohibits recoveries only on goodwill

82
Q

How do IFRS and GAAP differ in their lease terminology?

A

IFRS refers to capital leases as “financing leases”

83
Q

How do IFRS and GAAP differ on whether lessees should classify leases as capital (“financing”)?

A

GAAP requires one of the four conditions to be met

IFRS requires only that the lease term be a “major part” of the asset’s useful life or that PV of MLPs be “substantially all” of asset’s FV
-These are basically the same as GAAP’s 75% and 90% rules

84
Q

How do IFRS and GAAP differ on the discount rate used in lease calculations?

A

GAAP permits lessee to use incremental rate, but IFRS requires both lessee and lessor to use implicit rate

85
Q

How do IFRS and GAAP differ on recording leases involving land and buildings?

A

IFRS requires the two to be reported separately, while GAAP requires separate reporting only if the FV of the land component is >25% of the total lease

86
Q

How do IFRS and GAAP differ on whether lessors should classify leases as capital (“financing”)?

A

GAAP has two extra provisions in addition to the lessee criteria, but IFRS does not

87
Q

How do IFRS and GAAP differ on actuarial methods for pension accounting?

A

GAAP uses different methods depending on the calculation, while IFRS always uses the project-unit-credit method

88
Q

How do IFRS and GAAP differ on valuing defined benefit plan assets?

A

GAAP values assets at “market-related” value (FV or another calculated value), but IFRS always uses FV

89
Q

How do IFRS and GAAP differ on amortizing prior service costs?

A

GAAP uses the future service periods (or lifetimes for retired employees), while IFRS uses the “average remaining vesting period”

IFRS immediately recognizes the cost if already vested

90
Q

How do IFRS and GAAP differ on settlements and curtailments?

A

GAAP (1) recognizes gains/losses on settlements when settled and (2) recognizes curtailment losses when probable and curtailment gains when it occurs

IFRS recognizes curtailment gains/losses when they occur

91
Q

What is the main difference between GAAP and IFRS on revenue recognition guidance?

A

GAAP is much more specific, while IFRS sums up its guidance in one standard

92
Q

How do IFRS and GAAP differ on recognizing the sale of goods?

A

GAAP = delivery has occurred (risks/rewards of ownership have passed), evidence of sale, revenue is fixed/determinable, collectibility is assured

IFRS = delivery has occurred, buyer has control of goods, revenue can be measured reliably, probable that company will receive economic benefits

93
Q

How do IFRS and GAAP differ on recognizing service revenue?

A

IFRS permits long-term contract accounting (e.g. percentage-of-completion) on nonconstruction services

94
Q

How do IFRS and GAAP differ on recording construction contract costs?

A

GAAP allows completed-contract method, but IFRS does not

For IFRS, if percentage-of-completion can’t be used, zero-profit method is required

95
Q

How do IFRS and GAAP differ on accounting principle changes?

A

GAAP permits changes only if it can be proven as preferable, while IFRS permits changes if they increase relevance and reliability

96
Q

How do IFRS and GAAP differ on interim reporting?

A

GAAP views interim periods as integral parts of the larger period, while IFRS views them as discrete periods themselves

Exception: income taxes are accounted for with annual rate

97
Q

How do IFRS and GAAP differ on the date through which subsequent events should be evaluated?

A

GAAP = when financials are issued or issuable (i.e. compliant with GAAP)

IFRS = when financial statements are authorized for issue (e.g. from management or board of directors)

98
Q

How do IFRS and GAAP differ on the reissuance of financial statements?

A

GAAP provides guidance concerning subsequent events that must be disclosed in reissue statements, but IFRS does not

IFRS simply requires disclosure for the date when statements are authorized for reissue

99
Q

How do IFRS and GAAP differ in reporting current liabilities as noncurrent (i.e. due to refinancing)?

A

GAAP permits it if refinancing is intended (or if agreement is executed before issuance)

IFRS permits it only if the agreement is actually executed before the B/S date – not as a subsequent event

100
Q

How do IFRS and GAAP differ on reporting subsequent stock dividends?

A

GAAP permits their declaration as a subsequent event, but IFRS doesn’t

101
Q

How do IFRS and GAAP differ on the taxation of intercompany asset transfers within a consolidated group?

A

GAAP = requires tax on profits to be deferred, prohibits deferral of taxes on capital gains/losses, uses seller’s tax rate

IFRS = exact opposite

102
Q

How do IFRS and GAAP differ on measuring the NCI in a business combination?

A

GAAP = measured at FV (including NCI’s share of goodwill)

IFRS = measured at FV (including goodwill) or proportionate share of FV of acquiree’s identifiable net assets (excluding goodwill)

103
Q

How do IFRS and GAAP differ on determining whether entities are consolidated?

A

Both focus on control

GAAP focuses on controlling interests, while IFRS focuses on power to govern policies

104
Q

How do IFRS and GAAP differ on uniform policies within consolidated entities?

A

GAAP requires uniform policies except for equity method investments, but IFRS does not make this exception

105
Q

How do IFRS and GAAP differ on parents’ and subsidiaries’ reporting dates?

A

GAAP permits different reporting dates within three months

IFRS forbids it (unless impracticable)

106
Q

How does IFRS classify things as biological assets?

A

A biological asset is a living animal or plant, but agricultural produce is the product of a biological asset (e.g. vine and grapes)

107
Q

How does IFRS measure biological assets?

A

FV minus est. point-of-sale costs

If impracticable, can be measured at cost less accumulated depreciation – but only until FV is measurable

108
Q

What are SMEs?

A

Small and medium-sized entities

The IASB created IFRS for SMEs, which nonpublic American companies can follow rather than U.S. GAAP

109
Q

How do SMEs benefit from global accounting standards?

A

Loans are made across borders – also vendors, credit rating agencies, suppliers, venture capital firms, foreign investors, etc.

110
Q

How does IFRS for SMEs differ from IFRS?

A

More simplified, far fewer disclosures required

Revisions to IFRS for SMEs are limited to once every three years

111
Q

For what companies is IFRS for SMEs intended?

A

Companies that lack public accountability:

  • do not trade in a public market
  • do not hold assets as a fiduciary for its primary business (e.g. banks, insurance companies, mutual funds)

Small public companies are subject to ordinary IFRS

112
Q

How do IFRS and GAAP differ on segment reporting?

A

IFRS requires disclosure of liabilities for each reportable segment if the amount is regularly given to the chief operating decision maker

113
Q

How do IFRS and GAAP differ on related-party disclosures?

A

IFRS requires disclosure of compensation arrangements

Principal owners (>10% voting interest) aren’t included as related parties under IFRS

114
Q

How much of a vote is required for the IASB to publish a discussion paper?

A

A simple majority (i.e. not unanimity)

115
Q

Is the publication of a discussion paper mandatory in the IFRS standards-forming process?

A

No

But an exposure draft is mandatory

116
Q

What are the five financial statements required by IFRS?

A

(1) Statement of Financial Position
(2) Statement of Comprehensive Income
(3) Statement of Changes in Equity
(4) Statement of Cash Flows
(5) Notes/Disclosures to Statements

FAR (26 decks)

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