IFRS Final Flashcards
Four reasons to have one set of international accounting standards
- Multinational Corporations- world market
- Mergers and Acquisitions - mergers between companies in different countries
- Information technology- easy communication via internet, etc
- Financial Markets - active markets trading throughout the world
IFRS
international financial reporting standards
- developed by IASB
- over 115 countries use IFRS
- principles based, simpler
IASB
international accounting standards board
-developed IFRS
GAAP
US standards
Generally accepted accounting principles
- developed by FASB
- rules based, more detailed
FASB
financial accouting standards board
-developed US GAAP
Sarbanes-Oxley (SOX)
set internal control standards for large public companies in the US
- other countries have not adopted SOX
- high cost of SOX may make US companies less competitive?
SOX determines:
-internal control standards of US publicly tarded companies
IFRS is considered to be more:
principles based, and less rules-based than GAAP
True or False: Non-US companies that trade shares in the US markets must reconcile their accounting with GAAP
False
Under IFRS the term income refers to what would be called:
revenues and gains under GAAP
“statement of financial position”
aka “balance sheet”
for IFRS (but this title is not required, only recommended)
Order of the IFRS statement of financial position:
- noncurrent assets
- current assets
- equity
- noncurrent liabilities
- curent liabilities
How are current assets listed in IFRS
- in the reverse order of liquidity
true or false: both GAAP and IFRS require pretty much the same disclosure of important financial info in the financial statements
true
Fair value under IFRS
companies in IFRS can apply fiar value to property, plant, and eqipment; natural resources; and some intangible assets
GAAP and IFRS agree on some characteristics of financial reporting such as:
- monetray unit assumption
- economic entity assumption
true or false: international companies use the same set of procedures and records to keep track of transaction data
true
IFRS and GAAP are the same
accrual basis accounting is used by
both GAAP and IFRS
(cash basis is NOT allowed by either)
revenue recognition
GAAP has over 100 rules
IFRS has a single standard
- but generally are the same
true or false:
both GAAP and IFRS use periodicity assumption and companies must present a complete set of financial statements annually
true
standard for revenue recognition under IFRS
standard is based on the probability that the economic benefits associated with the transaction will flow to the company selling the goods.
Also, the revenues and costs must be capable of being measured reliably
-only one single standard (unlike GAAP which as over 100 for revenue recognition)
Revaluation of assets
- Under IFRS revaluation of land and buildings is permitted
- IFRS allows depreciation based on revaluation of assets (which is NOT permitted under GAAP)
closing procedures
used by both IFRS and GAAP
GAAP:
provides very detailed, industry dpecific guidance on revenue recognition, compared to the general guidance provided by IFRS
IFRS:
- employs the periodicity assumption
- employs accrual accounting
- requires that revenues and costs must be capable of being measured reliably
As a result of the revenue recognition project being undertaken by the FASB and IASB:
revenue recognition will place more emphasis on when changes occur in assets and liabilities
Under IFRS the term:
income describes both revenues and gains
the term expenses includes losses
Accrual basis accounting:
results in companies recording transactions that change a company’s financial statements in the period in which the events occur
classification of income statement items
- GAAP classifies by function
- IFRS classifies expenses by either nature or function
requirements for income statement information presented
IFRS requires that 2 years be presented
GAAP requires 3
specific identification method
IFRS requires specific ID method be used when the items can be identified, GAAP doesn’t require it
LIFO for inventory valuation
GAAP permits LIFO for inventory
IFRS prohibits LIFO for inventory
cost flow assumption use for goods of a similar nature
IFRS requires the same cost flow method for goods of a similar nature
GAAP has no specific requirement
Lower-of-cost-or-market
- IFRS defines market as net realizable value (net amounts the inventory will most likely realize)
- GAAP defines market as replacement cost
write-down of inventory
GAAP - written down to lower cost-or-market –> cannot be written back up
IFRS - write-down can be reversed in teh next period, up to the amount of the previous write-down
valuing inventories
IFRS does not allow the option of valuing inventories at fair value
-inventory can be written down, but cannot be written up above its original cost
Which of the following should not be included in the inventory of a company using IFRS?
- goods held on consignment from another company
Which methods of inventory costing are ALLOWED under IFRS?
- sepcific identification
- FIFO
- Average-cost
(NOT LIFO)
Specific identification:
must be used under IFRS if the inventory items are not interchangeable
IFRS requires the following:
ending inventory is written down to net realizable value and may be written up in future periods to its net realizable value
Non US companies that follow IFRS:
are not required to follow SOX
Restricted cash funds under IFRS:
may be reported as a current or non-current asset depending on the circumstances
The Sarbanes-Oxley Act of 2002 applies to
all US companies listed on US exchanges
high-quality international accounting requires:
- High quality accounting standards
- high quality auditing standards
cash equivalents under IFRS:
may be required to be reported separately from cash in the future
SOX created:
PCAOB
-Public Company Accounting Oversight Board
Under IFRS, loans and recievables are to be reported on the balance sheet at:
-amoritzed cost adjusted for estimated loss provisions
entry:
(dr. ) bad debts expense
(cr. ) allowance for doubtful accounts
Loans and recievables include:
- credit card recievables
- amounts owed by employees as a result of company loans to employees
- amounts resulting from transactions with customers
- IFRS has two-tiered appraoch to see if the value of these loans is impaired, GAAP does NOT have a two-tiered approach
in recording a facotring transaction:
-IFRS allows partial derecognition of recievebales, GAAP does not
the entry to record estimated uncollectable amounts
- is the same under GAAP and IFRS
the fair value option:
- allows (does not require) companies to record some types of financial instruments at fiar value in the financial statements
- FASB and IASB have tried to implement this fair value measurement
1st - disclose fair value info in the notes
2nd - fair value option
recieveables with different characteristics
IFRS implies that they should be reported separtely, but there is no standard that mandates this
PP&E under GAAP and IFRS similarities
- definition of plant assets is the same
- both follow the cost principle when accounting for PP&E on the date of acquisition
- both capitalize interest costs incurred during construction
- IFRS and gap have the same depreciation methods (straight-line, accelerated, units of activity)
- changes in depreciation method and changes in sueful life only affect the current and future periods (not past ones)
PP&E differences
- IFRS requires component depreciation (any significant parts of a depreciable asset that have different estimated useful lives should be separately depreciated) —- this is allowed under GAAP but rarely used
- IFRS says “residual value” instead of “salvage value”
- **IFRS allows companies to revalue plant assets to fair value — if used, it must be applied to all assets in a class of assets—-IFRS can also record at lower of cost and then reverse it if it goes back up
- Under GAAP, both research & development are expensed — under IFRS, research is expensed, and developement is CAPITALIZED (asset)
- IFRS allows revaluation of intangible assets (except goodwill)
- different measurments of impairment value –GAAP cannot reverse impairment losses
IFRS permits revaluation of:
PP&E and intangible assets (except goodwill)
when IFRS companies revalue assets, it affects the ____ account
revaluation (surplus…)
research and development costs are:
- both expensed under GAAP
- (under IFRS, research is expensed, development is capitalized)
Under IFRS, value-in-use is defined as:
- future cash flows discounted to present value
Liabilities under GAAP and IFRS
- IFRS requires companies to classify them as current or non-current (current= paind in 12 months)
- under IFRS, a liabiity is only recognized if it is a present obligation
- both show liabilities in order of liquidity – IFRS sometimes shows liabiltiies beofre assets, and sometimes show non-current before current
- preferred stock that will be redeemed in the future should be recorded as debt
Bonds under IFRS and GAAP
- IFRS requires effective-interest method for amoritization
- GAAP allows straight-line when the difference is not material
- IFRS does not use “premium” or “discount” accounts – shows bond at net amount
- IFRS splits the proceeds from a convertible bond between an equity component and a debt component
- IFRS uses “provisions” for uncertain obligations
under IFRS, a contingent liability is:
disclosed in the notes if certain criteria are met
under IFRS, if preference shares (preferred stock) have a requirement to be redeemed at a specific point in time in the future, they are treated:
- as a liability
the joint projects of the FASB and IASB could potentially:
- change the definition of liabilities
- change the definition of equity
- change the definition of assets
Cash flow statements under IFRS and GAAP:
- both must prepared them
- can use either indirect or direct method (most use indirect)
- under IFRS, bank overdrafts are considered cash or cash equivalents
- IFRS requires noncash financing and investing activities to be excluded from statement of cash flows
- under IFRS some companies present the operating section as a single line item
Main difference between cash flows for GAAP and IFRS
- classification of interest, dividends and taxes
IFRS
- interest paid = operating or financing
- interest recieved = op. or investing
- dividends paid = op. or financing
- dividends recieved = op or investing
- taxes paid = operating
(Under GAAP these are all operaing except dividends paid = financing)
IFRS requires that noncash items:
be disclosed in the notes to the financial statements
In the future it appears likely that
the income statement and balance sheet will have headings of operating, investing and financing much like the statement of cash flows
Under IFRS, the reporting of extraordinary items:
is prohibited
Presentation of comprehensive income must be reported under IFRS in:
a statement of comprehensive income
