International Financial Reporting Standards

Question 1

Under IFRS framework, what are the fundamental qualitative characteristics in providing useful financial information?

Answer 1

Relevance

Representational faithfulness

Question 2

Under the IFRS framework, what are the elements of relevance?

Answer 2

Confirmatory value

Predictive value

Question 3

Under the IFRS framework, what are the elements of faithful representation?

Answer 3

completeness

neutrality

free from error

Question 4

Identify the IFRS F/S reporting requirements under IAS 1: Presentation of F/S.

Answer 4

two statements of financial position

two statements of comprehensive income

two statements of changes in equity

two statements of cash flows

notes to the financial statements must also be reported for each fiscal period.

An opening statement of financial position must also be presented if there has been a restatement or retrospective application for publicly held entities, as is applicable for first-time adopters of IFRS.

Question 5

Under IFRS, how should an entity account for long-term construction contracts?

Answer 5

IFRS recommends using the percentage of completion method or the cost recovery method if reliable estimates are not available.

The completed contract method is prohibited.

Question 6

Which inventory cost flow assumption is prohibited under IFRS but permitted under US GAAP?

Answer 6

LIFO (last in first out)

Question 7

US GAAP requires inventory be reported at lower of cost of market. What is the reporting requirement under IFRS?

Answer 7

IAS 2: Inventories - requires inventory to be reported at lower of cost or NRV. For inventories written down to NRV, subsequent recovery up to the recovered NRV and an amount not to exceed cost is permitted. US GAAP does not permit subsequent recovery.

Question 8

Is the revaluation of property, plant, and equipment permitted under US GAAP or IFRS?

Answer 8

Revaluation of PP&E is not permitted under US GAAP.

IAS 16: PP&E - permits the revaluation. Revaluations are recognized as an increase or decrease to the reported PP&E account. For impairments, IFRS also permits the subsequent reversal up to the amount of the impairment loss previously recognized, which is also prohibited under US GAAP.

Question 9

Under IFRS, how are impairments recognized?

Answer 9

under the single-step method: when the recoverable amount is less than the current carrying amount, this difference is recorded as an impairment loss.

recoverable amount is the greater of (1) the discounted net future cash flows or (2) the net realizable value (fair value or sales price less costs to sell)

Question 10

Describe the two lease classifications under IFRS.

Answer 10

Under IFRS, a lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership at inception. Otherwise, it is an operating lease expensed on the straight-line basis over the lease term.

Question 11

US GAAP capital lease criteria is based on 4 quantitative tests. If any one test is met, the lease is reported as a capital lease.

Under IFRS, what is the equivalent of a capital lease?

Under IFRS, what determines how a lease is reported?

Answer 11

An IFRS finance lease is equivalent to a US GAAP capital lease.

IFRS focuses on the substance of the lease agreement rather than the quantitative criteria included in US GAAP to determine the reporting of a lease. This alone could cause a US GAAP operating lease to be classified as a fiance lease under IFRS, where an entity is more likely to recognize lease obligations.

Question 12

Contrast the treatment of extraordinary items under US GAAP and IFRS.

Answer 12

Items unusual in nature and infrequent in occurrence are considered extraordinary items under US GAAP.

The reporting of extraordinary items is prohibited under IFRS.

Question 13

Under IFRS 1: First-time adoption of IFRS, what is the date of transition?

Answer 13

When an entity first applies IFRS, this date is referred to as the date of transition. This date is followed by two years of reporting during which the entity will be required to reconcile its reporting between previous GAAP to IFRS.

Question 14

What is the purpose of IFRS 1?

Answer 14

IFRS 1: first-time adoption of IFRS is a standard that assists an entity transitioning from previous US GAAP to IFRS for the first time.

Question 15

An entity preparing for the adoption of IFRS F/S for the year ending Dec 31, year 5, will have what following transition date?

Answer 15

Jan 1, year 3.

Question 16

According to IFRS 1, a first-time adopter should prepare an opening statement of financial position with retrospective adjustments recorded at the date of transition to what account?

Answer 16

the opening statement of financial position will recognize any adjustments from previous US GAAP to IFRS reporting in retained earnings at the date of transition.

Question 17

What authoritative body issued IFRS for SME and for what purpose?

Answer 17

The IASB issued IFRS for small-to medium-sized entities to simplify the accounting and reporting basis under full IFRS for entities without public accountability SMEs often may not have the resources to apply full IFRS, therefore IFRS for SMEs is more aligned with the cost-benefit constraint.