...In 2002 the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) met and issued the Norwalk Agreement where they both agreed to develop of high quality accounting standards. Since that time the FASB and the IASB have been working on joint projects a.k.a convergence projects designed to improve both US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS), eliminate differences between them, and ultimately make the standards fully compatible. In 2010, to increase efficiency the boards decided to focus on the priority projects. Two of those projects, fair value measurement and statement of other comprehensive income, are poised for release. Now, the “big three” remain—financial instruments, revenue recognition, and leases. The IASB is also working to its monster project on insurance contracts, with the FASB closely engaged in the discussion. Therefore, bellow is the list of the active joint FASB/IASB projects according to current technical plan on the fasb.org website: - Accounting for Financial Instruments (Updated November 10, 2011): • Classification and Measurement (Updated November 10, 2011); • Impairment (Updated November10, 2011); • Hedging (Updated November 10, 2011). - Revenue Recognition (Exposure Draft issued November 14, 2011); - Leases (Updated November 15, 2011); - Balance Sheet – Offsetting (Updated August 15, 2011); - Consolidation: Policy and Procedures (Exposure...
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...Property, Plant and Equipment Property, Plant and Equipment I- Nature of Accounting Issues Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment. Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory. * They are long-term in nature and usually depreciated...
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...CASE: Reporting Comprehensive Income: IFRS vs. US GAAP a) Messrs. Cope and Foster dissent from this Statement because it permits an enterprise to display the items of other comprehensive income identified in this Statement with less prominence and to characterize them differently from other items of comprehensive income that are currently included in net income. Messrs. Cope and Foster believe that a primary objective in undertaking a project on reporting comprehensive income was to significantly enhance the visibility of items of other comprehensive income. They also believe that the Board inappropriately failed to respond to the clear and unequivocal call from users of financial statements for the transparent presentation of all items of comprehensive income, whose request is acknowledged in paragraphs 40 and 41 of this Statement. They also note that, as evidenced by the basis for conclusions in the Exposure Draft, the Board held views similar to theirs when it issued that document. We agree with Messrs. Cope and Foster’s concerns. If the companies choose to report the items of other comprehensive income in the Statement of Changes in Equity, the visibility of these items will be decreased because there are many other important item in this statement, and the users may not focus on the important items of other comprehensive income, and at the same time, net income is reported in the Income Statement, which will make the financial statement users focus more on net income...
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...Conceptual Framework A conceptual framework establishes the concepts that underlie financial reporting. Conceptual framework includes objectives, qualitative characteristics, elements, measurement, and recognition concepts. The FASB Concepts Statements guide the board in developing accounting principles and provide understanding. These concept statements are non-authoritative and do not establish generally accepted accounting principles. Entities do not use the FASB Concept Statements in routine preparation of financial statements. (8,2) The IASB and the Interpretations Committee use conceptual framework when developing new or revised International Financial Reporting Standards (IFRS) and interpretations or when amending existing IFRSs. It is used as a point of reference to help preparers of financial statements in applying IFRSs or when no specific guidance is given. The IASB’s Conceptual Framework is not an International Financial Reporting Standard and does not override any specific IFRS. However, the Conceptual Framework is used in development of future standards and the IASB is reviewing IFRSs and the Conceptual Framework to eliminate all conflicts between them. (2,7) Basis of Accounting Both U.S. GAAP and IFRS use a modified historical cost basis with a growing emphasis on fair value when preparing financial statements. When non-U.S. entities operate in a highly inflationary environment and prepare GAAP financial statements; they have the choice to either report price-level...
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...for US public filings in the foreseeable • In May 2011, the SEC’s Office of future, IFRS has been affecting US the Chief Accountant published a companies for some time, primarily Staff Paper exploring one possible through engaging in cross-border method to incorporate IFRS merger-and-acquisition (M&A) into the US financial reporting activity, meeting the reporting needs system, involving an active of non-US stakeholders, and assisting Financial Accounting Standards with or monitoring of the IFRS Board (FASB) incorporating IFRS requirements of non-US subsidiaries. into US GAAP over an extended US companies are also becoming period of time (the “endorsement” increasingly aware of IFRS, as key method). Under this method, the aspects of US generally accepted FASB would remain the US stanaccounting principles (US GAAP) dard setter and potentially endorse and IFRS continue to be the focus of new IFRS into the US financial ongoing joint projects. reporting system. Additionally, the FASB would also consider existing IFRS has also been a subject of focus IFRS during a multiple-year period, by the Securities and Exchange and consider how to...
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...without buying all of the equity, the remaining , so-called the non-controlling, equity interests are measure either at fair value or at the non-controlling interests’ proportionate share of its subsidiaries’ net identifiable assets. Under IFRS 3, the potential effect would arise is that it will result in benefits for users by improving comparability and will increase the relevance of information provided. Moreover, it identifies and evaluates the main costs and benefits for users. 3) Do you believe that an impairment of goodwill would be more likely under IFRS or under U.S. GAAP? Why or why not? There is a difference in goodwill impairment measurement. Under U.S GAAP, two-step approach is used. It looks to the reporting unit. However, under IFRS, one-step approach is used. It is based on the value in use and it looks to the cash-generating unit. The cash-generating unit is smaller than reporting unit and leads to more impairment of goodwill. I believe that an impairment of goodwill would be more likely under IFRS. Under IFRS, good will is no longer deemed to have a finite life and therefore it is not subject to be amortized. It is treated as having an indefinite life and...
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...this task, and issued IFRIC 3, Emission Rights. Unfortunately, considerable pressure from both the business community and European politicians, who objected to the financial statement consequences of applying that interpretation, led to its withdrawal by the International Accounting Standards Board (“IASB”) within a year of its issuance. In the US, the Emerging Issues Task Force (“EITF”) also attempted to address the related accounting issues in EITF Issue 03-14, Participants’ Accounting for Emissions Allowances under a “Cap and Trade” Program. However, it was never finalized, and ultimately removed from the EITF’s agenda. More recently, organizations have been advised of informal views from both the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”) on the appropriate accounting for emissions allowances held, especially since EITF 03-14 was tabled. As a consequence, many companies remain confused about the appropriate accounting treatments under both International Financial Reporting Standards (“IFRS”) and generally accepted accounting principles in the United States (“US GAAP”). This article considers the story to date, current developments in accounting for emissions in both markets, and the respective accounting consequences. The Story To-Date and the Most Recent Developments It is important to understand some of the history to emissions trading and the resulting variety of market structures in Europe and the United...
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...and issued IFRIC 3, Emission Rights. Unfortunately, considerable pressure from both the business community and European politicians, who objected to the financial statement consequences of applying that interpretation, led to its withdrawal by the International Accounting Standards Board (“IASB”) within a year of its issuance. In the US, the Emerging Issues Task Force (“EITF”) also attempted to address the related accounting issues in EITF Issue 03-14, Participants’ Accounting for Emissions Allowances under a “Cap and Trade” Program. However, it was never finalized, and ultimately removed from the EITF’s agenda. More recently, organizations have been advised of informal views from both the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”) on the appropriate accounting for emissions allowances held, especially since EITF 03-14 was tabled. As a consequence, many companies remain confused about the appropriate accounting treatments under both International Financial Reporting Standards (“IFRS”) and generally accepted accounting principles in the United States (“US GAAP”). This article considers the story to date, current developments in accounting for emissions in both markets, and the respective accounting consequences. The Story To-Date and the Most Recent Developments It is important to understand some of the history to emissions trading and the resulting variety of market structures in...
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...| | |CONSOLODATION: | |US GAAP vs IFRS | | | | | For decades the US financial market has stuck to accounting rules known as the Generally Accepted Accounting Principles, commonly abbreviated as U.S. GAAP, or simply GAAP. Just less than a year ago, there was the groundbreaking elimination of GAAP requirement for International Financial Reporting Standards (IFRS) reporting foreign issuers, due to a strong global support for IFRS. Then on August 27th 2008, the Securities Exchange Commission voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. Currently, U.S. issuers use U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in...
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...IFRS The basics March 2010 Table of contents 2 5 7 8 11 13 14 16 18 20 26 28 31 33 35 38 40 42 43 44 46 47 Introduction Financial statement presentation Interim financial reporting Consolidations, joint venture accounting and equity method investees Business combinations Inventory Long-lived assets Intangible assets Impairment of long-lived assets, goodwill and intangible assets Financial instruments Foreign currency matters Leases Income taxes Provisions and contingencies Revenue recognition Share-based payments Employee benefits other than share-based payments Earnings per share Segment reporting Subsequent events Related parties Appendix — The evolution of IFRS Introduction It is not surprising that many people who follow the development of worldwide accounting standards today might be confused. Convergence is a high priority on the agendas of both the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) — and “convergence” is a term that suggests an elimination or coming together of differences. Yet much is still made of the many differences that exist between US GAAP as promulgated by the FASB and International Financial Reporting Standards (IFRS) as promulgated by the IASB, suggesting that the two GAAPs continue to speak languages that are worlds apart. This apparent contradiction has prompted many to ask just how different are the two sets of standards? And where differences exist, why do they exist, and when...
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...IFRS The basics December 2011 !@# Table of contents Introduction .....................................................................2 Financial statement presentation......................................4 Interim financial reporting ................................................6 Consolidation, joint venture accounting and equity method investees .............................................................7 Business combinations ...................................................11 Inventory .......................................................................13 Long-lived assets ...........................................................14 Intangible assets ............................................................16 Impairment of long-lived assets, goodwill and intangible assets ............................................................18 Financial instruments .....................................................20 Foreign currency matters ...............................................28 Leases ...........................................................................30 Income taxes..................................................................33 Provisions and contingencies ..........................................35 Revenue recognition.......................................................37 Share-based payments ...................................................39 Employee benefits other than share-based payments ......41 Earnings per share ........
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...with the US Financial Accounting Standards Board (FASB) and is expected to result in the publication of a joint discussion paper in 2008. The project will reconsider all aspects of lease accounting and is expected to fundamentally revise the way lease contracts are recognized in the financial statements of lessees and lessors. The Board directed the staff to establish a working group of individuals with significant experience and expertise in lease accounting to assist the staff and the Board with this project. (http://www.ifrs.org/Current+Projects/IASB+Projects/Leases/Meeting+Summaries+and+Observer+Notes/IASB+July+2006.htm) To explain the reason for adding the project to the agenda, I find two paragraphs in Exposure Draft that “Leasing is an important source of finance. Therefore, it is important that lease accounting should provide users of financial statements with a complete and understandable picture of an entity’s leasing activities. The existing accounting models for leases require lessees to classify their leases as either finance leases or operating leases. However, those models have been criticized for failing to meet the needs of users of financial statements because they do not provide a faithful representation of leasing transactions. In particular they omit relevant information about rights and obligations that meet the definitions of assets and liabilities in the boards’ conceptual framework. The models also lead to a lack of comparability and undue complexity...
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...Financial Crisis Advisory Group July 28, 2009 To the Members of the International Accounting Standards Board and the US Financial Accounting Standards Board: On behalf of the members of the Financial Crisis Advisory Group (FCAG), we are pleased to present our report to the Boards about the standard-setting implications of the global financial crisis. We believe that confidence in the transparency and integrity of financial reporting is critically important to global financial stability and sound economic growth. We hope that our conclusions and recommendations will be helpful to the Boards as they work together to simplify and improve accounting standards on financial instruments and other key areas highlighted by the crisis. The FCAG will be meeting in December to review the progress that has been made. In the meantime, we are available to assist the Boards in their efforts. Sincerely, Harvey J. Goldschmid Co-chair Hans Hoogervorst Co-chair cc: Gerrit Zalm, Chairman of the Board of Trustees, International Accounting Standards Committee Foundation John J. Brennan, Chairman of the Board of Trustees, Financial Accounting Foundation Report of the Financial Crisis Advisory Group – July 28, 2009 Table of Contents Page I. INTRODUCTION _________________________________________________________________________ 1 II. PRINCIPLE 1: Effective Financial Reporting____________________________________________________ 3 Intersection of Prudential Regulation...
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...management. + Reflect the current period’s true and fair results. -Requirements for annual impairment testing of goodwill and other non-amortised intangible assets. -Difficulties surrounding the identification of a cash-generating unit. -Challenges in projecting cash flows and estimating various assumptions for the testing of value in use. Kolb’s TEL with Paul’s Critical Thinking Components: IAS 36 Impairment of assets-assess of key features Objects/Events: To prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the Standard requires the entity to recognise an impairment loss. To also specifies when an entity should reverse an impairment loss and prescribes disclosures. (IASC Foundation Education) Worldviews: Institutional Investor: likely to know the long term stability of business by reviewing the current true worth of assets. Standard Setters: To ensure that assets are carried at no more than their recoverable amount, and to define how recoverable amount is determined. (Deloitte Touche Tohmatsu, 2009) Assertions: Option2 =the reversal of an impairment loss on intangible assets and goodwill should be recognised in the current period if...
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...Gator Electronics Inc. an electronics manufacturer that sells electronic products to third-party retail centers has identified its reporting units as geographical regions in which it operates: United States, South America, Canada, Asia, Europe, Africa, and the Middle East. Gator Electronics elected not to perform the qualitative assessment for determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and proceeded with Step 1 of the quantitative two-step goodwill impairment test for all reporting units. On the basis of the valuation prepared by Management’s Expert, Gator estimated that the fair value of all of the reporting units exceeded their respective carrying values and no Step 2 analysis was required or prepared. Fair value, as defined by the Financial Accounting Standards Board (FASB), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Although GAAP does not prescribe the methods for measuring the fair value of an item, it expresses a preference for the use of observable market prices to make that determination. In the absence of observable market prices, GAAP requires fair value to be based on the best information available in the circumstances, which is inherently imprecise due to the underlying assumptions about future conditions, transactions, or events whose outcome is uncertain and will, therefore...
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