1 / 23

International Financial Reporting Standards

International Financial Reporting Standards. Appendix E. App E- 2. Learning Objectives. Explain the reasons for differences in accounting practices across countries

carlyn
Download Presentation

International Financial Reporting Standards

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. International FinancialReporting Standards Appendix E

  2. App E-2 Learning Objectives • Explain the reasons for differences in accounting practices across countries • Understand the role of the International Accounting Standards Board (IASB) in the development of International Financial Reporting Standards (IFRS) • Recognize the major differences between U.S. GAAP and IFRS

  3. App E-3 Learning Objective 1 Explain the reasons for differences in accounting practices across countries

  4. App E-4 The Globalization of Accounting Standards • SEC voted to accept IFRS financial statements from “foreign private issuers” without reconciliation • US is moving toward converging U.S. GAAP with IFRS • Convergence: process by which U.S. GAAP and IFRS will eventually merge to become a single set of accounting standards.

  5. App E-5 Learning Objective 2 Understand the role of the International Accounting Standards Board (IASB) in the development of International Financial Reporting Standards (IFRS)

  6. App E-6 International Financial Reporting Standards (IFRS) • International Accounting Standards Committee • Created a standard-setting body, (IASB) • International Financial Reporting Standards • More countries base their account standards on IFRS • ISAC • ISAB • IFRS

  7. App E-7 Principles- vs. Rules-based Standards • IFRS—principles-based accounting standards • U.S. GAAP—rules-based accounting standards • Future international accounting standards will need to be more principles-based

  8. App E-8 Norwalk Agreement • Signed by FASB & IASB—2002 • Formalizing convergence of U.S. GAAP and IFRS • Arguments against convergence to IFRS • U.S. standards to remain customized to fit U.S. business environment • Differences in implementation and enforcement could make accounting appear more uniform than it is • Norwalk Agreement did not specify a timetable • but active efforts are ongoing

  9. App E-9 Learning Objective 3 Recognize the major differences between U.S. GAAP and IFRS

  10. App E-10 Chapter 1: Accounting Information and Decision Making • United States—FASB’s conceptual framework • Guide to standard setters • Internationally—IASB’s conceptual framework • Serves to indicate GAAP when more specific standards are not available • FASB and the IASB are working together to develop a common conceptual framework • Uniform set of standards internationally

  11. App E-11 Chapter 2: The Accounting Information System • Timing and measurement of revenue recognition • U.S. GAAP and IFRS provide similar general guidance • U.S. GAAP includes many additional rules and other guidance promulgated by FASB, SEC, and others

  12. App E-12 Chapter 3: The Financial Reporting Process • FASB and IASB are working on a project to establish a common standard for presenting information in financial statements

  13. App E-13 Chapter 4: Cash and Internal Controls • Accounting for cash is the same under both U.S.GAAP & IFRS • Internal controls: • U.S.GAAP: Section 404 of the Sarbanes-Oxley Act (SOX) requires management to document and assess the effectiveness of all internal control processes that could affect financial reporting • IFRS: burden of documenting effective internal controls is much less, or even nonexistent

  14. App E-14 Chapter 5: Receivables and Sales • Accounting for receivables and uncollectible accounts same under both U.S. GAAP and IFRS

  15. App E-15 Chapter 6: Inventory and Cost of Goods Sold • LIFO method • U.S.GAAP : allowed • IFRS : not allowed • U.S GAAP : similar • (market value – replacement cost) • IFRS : similar • (market value – net realizable value) • Market value in lower-of-cost-or-market • Reversal of inventory write-downs • U.S GAAP : not allowed • IFRS : allowed

  16. App E-16 Chapter 7: Long-Term Assets • Valuation of property, plant, and equipment • U.S.GAAP: Cost less accumulated depreciation • IFRS: Cost less accumulated depreciation (or) Fair value(revaluation) • U.S GAAP: Revaluation prohibited • IFRS: Cost less accumulated amortization (or) Fair value(revaluation) • Valuation of intangible assets • U.S GAAP: Expensed in the period incurred • IFRS: • Research: expensed in the period incurred • Development—that meet specified criteria: capitalized • Research and development expenditures

  17. App E-17 Chapter 8: Current Liabilities • Contingencies • U.S. GAAP: accrue if it is probable and can be reasonably estimated • IFRS: threshold for “probable” is defined as “more likely than not” (greater than 50%) • Valuation of long-term contingencies • U.S.GAAP: present value—only when timing of cash flows is certain • IFRS: present value—time value of money is material

  18. App E-18 Chapter 9: Long-Term Liabilities • Treatment of convertible debt • U.S. GAAP: entire issue price is recorded as a liability • IFRS: convertible debt is divided into its liability (bonds) and equity (conversion option) elements

  19. App E-19 Chapter 10: Stockholders’ Equity • Distinction between debt and equity for preferred stock • U.S. GAAP: most preferred stock is included in stockholders’ equity, with the dividends reported as a reduction in retained earnings • IFRS: most preferred stock is reported as debt, with the dividends reported in the income statement as interest expense • Reacquired shares: IFRS does not permit retirement of shares • All buybacks are treated as treasury stock

  20. App E-20 Chapter 11: Statement of Cash Flows • Classification of cash flows • Cash outflows for interest payments • U.S. GAAP—operating cash flows • IFRS—either operating or financing cash flows • Cash inflows from interest and dividends received • U.S. GAAP—operating cash flows • IFRS—either operating or investing cash flows • Direct or indirect method • FASB and IASB both require direct method rather than permitting either the direct or indirect method

  21. App E-21 Chapter 11: Statement of Cash Flows (continued) • Disclosure of noncash activities • U.S. GAAP: • Reported either on the face of the statement of cash flows or in a disclosure note • IFRS: • Disallows presentation on the face of the statement and requires reporting in a disclosure note

  22. App E-22 Chapter 12: Financial Statement Analysis • Discontinued operations • U.S. definition is broader than its international counterpart • IFRS considers a component to be primarily either a major line of business or geographical area of operations • Extraordinary items • U.S. GAAP : provides separate reporting • IFRS : recording or disclosure not allowed

  23. App E-23 End of Chapter Appendix E

More Related