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IFRS

IFRS. As of April 2011 Presented by Teri Willoughby Deters. IFRS. Who Impacted? Differences between IFRS & US GAAP IFRS for SMEs Transition Other considerations. Who Impacted?. IFRS – Who Impacted?. Who needs to be thinking about IFRS Public companies

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IFRS

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  1. IFRS As of April 2011 Presented by Teri Willoughby Deters

  2. IFRS • Who Impacted? • Differences between IFRS & US GAAP • IFRS for SMEs • Transition • Other considerations

  3. Who Impacted?

  4. IFRS – Who Impacted? • Who needs to be thinking about IFRS • Public companies • Non-public with international subsidiaries

  5. IFRS – Who Impacted? • Securities Exchange Commission (“SEC”) believes a single set of high-quality globally accepted accounting standards will benefit U.S. investors and the goal is consistent with their mission to protect the investors. • SEC currently analyzing and decision to be announced by end of 2011

  6. IFRS – Who Impacted?

  7. IFRS – Who Impacted?

  8. Differences between IFRS & US GAAP

  9. Differences between IFRS & US GAAP • Areas for consideration in adopting IFRS • Tangible and intangible assets • Liabilities • Pension • Financial instruments • Income taxes • Consolidation

  10. Differences between IFRS & US GAAP • Tangible and intangible assets under IFRS • Prohibits costing of inventory using the LIFO method • Allows for revaluation • Requires de-recognition of components of assets • Level in which impairments performed at the cash-generating unit and involves only 1 step • Allows for reversal of impairment losses

  11. Differences between IFRS & US GAAP • Liabilities under IFRS • Contingencies recognized when an obligation “more likely than not” exists • When a range of possible outcomes exists, the mid point of the range would be recognized • Asset retirement obligations recorded at the present value of the best estimate • Provision should be recognized at the present value of the expected expenditure

  12. Differences between IFRS & US GAAP • Pensions under IFRS (under evaluation) • Allows for recognition of actuarial gains and losses in equity, without subsequent recycling to net income • Vested past service costs recognized immediately in net income • Curtailment gain recognized when commitment to reduce employees is demonstrated

  13. Differences between IFRS & US GAAP • Pensions under IFRS (under evaluation) • Classification of pension expense in operating and non-operating income (i.e., interest) • Plan assets recognized at fair value; calculated value is not allowable • Recognition of an overall plan asset subject to a ceiling test

  14. IFRS • Financial instruments under IFRS (under evaluation) • Instruments measured at fair value, including equity instruments that do not have quoted market price • Reclassification between categories available • Previous losses on debt instruments may be reversed • High threshold for de-recognition of financial assets under securitization agreements

  15. Differences between IFRS & US GAAP • Financial Instruments and Equity • Those items classified as mezzanine would be classified as a financial liability • Financial instruments issued between related parties should be recognized at time of issuance at fair value with an offsetting earnings impact • Effective yield method based upon expected cash flows—not contractual cash flows • Transaction costs should be reported net of the financial liabilities, instead of a non-current asset

  16. Differences between IFRS & US GAAP • Hedge accounting (under evaluation) • Generally different definitions used and differences in application of the methodologies • Application of hedge accounting, specific to foreign currency risk with a firm commitment to enter a business combination, is permissible • A parent company may apply hedge accounting on foreign currency exposure of a subsidiary, regardless of the parent company’s functional currency • Shortcut method that assumes no ineffectiveness is not available under IFRS

  17. Differences between IFRS & US GAAP • Income taxes • Current and deferred taxes recognized using the enacted or substantively enacted tax rate • Timing of recognition of deferred tax assets • Recognition of deferred tax assets on the following: • Items relating to equity • Items not part of a business combination • Translation of non-monetary assets measured using historical rates • Inter-company transfers

  18. Differences between IFRS & US GAAP • Income taxes • A separate tax valuation allowance is not maintained • Uncertain tax positions recognized using probability-weighted average method • Entire balance classified as non-current

  19. Differences between IFRS & US GAAP • Functional currency • Same premise—primary economic environment. Be sure analysis is consistent at the subsidiary and consolidated level. • Consolidations (under evaluation) • Requires consolidation of all subsidiaries • Point at which control is assessed • Option for proportional consolidation of jointly controlled entities

  20. IFRS for SMEs

  21. IFRS for SMEs • Entities that qualify to use IFRS for SMEs: • Entities that do not have public accountability, and • Publish general purpose financial statements for external users.

  22. IFRS for SMEs • Section 1 of IFRS for SMEs: • “A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using IFRS for SMEs in its own financial statements if that subsidiary by itself does not have public accountability.”

  23. IFRS for SMEs

  24. IFRS for SMEs • Completed contract method for revenue recognition is prohibited. • Hedge accounting is limited under IFRS for SMEs. Only permitted for the following hedge risks: • Interest rate risk of a debt instrument • Foreign exchange interest rate risk in a firm commitment or highly probable forecasted transaction • Foreign exchange risk in a net investment • Price risk of a commodity

  25. IFRS for SMEs

  26. Transition

  27. Transition • Regardless of adopting IFRS or IFRS for SMEs, the respective transition standard shall be applied: • IFRS 1, or • Section 35 of IFRS for SMEs • Comparable financial statements will need to be provided • Accounting policies shall be re-established and consistently applied

  28. Transition

  29. Transition • Re-assess designation of financial assets and liabilities • Retrospective application at time of adoption: • De-recognition of financial assets and liabilities: prospective application for transactions occurring on or after date of transition • Hedging: elimination all deferred gains (losses) • Non-controlling interest: prospective application for changes in ownership

  30. Other Considerations

  31. Other Considerations • Implementation team needs • System capabilities for financial reporting purposes • U.S. GAAP • Parallel reporting • Future statutory reporting • Tax • Communication with Tax and Treasury teams

  32. Q & A

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