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US GAAP and IFRS: Ford vs Daimler AG

Comparison Accounting standard US GAAP and IFRS: Ford vs Daimler AG

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US GAAP and IFRS: Ford vs Daimler AG

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  1. IFRS Project: Ford vs Daimler AG

  2. THE CONTENT Recognition and measurement (accounting methods) differences Disclosure differences Recommendation

  3. PART 1: Recognition and measurement (accounting methods) differences

  4. GENERAL INFORMATION

  5. REVENUE RECOGNITION

  6. REVENUE RECOGNITION (US GAAP) • Automotive sector • Automotive revenue is generated primarily by sales of vehicles, parts, and accessories. • Recorded when all risks and rewards of ownership are transferred to its customers (generally dealers and distributors). • When giving the dealers the right to return eligible parts for credit, so reduce the related revenue for expected returns. • Sales and marketing incentives generally are recognized by the Automotive sector as revenue reductions in Automotive revenues.

  7. REVENUE RECOGNITION (US GAAP) 2. Financial Services sector • Financial Services revenue is generated primarily from interest on finance receivables (including direct financing leases) and is recognized using the interest method. • Revenue from rental payments received on operating leases is recognized on a straight-line basis over the term of the lease. • The accrual of interest on finance receivables and revenue on operating leases is discontinued at the time a receivable or account is determined to be uncollectible.

  8. REVENUE RECOGNITIONDAIMLER (IFRS) • Automotive sector • Revenue from sales of vehicles, service parts and other related products is recognized when the risks and rewards of ownership of the goods are transferred to the customer. • The amount of revenue can be estimated reliably and collectability is reasonably assured. • Revenue is recognized net of sales reductions such as cash discounts and sales incentives granted.

  9. REVENUE RECOGNITIONDAIMLER (IFRS) 2. Financial Services sector • Revenue from receivables from financial services is recognized using the effective interest method. • Revenue from operating leases is recognized on a straight- line basis over the lease term.

  10. REVENUE RECOGNITIONCOMPARISION Timing of revenue recognition can be different in several cases, especially when price contingencies are involved.

  11. INCOME TAXES

  12. INCOME TAXES (US GAAP) • Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards on a taxing jurisdiction basis. • Deferred tax assets and liabilities are measured by using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid. • If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

  13. INCOME TAXES DAIMLER (IFRS) • Current income taxes are determined based on the respective local taxable income of the period and local tax rules. • Deferred tax assets or liabilities are determined based on temporary differences between financial reporting and the tax basis of assets and liabilities including differences from consolidation, loss carry forwards and tax credits. • Tax rates and tax rules are used which have been enacted or substantively enacted at the reporting date.

  14. INCOME TAXESCOMPARISION

  15. INVENTORY (US GAAP) All inventories are stated at the lower of cost or market. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 28% and 20% of total inventories at September 30, 2014 and December 31, 2013, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis. Inventories were as follows (in millions):

  16. INVENTORY DAIMLER ( IFRS ) Inventories are measured at the lower of cost and net realizable value. The net realizable value is the estimated selling price less any remaining costs to sell. The cost of inventories is based on average cost (AVCO) or the first-in first-out principle (FIFO), and includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In case of manufactured inventories and work in progress, cost includes production overhead based on normal capacity.

  17. PROVISION AND CONTIGENTLIABILITIES

  18. PROVISION CALCULATIONDAIMLER ( IFRS )

  19. PROVISION CALCULATION ( US GAAP )

  20. PART 2: Disclosure differences

  21. DIFFERENCES IN THE FINANCIAL STATEMENTS INCLUDED IN ANNUAL REPORT

  22. DIFFERENCES IN THE FORMAT USED TO PRESENT FINANCIAL STATEMENTS

  23. DIFFERENCES IN THE FORMAT USED TO PRESENT FINANCIAL STATEMENTS

  24. CONSOLIDATED STATEMENTS OF INCOME DAIMLER ( IFRS )

  25. CONSOLIDATED INCOME STATEMENT ( US GAAP )

  26. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ( US GAAP )

  27. SECTOR INCOME STATEMENTS ( US GAAP )

  28. DIFFERENCES IN THE FORMAT USED TO PRESENT FINANCIAL STATEMENTS

  29. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DAIMLER ( IFRS )

  30. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DAIMLER ( IFRS )

  31. CONSOLIDATED BALANCE SHEET ( US GAAP )

  32. DIFFERENCES IN THE FORMAT USED TO PRESENT FINANCIAL STATEMENTS

  33. CONSOLIDATED STATEMENTS OF CASH FLOWS DAIMLER ( IFRS )

  34. CONSOLIDATED STATEMENTS OF CASH FLOWS ( US GAAP )

  35. CONSOLIDATED STATEMENTS OF CASH FLOWS ( US GAAP )

  36. DIFFERENCES IN LEVEL OF DETAIL • Significant level of detail in GAAP, while IFRS offers less detailed guidance and less detail in the reporting. Ex: Revenue recognition and the more complex accounting issues like derivatives. • The detail shows in the size of the regulations. GAAP regulations take up more than 17,000 pages, while IFRS regulations only number about 5,000 pages.

  37. DIFFERENCES IN LEVEL OF DETAIL Example: DAIMLER However, Daimler AG covers the lack of detail by a lot of note: 38 notes over 27 notes of Ford.

  38. DIFFERENCES IN TERMINOLOGY In recent years we have seen increased efforts to harmonize IFRS with US Generally Accepted Accounting Principles (US GAAP) as developed by the Financial Accounting Standard Board (FASB) in the US.

  39. Recomendation

  40. RECOMMENDATION Automotive industry: • Significant international operations • Multiple regulatoryand capital market considerations • Complex organizational structures(including multiple subsidiaries and joint venture relationships) • Global competitors who may already be reporting underIFRS => IFRS should be adapted in Automotive industry, especially in car companies like Ford or Daimler

  41. RECOMMENDATION IFRS has the potential “to best provide the common platform on which companies can report and investors can compare financial information” Advantages when applying IFRS: • Asset Componentization: Major components of an asset must be separated and depreciated over their estimated useful lives. For components that typically require replacement during the working life of the overall asset, depreciation may be calculated on a units of production basis. => Depreciation for separate components results in more accurate and clear figure than depreciation for whole asset

  42. RECOMMENDATION 2. Impairment loss of asset Automotive industry has been affected frequently by: • Technological obsolescence • Competition • Significant regulatory changes … IFRS is more flexible than US. GAAP when allowing the company to reverse previous impairment where the indicator that lead to the impairment loss is no longer existed

  43. RECOMMENDATION 3. Research and Development: U.S. GAAP requires all costs related to research and development be expensed as incurred, with few exceptions. IFRS differentiates between “research” and “development” costs, with development costs capitalized when the technical and economic feasibility of a project can be demonstrated and further prescribed conditions are satisfied. Automotive industry: Rapid change, technological innovation • A huge amount of resources will be invested in R&D activities • This amount should be recognized as assets (if meet all criteria) under IFRS rather than as expense when using US. GAAP

  44. THANK YOU FOR LISTENING!

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