1. Full IFRS and IFRS for SMEsICPAS Chicago South Barrett Peterson, C.P.A.Manager, AccountingMarch 21, 2013Standards, Procedures,and Analysis , TTX

2. IFRS: Large and Small Why IFRS Why not IFRS yet for US Companies IFRS overview Key differences full IFRS and US GAAP IFRS for SMEs compared to full IFRS Options for Smaller Entities Overview, including AICPAs proposed Framework for SMEs Steps to consider now A short list of additional resourcesMarch 21, 2013ICPAS Chicago South Chapter 3. Why IFRS? Global Efficiency for Multi-National Companies Financial operations and reporting efficiency Reduce risk of errors Increased control over financial reporting High Quality set of Standards Facilitate global financial system Common language for global business transactionsincluding joint ventures, outsourcing, financing Uniform/Comparable, Transparent Principles Based Globally consistent and comparable for investors Minimize cost of capitalMarch 21, 2013 ICPAS Chicago South Chapter 4. Adopting IFRS Managing Expectations ExpectationChallenge Global set of high quality standards US GAAP recognized as high quality Increased comparability Fewer rules, and more judgments likelyto decrease as much as increasecomparability Transparency affected by country Increased transparencyspecific cultural norms, legal practices,and business and ownership structures Fraud has occurred in IFRS countries as More resistant to fraudwell as under US GAAP, although morefrequently under US GAAP Principles based standards superior to Difference exaggerated: US standards rules basedare principles based with a substantialnumber of rules; IFRS are principlesbased with far fewer [but some] rules US already enjoys the worlds lowest cost Minimize cost of capitalof capital. Likely to aid other countries. Rules and legal structures make US US GAAP too complexcomplex; judgments make IFRS complexMarch 21, 2013ICPAS Chicago South Chapter 5. Transparency in Accounting StandardsMarch 21, 2013ICPAS Chicago South Chapter 6. Standards and Frauds a Short Digression Both US GAAP and IFRS depend significantly upon the ethical practices of both business executives and their auditors. The rules in US GAAP are intended to alleviate this dependence. But Fraud and Accounting irregularities are driven primarily by ego issues: Aspiration for money Bookkeeper level Gucci bag or a Cadillac rather then a Chevrolet Executive level Brioni suit, stock options and bonus payments, and a Mercedes Mogul level Homes in St. Barts and London, a yacht, and a jet to get to the yacht Status the drive for bragging rights Company profitability Company growth rate Meet investment analysts [Wall Street] expectationsMarch 21, 2013 ICPAS Chicago South Chapter 7. Why not yet for US Companies No significant non-US operations reduces statutory, covenant, or other requirements Limited global capital market access required Non-Standard Standards; Country variations Limited understanding by US banks and credit raters Lack of comparability if not universally required and used Training and skills staff, auditors, othersMarch 21, 2013ICPAS Chicago South Chapter 8. IFRS Overview Governance and Process Governance structure Due Process Standards Literature Comprised Of: Preface to IFRS IASB Framework Standards full IFRS Interpretations full IFRS IFRSs for SMEs Adopted July, 2009, Effectiveimmediately; Project began in July, 2003March 21, 2013ICPAS Chicago South Chapter 9. IFRS Governance Structure Source: Deloitte IASPlus websiteMarch 21, 2013 ICPAS Chicago South Chapter 10. IFRS Standards Literature - Preface Describes IASBs Objectives Describes scope of IFRS Describes IASBs due process procedures Describes policies on effective dates Describes format used in Standards Principles in bold Black Guidance not bolded type Gray Identifies English as the official language of IFRSMarch 21, 2013 ICPAS Chicago South Chapter 11. IFRS Standards Literature - Framework Contains definitions Describes recognition criteria and measurementconcepts for: Assets and liabilities Income and expenses Required to be considered for resolving accountingissues not directly addressed by a standard [by IAS8.11]March 21, 2013 ICPAS Chicago South Chapter 12. IFRS Standards Literature - Standards Encompasses standards issued by the current IASB [IFRSs]and the predecessor IASC [IASs] still outstanding The IASB has issued 13 IFRSs The predecessor IASC issued 41 IASs, of which 28 are still outstanding, with one to be superseded January 1, 2015. Three revised in 2011, and the remainder have been superseded by IFRSs or withdrawn. Similar to US GAAP, IFRS Standards are primarily by topic.March 21, 2013ICPAS Chicago South Chapter 13. IFRS Standards Literature - Interpretations Authoritative interpretations are issued by the International Financial Reporting Interpretations Committee [IFRIC] when approved by the IASB, and the predecessor Standing Interpretations Committee [SIC] IFRIC has issued 20 interpretations, 17 of which remain in effect SIC issued 33 interpretations, 11 of which remain in effectMarch 21, 2013ICPAS Chicago South Chapter 14. Selected Differences between full IFRS and US GAAP IFRS directed at for profit entities; does not apply to non-profits, unlike U.S. GAAP LIFO prohibited under IFRS. Inventory write downs can be reversed No extraordinary items and fewer discontinued operations under IFRS Some development costs [R&D] capitalized under IFRS Advertising costs expensed as incurred little prepaid Contingency recognition threshold is lower and amount recognized may be higher under IFRS Securities considered equities in the US with contingent redemption provisions accounted and reported for as debt under IFRS Private Company [SMEs] have a separate standard.March 21, 2013 ICPAS Chicago South Chapter 15. Selected Differences between full IFRS and USGAAP, Continued Revaluation of property, plant, and equipment and intangibles permitted under IFRS Impairment testing model likely to produce more impairments under IFRS Required, under IFRS to record benefit plans actuarial gains and losses directly to OCI and permanently exclude from regular net income. Return and interest components can be classified as financing costs. Net interest component in expense at discount rate applied to the net asset or liability. Component depreciation is required when applicable and appropriate All deferred income taxes must be classified as non-current IFRS does not always recycle AOCIMarch 21, 2013 ICPAS Chicago South Chapter 16. Selected Differences Between Full IFRS and USGAAP, Continued Revenue recognition standards are less rules based and may alter timing of revenue recognition under IFRS Consolidations rules may be very different under IFRS More entities will be required to be consolidated under the controlmodel. FAS 166 and 167 [now ASC 810 Consolidations] reduced thedifferences. Proportional consolidation permitted for certain joint ventureinvestments The timing and amounts recorded for share-based payments will differ under IFRS The classification of debt on the balance sheet is NOT affected by post balance sheet date refinancing or covenant waiver agreements under IFRS IASB/IFRS places greater emphasis on Balance Sheet Little Industry Specific Guidance Rate Regulated being studied Conceptual framework required when no standard applies. US Concept Statements are not authoritative.March 21, 2013ICPAS Chicago South Chapter 17. Comparison of US GAAP and IFRS - Inventories US GAAPIFRS Permits a variety of costing Permits a variety of costingmethods including FIFO,methods including FIFO,LIFO, average, and specificaverage, and specificidentification.identification. LIFO not permitted. Requires reduction to lower Reserves for market valueof cost or market. Reservesdeclines can be reversed, butcannot be reversed.not above cost.March 21, 2013 ICPAS Chicago South Chapter 18. Comparison of US GAAP and IFRS PP&E US GAAP IFRS Historical cost is the prescribed Historical cost is the primarymodel for measurement. model, but a revaluation model is permitted. Revaluation amounts can be Revaluations not permitted. adjusted and are recorded through revaluation surplus in equity. Component depreciation Component depreciation not required. specified and not used often. Useful life, residual value, and Useful life, residual value, anddepreciation method required to depreciation methods reviewed be reviewed at least as of each only when needed. balance sheet date.March 21, 2013 ICPAS Chicago South Chapter 19. Comparison of US GAAP and IFRS - Intangibles US GAAP IFRS Research and development Development costs permitted to be expensed as incurred except certaincapitalized. Software development software development costs.costs treated the same for internaluse or for sale software. Revaluation not permitted. Intangibles permitted to use arevaluation model adjusted throughrevaluation surplus in equity. Costs of other than direct response Advertising costs expensed as advertising expensed or deferred until when advertising first used. incurred unless prepaid before rightDirect response advertising may beto access the goods or services.eligible for deferral andamortization.March 21, 2013ICPAS Chicago South Chapter 20. Comparison of US GAAP and IFRS Impairment Testing of long-lived assets US GAAPIFRS Two step test and measurement A one step assessment is used. The Carrying amount compared tocarrying amount is compared to theundiscounted cash flowshigher of fair value less selling costs Adjust to fair value if carrying or value in use calculated asamount below undiscounted cash discounted cash flows.flows Reversals of impairments are permitted if certain criteria are met. Reversals of impairments are not Impairments of revalued assets permitted. recorded directly in revaluation surplus to the extent of prior upward revaluations.March 21, 2013 ICPAS Chicago South Chapter 21. Comparison of US GAAP and IFRS Contingency Provisions US GAAPIFRS Recognition occurs if a Recognition of a contingent contingent liability arisingloss from a past event from a past event is probable,required if a loss is probable, usually considered 75% likely usually considered 50%, and to require settlement.capable of being estimated. Measurement guidance not Measurement is best estimate provided, but if a range of or the midpoint of a range or outcomes exists, the low endoutcomes. is used.March 21, 2013 ICPAS Chicago South Chapter 22. Comparison of US GAAP and IFRS DebtClassificationUS GAAP IFRS Compound securities generally not addressed Bifurcation required of compound securities in US GAAP. containing both equity and debt features with the debt reflected at fair value using discounted cash flows for the component. Securities with a contingent redemption Most equity type securities with contingent redemption provisions are recognized as provision [changes in control, e.g.] are equity. US GAAP requires debt classificationrequired to be recognized as debt. for unconditional provisions. Distributions are finance costs, not dividends. Warrants settled in net shares are derivative Warrants settled in net shares are recognized as equity.instruments recognized at fair value through profit and loss. Debt can be classified as non-current if Amounts classifiable as current are not agreements completed subsequent to the balance sheet date to refinance or waiveaffected by post balance sheet date agreements covenant violations are completed.to refinance or waive breaches of loan Disclosure required.covenants. Disclosure required.March 21, 2013 ICPAS Chicago South Chapter 23. Comparison of US GAAP and IFRS DeferredIncome Taxes US GAAPIFRS Classification follows the related The net liability for a taxing non-tax asset or liability forjurisdiction is reflected as non- financial reporting purposes. current. FIN 48 prescribes detailed rules No detailed requirements for for recognition and disclosures,uncertain tax positions exist, including a roll-forward in the although the concept is footnotes.acknowledged. Accounting policy choice, Interest and penalties classified required to be disclosed, toas either interest expenses or classify as income tax expense or other operating expenses, with in pre-tax expenses.disclosure of choice.March 21, 2013 ICPAS Chicago South Chapter 24. Comparison of US GAAP and IFRS Revenue Recognition US GAAP IFRS SEC regulations prescribe general Revenue standards of four transaction requirements with significant detail for categories: agreements with multiple deliverables Sale of goods and for specific industries. Rendering of services Others use of an asset [lessor, lender] Recognition criteria include requirement Construction contracts that persuasive evidence of the existence Recognition criteria include a less strict of an arrangement. requirement than in US, includingprobable flow of economic benefits .Other requirements are similar Multiple deliverable rules permit a cost Multiple deliverable rules prohibit estimated cost plus margin, and reverseplus reasonable margin approach, and residual method. reverse residual method permitted insome circumstances. Discounting of revenues required only in Discounting revenue required when limited circumstances and industries.revenue deferred.March 21, 2013ICPAS Chicago South Chapter 25. Comparison of US GAAP and IFRS Revenue Recognition; Continued US GAAP IFRS Customer loyalty programs have Specific guidance for customer loyalty divergent criteria by industry, and oftenprograms generally reflecting multiple reflect the incremental method.deliverable practices [IFRIC 13]. Sales of services prohibit percentage Sales of services requires percentage of complete method. Generally completion. Revenue may be deferred in proportional performance or deferral certain cases. until complete. Construction contract revenue prohibits Construction contract revenuecompleted contract. Percentage measurement can use percentcompletion and zero profit are completion, zero profit, or completedpermitted. Combining and segmenting contract methods. Combining andcontracts required in some cases. segmenting contracts is permitted, but not required. Contingent consideration recognized if Contingent consideration not recognizedbenefit to selling entity probable. until contingency resolved [SAB topic 13]March 21, 2013ICPAS Chicago South Chapter 26. Comparison of US GAAP and IFRS Accountingfor Employee BenefitsUS GAAP IFRS Defined benefit multi-employer plan Defined benefit multi-employer plan accounted for as a defined contribution plan.accounted for as a defined benefit plan ifrequired information available; defined Group administration [multiple employercontribution plan otherwise. plans] accounted for as a defined benefit plan. Group administration plans accounted for aseither a defined benefit or a definedcontribution plan. Funded status is net of obligation and fair Funded status is net of obligation and fair value of assets. Actuarial gains and losses and past service costs recognized in profit and loss value of assets. IAS 19 retains a limit on the or included in equity[AOCI]. size of a net asset, but this limit is expected tohave minimal effect. Actuarial gain and losses under IAS 19 All actuarial gains and losses eventuallyamended in 2011, now effective in 2013, must reflected in profit and loss, usually by be reflected in OCI [not profit and loss] in amortization after initial recording in AOCI inthe year they occur, which is not recycled to equity profit and loss as it is under GAAP.March 21, 2013ICPAS Chicago South Chapter 27. Comparison of US GAAP and IFRS Accountingfor Employee Benefits, ContinuedUS GAAPIFRS Actuarial gains and losses can be amortized Actuarial gains and losses [re-measurements] using a corridor approach over remainingare reflected in OCI and not amortized to service life or life expectancy.profit and loss starting in 2013. Past service costs amortized over remaining Past service cost recognized immediately if service life or life expectancy.vested, or recognized over the vesting period. No limit on funded status asset size. Funded status net asset size no longer limited. Measurement frequency required annually on No specified measurement frequency. balance sheet date. Return component calculated on market- Pension costs in profit and loss reflect service related average value of a period up to five costs plus a net interest income or expense years, a smoothing device.computed by multiplying the net asset or liability by the discount rate. This presentation emphasizes the impact of funding and funded status on the long-term costs of the plan.March 21, 2013 ICPAS Chicago South Chapter 28. Comparison of US GAAP and IFRS Consolidated Entities US GAAP IFRS Consolidation of certain entities Consolidation based on controlbased on a two step evaluation based, in turn, on ability toof variable interests then votingdetermine operations, not justcontrol. FAS 166 and 167 [ASCvoting rights.810 - Consolidations] moved UScloser to IFRS with power tocontrol emphasis. Proportional consolidation previously permitted for certain Proportional consolidation used jointly controlled entities is noonly for unincorporated entities longer permitted starting in 2013in specific industries. Rare inunder IFRS 11 Jointthe US.Arrangements.March 21, 2013 ICPAS Chicago South Chapter 29. Comparison of US GAAP and IFRS Income Statement Presentation US GAAPIFRS Generally follows SEC requirement Entities can present expense either that expenses be presented byby function or by nature. function [e.g. cost of goods sold],Additional disclosure by nature with depreciation [nature] being required if function chosen. The permitted as a separate line item. two methods should not be mixed. Permitted to use a single-step Required disclosure of specific items method or a multiple-step method including revenue, finance expense, separating operating and non-tax expense, and share of post tax operating before pre-tax income. results applicable to affiliatesaccounted for by the equity method. Extraordinary items defined as Exceptional items not defined. infrequent and unusual. Rare in Extraordinary items prohibited. practice.March 21, 2013ICPAS Chicago South Chapter 30. IFRS for SMEs The IASB Standard International Financial Reporting for Small and Medium-sized Entities [SMEs] is a separate standard from the full IFRS standards and interpretations. Standard is 232 pages vs. 2,700 pages for full IRS. Examples and implementation guide an additional 65 pages. Small and Medium Size entities is a misleading title. The distinction is based on the absence of public accountability. Entities are SMEs, regardless of size, if they have no publically held debt or equity securities outstanding and do not hold funds for others in a fiduciary capacity as a regular part of their business operations. Guidance for micro-sized entities is under development [SMEIG] IFRS for SMEs differs from full IFRS in that: Certain full IFRS topics are omitted Options under full IFRS are replaced with a single, simpler option Many principles for recognizing assets, liabilities, income, and expenses aresimplified. Required disclosures are significantly fewer and simpler many resulting from theomitted and simplified items.March 21, 2013 ICPAS Chicago South Chapter 31. IFRS for SMEs Omitted Topics Earnings per share Interim financial reporting Segment reporting Special accounting for assets held for saleMarch 21, 2013 ICPAS Chicago South Chapter 32. IFRS for SMEs Reduced Options Proportionate consolidation not permitted. Revaluation option not permitted for either property, plant, and equipment, or intangible assets. Investments in financial securities carried at amortized cost except equities with a readily identifiable market value which are carried at fair value with changes recorded in profit and loss. Investment property measurement is driven by circumstances rather than a choice between the cost and fair value models.March 21, 2013ICPAS Chicago South Chapter 33. IFRS for SMEs Simplified Recognition and Measurement Investments in financial instruments meeting certain criteria are measured at cost or amortized costs. All others measured at fair value through profit and loss. All research and development costs expensed as incurred. Goodwill and other indefinite life intangibles always amortized over estimated useful life or ten years. Investments in joint ventures at cost unless there is a published price, in which case fair value is required. Borrowing costs must be recognized as expenses Annual review of PPE lives, residual value, and depreciation method NOT required. For defined benefit post-employment plans: Recognize all past service costs immediately in profit and loss Recognize all actuarial gains and losses immediately in profit and loss or other comprehensive income through Retained Earnings. No corridor amortization option.March 21, 2013 ICPAS Chicago South Chapter 34. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEsFull IFRSPrefacePreface 1. Small and Medium Sized Entities 2. Concepts and Pervasive PrinciplesIASB Framework, IAS 1, Presentation of Financial Statements 3. Financial Statement Presentation IAS 1 4. Statement of Financial PositionIAS 1 5. Statement of Comprehensive Income andIAS 1Income Statement 6. Statement of Changes in Equity and Statement IAS 1of Comprehensive Income and RetainedEarnings 7. Statement of Cash FlowsIAS 7, Statement of Cash Flows 8. Notes to the Financial StatementsIAS 1 9. Consolidated and Separate FinancialIAS 27, Consolidated and Separate FinancialStatements Statements 10. Accounting Policies, Estimates and Errors IAS 8, Accounting Polices, Changes in Accounting Estimates and ErrorsMarch 21, 2013ICPAS Chicago South Chapter 35. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEsFull IFRS11& Basic Financial Instruments and Other IAS 32, Financial Instruments: Presentation12 Financial Instruments Issues IAS 39, Financial Instruments: Recognitionand MeasurementIFRS 7, Financial Instruments: Disclosures13 InventoriesIAS 2, Inventories14 Investments in AssociatesIAS 28, Investments in Associates15 Investments in Joint VenturesIAS 31, Investments in Joint Ventures16 Investment PropertyIAS 40, Investment Property17 Property, Plant and EquipmentIAS 16, Property, Plant and Equipment18 Intangible Assets Other than GoodwillIAS 38, Intangible Assets19 Business Combinations and Goodwill IFRS 3, Business Combinations20 Leases IAS 17, Leases21 Provisions and Contingencies IAS 37, Provisions, Contingent Liabilitiesand Contingent AssetsMarch 21, 2013 ICPAS Chicago South Chapter 36. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEs Full IFRS 22 Liabilities and EquityIAS 1, IAS 32 23 Revenue IAS 11, Construction ContractsIAS 18, Revenue 24 Government Grants IAS 20, Accounting for Government Grants andDisclosure of Government Assistance 25 Borrowing Costs IAS 23, Borrowing Costs 26 Share-based Payment IFRS 2, Share-based Payment 27 Impairment of AssetsIAS 2, IAS 36, Impairment of Assets 28 Employee Benefits IAS 19, Employee Benefits 29 Income TaxIAS 12, Income Taxes 30 Foreign Currency TranslationIAS 21, The Effects of Changes in ForeignExchange Rates 31 HyperinflationIAS 29, Financial Reporting inHyperinflationary EconomiesMarch 21, 2013ICPAS Chicago South Chapter 37. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEs Full IFRS 32 Events after the End of the Reporting Period IAS 10, Events after the Reporting Period 33 Related Party DisclosuresIAS 24, Related Party Disclosures 34 Specialized Activities IAS 41, Agriculture IFRS 6, Exploration for and Evaluation of Mineral Resources 35 Transition to the IFRS for SMEsIFRS 1, First-time Adoption of International Financial Reporting StandardsMarch 21, 2013ICPAS Chicago South Chapter 38. Comparison of Full and SMEs IFRS - Objectives Full IFRSIFRS for SMEs Purposes Purposes Report financial position Report financial position Report performance Report performance Report changes in financial position Report cash flows Attributes Attributes Accrual basis Relevant Going concern Reliable Understandability Comparability Relevance Complete Reliability requires prudence Prudence Comparability Reflect substance over form Accrual basis Presumes going concern Materiality TimelinessMarch 21, 2013ICPAS Chicago South Chapter 39. Comparison of Full and SMEs IFRS Required Financial Statements Full IFRS IFRS for SMEs Statement of Financial Position Statement of Financial Position [required name] may be called Balance Sheet Statement of Income or Statement of Income or Comprehensive IncomeComprehensive Income Statement of Changes in Equity. Statement of Changes in Equity. A combined statement of income and retained earnings permitted if earnings and dividends are the only activity Statement of Cash Flows Statement of Cash Flows Notes to Financial Statements Notes to Financial StatementsMarch 21, 2013 ICPAS Chicago South Chapter 40. Comparison of Full and SMEs IFRS FinancialInstruments Full IFRSIFRS for SMEs Four categories of financial Two topics in IFRS for SMEsinstruments Basic financial instruments, Financial assets or liabilities at generally reflected at amortizedfair value through profit and loss cost. Held-to-maturity investments Complex financial instruments Loans and receivablesgenerally reflected at fair value through profit and loss. Available-for-sale assetsMarch 21, 2013ICPAS Chicago South Chapter 41. Comparison of FULL and SMEs IFRS Property,Plant, and Equipment Full IFRS IFRS for SMEs Accounting policy choice Historical cost model only. between historical cost and Revaluation model not revaluation models. permitted. Component depreciation Component depreciation required. required only if major parts of a PP&E item have significantly different patterns of consumption of economic benefits. Annual review of useful life, Review of useful life, residualresidual value, and depreciation value, and depreciation rate onlyrate required. if there is a significant change in the asset or its use.March 21, 2013 ICPAS Chicago South Chapter 42. Comparison of Full and SMEs IFRS Investmentsin Associates and Joint Ventures Full IFRSIFRS for SMEs Investments in associates Investments in associates or Accounted for by equity methodjointly controlled entity may be Cost and fair value models notaccounted for by: permitted except in separate The cost model [less any company statementsimpairments] Investments in joint ventures The equity method Proportionate consolidation or The fair value model through Equity methodprofit and loss Cost and fair value models not permittedMarch 21, 2013ICPAS Chicago South Chapter 43. Comparison of Full and SMEs IFRS - Intangibles Full IFRS IFRS for SMEs Provides an accounting policy The cost model is required and choice between the cost model the revaluation model is and the revaluation model prohibited. Useful life either finite or All intangible assets are indefinite. Indefinite life amortized over their useful life intangibles, including goodwill,or ten years. are not amortized, but an annual impairment test is required. Some development costs are All research and development capitalized.costs expensed as incurred. Some borrowing costs are All borrowing costs expensed as capitalized.incurred.March 21, 2013 ICPAS Chicago South Chapter 44. Comparison of FULL and SMEs IFRS Defined Benefit Pension Plans Full IFRSIFRS for SMEs Actuarial gains and losses Actuarial gains and losses Now required to be reflected on Choice to recognize immediately in other comprehensive income rather profit and loss, or than in profit and loss. Recognize immediately in other comprehensive income, but not recycled. Deferral and amortization [corridor approach] not permitted. Calculation of liability Calculation of liability Use unit credit method, or simplify Unit credit method required.calculation by ignoring: Recognition of past service cost Future salary increases Immediately if vested Future service of current employees Over remaining vesting period for Possible in-service mortality unvested amounts Recognize past service costimmediately in profit and loss.March 21, 2013ICPAS Chicago South Chapter 45. Comparison of Full and SMEs IFRS Income Taxes Full IFRS IFRS for SMEs A deferred tax asset is Recognize a valuation allowance recognized only if it is probable to reduce the net asset to an there will sufficient future profit amount more likely than not to to realize the tax asset. be realized. No specific guidance on Recognize the effect of the uncertain tax positions. In possible outcomes of a review by practice a liability established at tax authorities using the either the single best estimate orprobability weighted average of a probability weighted averageall possible outcomes. amount of all possible outcomes.March 21, 2013 ICPAS Chicago South Chapter 46. Comparison of Full and SMEs for IFRS Business Combinations Full IFRS IFRS for SMEs Transaction costs are excluded Transaction costs are included in from acquisition costs. acquisition costs. Contingent consideration is Contingent consideration is recognized in acquisition costs included as part of the regardless of the probability ofacquisition costs if it is probable payment.the amount will be paid and the amount can be measured reliably.March 21, 2013 ICPAS Chicago South Chapter 47. Options For U.S. Private Entities - Overview What is an SME [Definition]? IFRS Lack of public accountability no publicly held debt or equity and not in a business requiring fiduciary responsibility holding funds for others. AICPA Owner managed entities that require reliable financial statements for internal use and for external uses when external users have direct access to management. [Scope, as proposed in draft]. Barrett Peterson Private, owner-managed, no public debt or equity, including no employee stock plans, non-fiduciary business model, revenue of not more than $50 million [$25 million preferred], and no public exit strategy.March 21, 2013 ICPAS Chicago South Chapter 48. Options for U.S. Private Entities - Overview Authoritative Accounting Principles Based FASB Accounting Standards Codification [ASC] FASB Private Company Council product under development Non-Authoritative IFRS, Including the Standard for SMEs: Option permitted now.SME comprised of a 232 page Standard plus a 65 page Guidance.AICPA recognized for reporting and audits of private companies. IFRS A Micro-sized Entitys Guide for applying IFRS for SMEs,currently under development, a sub-set of the SME standard. AICPA Proposed Financial Reporting Framework for small-and Medium-Sized Entities [FRF for SMEs]. Comprised of a 32 chapter,252 page proposal [an OCBOA proposal]. AICPA related Implementation Guidance for FRF for SMEs, not yetpublished. Length to be determined but likely to rival the FRF.Incorporated by reference in the FRF for SMEs.March 21, 2013ICPAS Chicago South Chapter 49. FASB Private Company Council (PCC) Work began December, 2012; next meeting May 7, 2013 Several initial frustrating issues, agenda, or staffresearch topics identified. VIEs [Initial Agenda]. Fair Value Accounting [Staff research]. Recognizing and measuring intangible assets other than goodwill inbusiness combinations [Initial Agenda]. Accounting for plain vanilla interest rate swaps with a singlecounter-party [Initial Agenda]. Uncertain tax positions [not now to be considered]. Stock Based compensation [Staff research]. Development stage enterprises [Staff research]. Position on lease accounting re-proposal underdevelopment by FASB/IASB not identified.March 21, 2013ICPAS Chicago South Chapter 50. AICPA Framework for SMEs Proposal Historical cost rather than fair value emphasized Existing [2013] lease accounting retained Allows taxes payable method for accounting for income taxes; presumably precludes reflecting tax assets like NOLs. Does not incorporate the concept of other comprehensive income Does not include the concept of variable interest entities Provides simplified reporting for defined benefit pension plansMarch 21, 2013ICPAS Chicago South Chapter 51. Options for U.S. Private Entities - Overview Creditor acceptance of principles used many standard bank, lease and other agreements require use of authoritative principles Future plans, including growth, larger private placement, IPO, sale to public company Are any of the easier frameworks easy enough? Staff skills, time, compensation Systems requirements current, future Evaluate need for more complex transactions simple structures still have simple accounting and reportingMarch 21, 2013ICPAS Chicago South Chapter 52. Will the U.S. Adopt IFRS? Not like to replace GAAP with IFRS. Likely to eventually [10 or more years] consider some form of the SECs Condorsement idea if IFRS substantially reduces its diversity of application in practice and becomes more globally uniform. Likelihood also tied to more global uniformity in audit standards and practice. Should receive attention as convergence will continue and ideas cross-pollinate. These become US GAAP upon adoptions by the FASB.March 21, 2013 ICPAS Chicago South Chapter 53. Principal Convergence Items Currently Underway Leases Revenue Recognition Financial Instruments Consolidations Insurance Contracts Delayed Financial Statement Presentation Intangible Assets Financial Instruments With Characteristics of EquityMarch 21, 2013 ICPAS Chicago South Chapter 54. Next Steps - Preparation for Adoption of IFRS Accounting systems Data collection procedures for information and attributes not currently captured Redesign of sales contracts and procedures Software requirements Loan, lease , outsourcing, and other contract covenants IFRS aware Tax planning Business unit and corporate metrics dashboard revisions Incentive [cash, stock] compensation plan provisions base and award factors included in computations Documentation of controls over financial reporting, and other processes Staff training needs identify and arrange Timing to provide two years of comparable basis data in the year of adoption Development of plan for conversion including resources requiredMarch 21, 2013ICPAS Chicago South Chapter 55. What it all meansMarch 21, 2013 ICPAS Chicago South Chapter 56. Comparison of FULL and SMEs IFRS SelectedAdditional Resources IASB Website: www.ifrs.org AICPAs IFRS website: www.ifrs.com AICPAs IFRS SME wiki: http://wiki.ifrs.com AICPA Financial Reporting Center: http://www.aicpa.org/InterestAreas/FRC/AccountingFinan cialReporting/Pages/AccountingFinancialReporting.aspx Deloitte website: www.iasplus.com PWC website: www.pwc.com/usifrs Books from Wiley available from Wiley and on Amazon.com, where they are less expensive Deloitte 2012 Model IFRS financial statements [140 pages] SEC Staff Comparison of GAAP and IFRS [52 pages]March 21, 2013 ICPAS Chicago South Chapter