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Things That Every CPA Need To Know About IFRS
Peter A. Margaritis, CPA, CGMA, MAccPeter A. Margaritis, LLC
October 16, 2012
IFRS are an existing set of “high-quality, country-neutral” accounting standards that continue to evolve.
Economic benefits:• Greater transparency and comparability• Facilitate cross-boarder filings • Access to capital • Lower cost of capital• Improve investor confidence• Reduce costs
IFRSIFRSIFRSIFRS
2011
2013
2016
2005
2012
2010
2012
2005
2014
2013
2005
IFRS: 120+ Countries Permit/RequireIFRS: 120+ Countries Permit/RequireIFRS: 120+ Countries Permit/RequireIFRS: 120+ Countries Permit/Require
Source:: PwC IFRS Readiness Series
Impact on Taxes
6
Principles vs. RulesPrinciples vs. RulesPrinciples vs. RulesPrinciples vs. Rules
Abbott and Costello
Transaction Analysis
AccountingResearch
DecisionMaking
US GAAP
Transaction Analysis
AccountingResearch
DecisionMaking
IFRS
Putting Principles Into ActionPutting Principles Into ActionPutting Principles Into ActionPutting Principles Into Action
United States UpdateUnited States Update
2012
Leases Re-expose (Q1) - 2013
Revenue Recognition Redeliberations (Q3-Q4)
IFRS (H1 2013)
FI: Impairment Re-expose (Q4)
FI: Classification & Measurement Exposure Draft (Q4)
FI: General Hedging IFRS (Q4)
FI: Macro Hedging Exposure Draft (Q3/Q4)
Insurance Contracts Re-expose (Q3/Q4)
Convergence – 10/01/12
IASB/FASB Completed MoU Projects
Share-based payments Business Combinations
Segment reporting Derecognition
Research Costs Consolidation
Borrowing costs Disclosures of Interest in Other Entities
Fair ValueEmployee Benefits (post employment benefits improvement)
Joint VenturesPresentation of Financial Statements (presentation of OCI improvement)
1. Sufficient Development and Application of IFRS for the U.S. Domestic Reporting System
2. The Independence of Standard Setting for the Benefit of Investors
3. Investor Understanding and Education Regarding IFRS
4. Examination of the U.S. Regulatory Environment that Would Be Affected by a Change in Accounting Standards
5. The Impact on Issuers, Both Large and Small, Including Changes to Accounting Systems, Changes to Contractual Arrangements, Corporate Governance Considerations, and Litigation Contingencies
6. Human Capital Readiness
SEC Workplan Update
The International The International Accounting Standards Accounting Standards
Board (IASB) Board (IASB)
An independent standard setter based in London, UK (British spelling)
IASB is the successor (2001) to the IASC which was founded in 1973
The IASB is appointed and overseen by a geographically and professionally diverse group of 22 Trustees of the IFRS Foundation
There is a 15 member IASB board that is the body that sets accounting standards using a formalized due process procedure.
IASBIASBIASBIASB
Source: Guide to IASC Foundation and IASB
IASB StructureIASB StructureIASB StructureIASB Structure
Who Funds The IASB ($33M Budget - US$)
$9 million
$2.6 million
$800K
$2.6 million
$1.2 million
$400K
$1 million
$11 million
Source: IASB Foundation Annual Report (2011)
$360K
$100K
$100K
Reference Type of Pronouncement
IAS International Accounting Standard (28)
IFRS International Financial Reporting Standard (13)
IFRIC Interpretation of the International Financial Reporting Interpretations Committee (16)
SIC Interpretation of the Standing Interpretations Committee (8)
Types of PronouncementsTypes of PronouncementsTypes of PronouncementsTypes of Pronouncements
• IFRS 10 Consolidated Financial Statements – 2013
• IFRS 11 Joint Arrangements - 2013
• IFRS 12 Disclosure of Interests in Other Entities - 2013
• IFRS 13 Fair Value Measurement - 2013
• IAS 19 Employee Benefits - 2013
• IAS 27 Separate Financial Statements - 2013
• IAS 28 Investments in Associates and Joint Ventures - 2013
• IAS 32 Offsetting Financial Assets and Liabilities - 2013
• IFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities - 2014 w/ early adoption
• IFRS 9 Classification and Measurement of Financial Assets - 2015 w/ early adoption
New Standards and Modifications Effective 2013 and Beyond
Conceptual FrameworkConceptual Framework
IFRS Education and Training, LLCIFRS Education and Training, LLC20
US GAAP IFRS
Objectives (Completed Phase A) The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
Assumptions Economic entityGoing ConcernPeriodicityMonetary Unit
Accrual Going Concern
Recognition and Measurement -Principles
Historical CostRevenue RecognitionMatchingFull DisclosureFair value
Historical costCurrent costRealizable valueFair ValueRevenue & Expense recognitionFull disclosure
US GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRS
IFRS Education and Training, LLCIFRS Education and Training, LLC21
US GAAP IFRS
Qualitative Characteristics:
Fundamental and Enhancing Characteristics
Pervasive constraint
Completed Phase A
Relevance (FC) •predictive value•confirmatory value•materiality
Faithful representation (FC)•complete•neutral•free of error
Comparability (EC)Verifiability (EC)Timeliness (EC)Understandability (EC)
Cost (PC)
Relevance (FC) •predictive value•confirmatory value•materiality
Faithful representation (FC)•complete•neutral•free of error
Comparability (EC)Verifiability (EC)Timeliness (EC)Understandability (EC)
Cost (PC)
US GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRS
IFRS Education and Training, LLCIFRS Education and Training, LLC22
US GAAP IFRS
Elements of Financial Statements
AssetsLiabilitiesEquityInvestment by ownersDistribution to ownersRevenuesExpensesGainsLossesComprehensive Income
AssetsLiabilitiesEquity
Capital maintenance (revaluation of assets)
Income (Revenues & gains)
Expenses (expenses & losses)
US GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRSUS GAAP vs IFRS
Financial Statement PresentationFinancial Statement PresentationIAS 1 IAS 1
1. Statement of Financial Position
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to the Financial Statements
Complete Set of Financial StatementsComplete Set of Financial StatementsComplete Set of Financial StatementsComplete Set of Financial Statements
IAS 1 requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement, as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, or when the entity reclassifies items in the financial statements.
IAS 1: Presentation of Financial Statements
US GAAP IFRS
Financial Periods Required
No requirement. Public companies follow SEC rules.
Comparative information must be disclosed
Layout of Balance Sheet and Income Statement
No general requirement in accordance with specific layout. Public companies follow Regulation S-X
IAS 1 Presentation of Financial Statements does not prescribe but lists a minimum items
Presentation of debt as current vs. non-current in the balance sheet
Debt for which there is a covenant violation MAY be presented as non-current
Debt for which there is a covenant violation MUST be presented as current
DifferencesDifferencesDifferencesDifferences
US GAAP IFRS
Deferred Taxes
Deferred taxes are presented as current or non-current based on the nature of the related asset or liability
Deferred taxes are reported as non-current
Expense classificationSEC registrants are required to present based on function.
Entities may present expenses based on either function or nature
Extraordinary ItemsRestricted to items that are both unusual and infrequent
Prohibited
Differences from US GAAPDifferences from US GAAPDifferences from US GAAPDifferences from US GAAP
IFRS are more prescriptive in terms of the specific line items, headings, and subtotals that must be presented.
IFRS requires the presentation of a classified balance sheet, with separate sections for current and non-current assets as well as current and non-current liabilities.
Under IFRS, presentation in order of increasing liquidity and decreasing liquidity are both common in practice.
Statement of Financial PositionStatement of Financial PositionStatement of Financial PositionStatement of Financial Position
An entity shall present all items of income and expense recognised in a period:
• In a single statement of comprehensive income, or
• In two statements: a statement displaying components of profit or loss and a second statement beginning with profit or loss and displaying components of other comprehensive)
Statement of Comprehensive IncomeStatement of Comprehensive IncomeStatement of Comprehensive IncomeStatement of Comprehensive Income
Revenue XCost of sales (X)Gross profit XOther income XDistribution costs (X)Administrative expenses (X)Other expenses (X)Profit before tax X
Function of ExpenseFunction of ExpenseFunction of ExpenseFunction of Expense
Revenue XOther income XChanges in inventories of FG & WIP XRaw materials and consumables used X
Employee benefits expense XDepreciation and amortization expense X
Other expenses XTotal expenses (X)Profit before tax X
Nature of ExpenseNature of ExpenseNature of ExpenseNature of Expense
• Published in June 2011 and effective for reporting years beginning on or after July 1, 2012
• Retrospective application
• Statement of Profit and Loss and Other Comprehensive Income - not mandatory
• OCI section to present items classified and grouped by nature
• Must disclose income tax pending on each item
IAS 1: Presentation of OCI
• Individual IFRSs specify which gains and losses must be reported in OCI and whether these items must be reclassified.
• Reclassification - when gains or losses is recognized in one period and then recognized again in profit and loss in a later period.
• Some IFRS require reclassification from OCI (IAS 21 & IAS 39)
• Others prohibit reclassification from OCI (IAS 16, IAS 19, IFRS 9)
IAS 1: Presentation of OCI
Profit for the year x
Other Comprehensive Income
Items that will not be reclassified to P&L
Actuarial loss on defined benefit plan (X)
Income tax X (X)
Items that may be reclassified subsequently to to P&L
Cash flow hedges (X)
AVS financial assets X
Income tax (X) X
OCI for the year, net of tax X
Total OCI for the year X
Statement of P&L and OCI (example)
Statement of Changes in EquityStatement of Changes in EquityStatement of Changes in EquityStatement of Changes in Equity
Statement of Cash FlowsStatement of Cash FlowsStatement of Cash FlowsStatement of Cash Flows
Present information about the basis of preparation of the financial statements and the specific accounting policies used
Provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any item.
Disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and
• measurement basis used• management’s judgments and
assumptions
Notes to the Financial StatementsNotes to the Financial StatementsNotes to the Financial StatementsNotes to the Financial Statements
Heineken slide
Impairment Impairment IAS 36IAS 36
75
RecoverableFuture net cash flows which the concept of time
value of money is not applied
Recoverable Amount•The concept of time value of money is applied
DifferencesDifferences
Source: IFRS Partners
CA > RA Impairment
VIU FV - CS
Impairment TestingImpairment Testing
The carrying amount of a parcel of land is $1,400,000. The appraised fair value is $1,300,000. Costs to sell the asset would be 10% of the FV of the asset. The value in use (PV of discounted future cash flows) (VIU) was determined to be $1,250,000.
Fair Value $1,300,000Less: Costs to Sell 130,000 FV - Costs to Sell (a) $1,170,000Value in Use (b) $1,250,000
Recoverable Amount Higher or (a or b) $1,250,000
Carrying Amount (CA) $1,400,000Recoverable Amount (RA) $1,250,000Impairment (CA - RA) $150,000
Impairment ExampleImpairment Example
External sources of information•Asset’s market value has declined significantly.
•Significant changes with an adverse effect on the entity
•Market interest rates or other market rates of return on investments have increased during the period
•The carrying amount of the net assets of the entity is more than its market capitalisation.
Signs of ImpairmentSigns of Impairment
Internal sources of information•Evidence is available of obsolescence or physical damage of an asset.
•Significant changes with an adverse effect on the entity have taken place during the period
•Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.
Signs of ImpairmentSigns of Impairment
Inventory Inventory IAS 2IAS 2
GAAP and IFRS are both based on the principle that the primary basis of accounting for inventory is cost.
“Assets held for sale in the ordinary course of business, in the process of production of such sale, or to be consumed in the production of goods and services.”
The cost of inventory includes all direct expenses in order to ready the inventory for sale.
Specific Identification, FIFO, Weighted Average, and the Retail Method are similar under both standards.
SimilaritiesSimilarities
US GAAP IFRS
LIFO is acceptable method LIFO is prohibited
Inventory is carried at LCM. Market is defined as current replacement cost as long as the market is not > NRV (ceiling) and is not less than net realizable value reduced by a normal sales margin (floor)
Inventory is carried at the lower of cost and net realizable value. (NRV = estimated selling price less estimated costs to complete and sell)
Any write-downs of inventory to LCM creates a new cost basis that can not be reversed.
Previously recognized impairment losses are reversed, up to the amount of the original impairment loss when the reason for the impairment no longer exists.
DifferencesDifferences
Tin Cup, Inc. sells only one product and the cost of the product is $5 per unit.
Example 1:NRV = $4.50Replacement Cost = $4.65NRV minus normal profit margin = $4.10Inventory would be valued at $4.50 under both US GAAP and IFRS
Example 2:NRV = $4.50Replacement Cost = $4.35NRV minus normal profit margin = $4.10
US GAAP = $4.35IFRS = $4.50
LCM vs. Lower of Cost and NRVLCM vs. Lower of Cost and NRV
The amount of any write-down of inventories to NRV and all losses of inventories shall be recognised as an expense
The amount of any reversal of any write-down of inventories, arising from an increase NRV, shall be recognised as a reduction COGS.
Inventory MeasurementInventory Measurement
Spacely Space Sprockets, Inc. (SSSI) starts with no inventory in 20X7. The following occur:
2007, purchases 1,000 units for $5.75 and sells 800 units.2008, purchases 900 units for $6.00 and sells 800 units. 2009, purchases 1,100 units for $6.75 and sells 800 units2010, no purchases, sells 500 units
$ per unit at year end 2007 2008 2009 2010
Est. Selling $ $9.00 $7.00 $7.00 $8.00
Est. Cost to Complete and Sell
$1.00 $1.00 $1.00 $1.00
NRV $8.00 $6.00 $6.00 $7.00
ExampleExample
2007 2008 2009 2010
Historical Cost $1,150 $1,800 $4,050 $675
NRV $1,600 $1,800 $3,600 $700
Carrying Value $1,150 $1,800 $3,600 $675
Calculations2007: EI 200 units @ $5.75 = $1,150 NRV 200 units @ $8.00 = $1,6002008: EI 300 units @ $6.00 = $1,800 NRV 300 units @ $6.00 = $1,8002009: EI 600 units @ $6.75 = $4,050 NRV 600 units @ $6.00 = $3,6002010: EI 100 units @ $6.75 = $675 NRV 100 units @ $7.00 = $700
Solution (FIFO)Solution (FIFO)
InventoryInventory
5,750 4,600
1,1505,400 4,750
1,8007,425 5,175
4,050 4503,6000
600 75
675
EI 2007
EI 2008
EI 2009ADJEI 2009
ADJEI 2010
T-AccountT-Account
3,000
Property, Plant, and Property, Plant, and EquipmentEquipment
IAS 16IAS 16
“Tangible assets held for use that are expected to be used for more than one accounting period.”
The cost of the asset includes all costs incurred in order to get the asset ready for use – historical cost
Both methods do not allow the capitalization of start-up costs, G&A and overhead costs, or regular maintenance.
Depreciation of PP&E is required
Requires interest costs to be capitalized as part of the cost of the qualifying asset. (IAS 23 Revised in 2009)
SimilaritiesSimilarities
US GAAP IFRS
No annual review of the depreciation method required.
The depreciation method applied to an asset shall be reviewed at least at each financial year-end
Component depreciation is permitted but not common
Component depreciation is required if components of an asset have differing patterns of benefit
Revaluation is not permitted
Revaluation is a permitted alternative accounting election for an entire class of assets, requiring revaluation to fair value on a regular basis.
DifferencesDifferences
“An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property,
plant and equipment.”
Measurement After RecognitionMeasurement After Recognition
After recognition as an asset, an item of property, plant and equipment shall be
carried at its cost less any accumulated depreciation and any accumulated impairment losses.
Cost ModelCost Model
Fair Value
Revaluations shall be made with sufficient regularitysufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.“
Revaluation ModelRevaluation Model
The following are examples of separate classes:
LandLand and buildingsMachineryShipsAircraftMotor vehiclesFurniture and fixturesOffice equipment
Class of PPEClass of PPE
Revaluation Increases
Revaluation Decreases
0
Decreases > RSA 0 Balance = Loss on P&L
Revaluation Increase or DecreaseRevaluation Increase or Decrease
In 2011, ACME, Inc. purchased a parcel of land that is uses as a parking lot for its employees. ACME purchased this land for $1,200,000.
Land $1,200,000Cash $1,200,000
Revaluation ExampleRevaluation Example
In 2013, ACME decided to revalue its land in accordance with IAS 16. The company hired an appraiser who determined that the land had a fair market value of $1,300,000.
Land $100,000Revaluation Reserve (OCI) $100,000
Revaluation ExampleRevaluation Example
In 2015, ACME the market value of the land decreased by 15% $1,105,000 (FV $1,300,000 – $195,000)
Revaluation Reserve $100,000Revaluation Loss $95,000Land $195,000
LandLand
$1,200,000$1,200,000
$100,000$100,000
$1,300,000$1,300,000 $195,000$195,000
$1,105,000$1,105,000
Revaluation ReserveRevaluation Reserve
$100,000$100,000
$100,000$100,000
Revaluation ExampleRevaluation Example
Accumulated Depreciation for a Revalued Asset can either be:
Restated proportionally so that the carrying amount of the revalued asset equals it revalued amount, OR
•Eliminated against the gross carrying amount (net method)
Accumulated DepreciationAccumulated Depreciation
Scooby Doo, Inc. (SDI) purchased a building for $300,000 in January 2003. The building was being depreciated at $10,000 per year (S/L for 30 yrs). December 2007, SDI had recorded $50,000 of accumulated depreciation on the building and the book value of the building is $250,000. SDI, decided to revalue it assets and receive a fair value appraisal of $375,000 on the building as of January 1, 2008.
ExampleExample
Appraised value suggests a 50% increase over the historical cost book value.
The gross asset and accumulated depreciation should both be written up by that proportion.
Building ($300,000 X 50%) $150,000Accumulated Depreciation ($50,000 X 50%) $25,000Revaluation Surplus $125,000
Before AfterBuilding $300,000 $450,000A/D ($50,000) ($75,000)BV $250,000 $375,000
Proportional Method ExampleProportional Method Example
The accumulated depreciation account will be reduced to zero and the building will reflect the entire FMV appraisal
Building $75,000Accumulated Depreciation $50,000Revaluation Surplus $125,000
Before AfterBuilding $300,000 $375,000A/D $50,000 ($0)BV $250,000 $375,000
Net Method ExampleNet Method Example
LeasesLeasesIAS 17IAS 17
Recognition as either a finance lease or an operating lease.
The party that bears substantially all the risks and rewards of ownership of the leased property to recognize the leased asset and corresponding liability.
Measured at the lower of the PV of the minimum lease payments or the fair value of the asset.
Criteria to help make the determination between a finance lease and an operating lease.
Lease contains a bargain purchase option.
The lease transfers ownership of the property to the lessee by the end of the lease term
LeasesLeases
US GAAP IFRS
Requires a capital lease treatment if the lease term is equal to or greater than 75% of the assets economic life
Requires a finance lease treatment if the lease term is for the major part of the economic life of the asset even of the title is not transferred.
Requires a capital lease treatment if the PV of the minimum lease payments exceeds 90% of the assets fair value.
Requires a finance lease treatment if at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset
Current DifferencesCurrent Differences
Source: IFRS Partners
Lease term (% of asset life)Operating Lease
0% to 74.99%
FMLV (% of FV of asset)
0% to 89.99%
Capital LeaseLease term (% of asset life)
75%+
FMLV (% of FV of asset)
90%+
Bright Line
U.S. GAAPU.S. GAAP
Source: IFRS Partners
IFRSIFRS
Intangible AssetsIntangible AssetsIAS 38IAS 38
US GAAP IFRS
Development costs are expensed as incurred unless addressed by a separate standard. Development costs related to computer software developed for external use are capitalized once technological feasibility is established. Internal use software development, only those costs incurred during the application development stage may be capitalized.
Development costs are capitalized when technical and economic feasibility of a project can be demonstrated in accordance with specific criteria: demonstrating technical feasibility, intent to complete the asset, and ability to sell the asset in the future. There is no separate guidance addressing computer software development costs.
Differences
Goodwill Impairment- IFRS
The Standard permits: The annual impairment test for a cash-generating unit
(group of units) to which goodwill has been allocated to be performed at any time during an annual reporting period, provided the test is performed at the same time every year.
Different cash-generating units (groups of units) to be tested for impairment at different times.
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets
Revenue RecognitionRevenue RecognitionIAS 18IAS 18
Revenue Recognition
U.S. GAAP revenue recognition guidance is extensive and includes a number of standards issued by the FASB, EITF, AICPA, and the SEC. This guidance tends to be detailed and industry specific.
IFRS has ONE primary revenue standards, four revenue focused interpretations, and seven scope exclusions. The broad principles laid out in IFRS are generally applied without further guidance or exceptions for specific industries.
U.S. GAAP revenue recognition guidance is extensive and includes a number of standards issued by the FASB, EITF, AICPA, and the SEC. This guidance tends to be detailed and industry specific.
IFRS has ONE primary revenue standards, four revenue focused interpretations, and seven scope exclusions. The broad principles laid out in IFRS are generally applied without further guidance or exceptions for specific industries.
First-time Adoption of International First-time Adoption of International Financial Reporting StandardsFinancial Reporting Standards
IFRS 1IFRS 1
Is transparent for users and comparable over all periods presented;
Provides a suitable starting point for accounting IFRSs and;
Can be generated at a cost that does not exceed the benefits to users
ObjectiveObjectiveObjectiveObjective
An entity shall apply this IFRS in:
•Its first IFRS financial statements; and
•Each interim financial, if any, that presents under IAS 34 Interim Financial Reporting for part of the period covered by its first IFRS financial statements.
•There must be an explicit and unreserved statement of compliance with IFRSs in the first set of IFRS prepared financial statements.
ScopeScopeScopeScope
There is full retrospective application of all IFRS standards in effect as of the closing of the balance sheet date (reporting date) to a company’s first IFRS statements.
Key PrincipleKey PrincipleKey PrincipleKey Principle
IFRS 1 requires companies to:1.Identify the first IFRS financial statements2.Prepare an opening statement of financial position at the date of transition to IFRS3.Select accounting policies that comply with IFRS, and those policies retrospectively to all periods presented4.Consider whether to apply any of the 20 optional exemptions and four short-term exemptions from retrospective application. 5.Apply the seven mandatory exemptions from retrospective application.6.Make extensive disclosures to explain the transition.
First Set of IFRS Financial StatementsFirst Set of IFRS Financial StatementsFirst Set of IFRS Financial StatementsFirst Set of IFRS Financial Statements
Transition date is identified as the beginning of the earliest period for which full comparative information is presented in accordance with IFRS.
Reporting date is defined as the closing balance sheet for the first IFRS statements.
Important DatesImportant DatesImportant DatesImportant Dates
IFRS Education and Training, LLCIFRS Education and Training, LLC
Financial Statement 1/1/16 12/31/16 12/31/17 12/31/18
Statement of Financial Position
X X X X
Statement of Comprehensive Income
X X X
Statement of Changes in Stockholders Equity
X X X
Statement of Cash Flows X X X
IFRS Reporting Date 12/31/18
An entity shall, in its opening IFRS statement of financial position: Recognise all assets and liabilities whose recognition is required by IFRSs; Not recognise items as assets or liabilities if IFRSs do not permit such recognition; Reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with IFRSs; and Apply IFRSs in measuring all recognised assets and liabilities.
Opening IFRS Statement of Financial Opening IFRS Statement of Financial PositionPosition
Opening IFRS Statement of Financial Opening IFRS Statement of Financial PositionPosition
The Board has identified 20 optional exemptions, 4 short-term exemptions,
and 7 mandatory exemptions in order to provide companies some relief from the
cost of full retrospective application.
Cost Benefit ReliefCost Benefit ReliefCost Benefit ReliefCost Benefit Relief
1. Business Combinations2. Share-based payment transactions3. Insurance contracts4. Fair Value Deemed as cost5. Leases6. Cumulative translation differences7. Investments in subsidiaries, jointly controlled
entities, and associates8. Assets and liabilities of subsidiaries, associates,
and joint ventures9. Compound financial instruments
20 Optional Exemptions20 Optional Exemptions20 Optional Exemptions20 Optional Exemptions
10.Designation of previously recognized financial instruments
11.Assets and liabilities measured at fair value12.Fair value measurement of financial assets or financial
liabilities at initial recognition13.Decommissioning liabilities included in the cost of
property, plant, and equipment14.Financial assets or intangible assets accounted for in
accordance with IFRIC 12, Service Concession Arrangements
15.Borrowing costs16.Transfer of assets from customers17.Extinguishing financial liabilities with equity instruments18.Hyperinflation19.Joint arrangements and impairment test20.Stripping costs in the production phase of a surface mine
20 Optional Exemptions20 Optional Exemptions20 Optional Exemptions20 Optional Exemptions
1. Certain first-time adopters can avail themselves from the requirement to restate comparative information for IFRS 9
2. Entities that choose not to comply with IFRS 7 and IFRS 9 in their first year of transition
3. Use of the IFRS 7 transition provisions for financial instrument disclosures
4. Use of the IAS 19 transition provisions for financial instrument disclosures
Short-term Exemptions from IFRSsShort-term Exemptions from IFRSsShort-term Exemptions from IFRSsShort-term Exemptions from IFRSs
1. Estimates 2. Financial assets and financial
liabilities derecognition;3. Hedge accounting;4. Non-controlling interests;5. Classification and measurement of
financial assets;6. Embedded derivatives; and7. Government loans.
Seven Mandatory ExemptionsSeven Mandatory ExemptionsSeven Mandatory ExemptionsSeven Mandatory Exemptions
2009
IFRS for SME’s
6
IFRS for SMEIFRS for SME’’ssIFRS for SMEIFRS for SME’’ss
The AICPA's governing Council on May 18, 2008
Amended Rules 202 & 203 of the Code of Professional Conduct to recognize the IASB as an accounting standard setter and allow a member to express an opinion on financial statements that are prepared using IFRS or IFRS for SME’s as promulgated by the IASB
This gives U.S. private companies the choice whether to adopt IFRS for SME’s.
AICPAAICPAAICPAAICPA
IFRS for SMEs is a self-contained standard of about 230 pages tailored for the needs and capabilities of smaller businesses.2nd Half of 2012 begin reviewing IFRS for SME’s (update)ED mid 2013Final amendments by 1st half 2014Effective date by 20154 - 5 year stable platform
Issued July 2009Issued July 2009Issued July 2009Issued July 2009
An SMEs is defined by the IASB as entities that:•Do not have public accountability, but•Do publish general purpose financial statements for external users.
The breadth of the definition depends on the words “public accountability”
Definition of SMEDefinition of SMEDefinition of SMEDefinition of SME
For purposes of the SME standard, an entity has public accountability if it meets either of the following two criteria:
•Debt or equity instruments are traded or going to be traded in a public market,.
•Entity holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses
Public AccountabilityPublic AccountabilityPublic AccountabilityPublic Accountability
Section 1: Small and Medium-Sized Entities Section 2: Concepts and Pervasive Principles Section 3: Financial Statement Presentation Section 4: Statement of Financial Position Section 5: Statement of C-Income and Income Statement Section 6: Statement of Changes in Equity and Statement of Income and Retained Earnings Section 7: Statement of Cash Flows Section 8: Notes to the Financial Statements Section 9: Consolidated and Separate Financial StatementsSection 10: Accounting Policies, Estimates and Errors Section 11: Basic Financial Instruments
35 Sections35 Sections35 Sections35 Sections
Section 12: Other Financial Instruments Issues Section 13: Inventories Section 14: Investments in Associates Section 15: Investments in Joint Ventures Section 16: Investment Property Section 17: Property, Plant and Equipment Section 18: Intangible Assets Other Than Goodwill Section 19: Business Combinations and Goodwill Section 20: Leases Section 21: Provisions and Contingencies Section 22: Liabilities and Equity Section 23: Revenue
35 Sections35 Sections35 Sections35 Sections
Section 24: Government Grants Section 25: Borrowing Costs Section 26: Share-Based Payment Section 27: Impairment of Assets Section 28: Employee Benefits Section 29: Income Tax Section 30: Foreign Currency Translation Section 31: Hyperinflation Section 32: Events after the End of the Reporting Period Section 33: Related Party Disclosures Section 34: Specialized Activities Section 35: Transition to the IFRS for SMEs
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Biggest challenges may be a cultural one
Requires more judgment and less reliance on detailed rules and “bright lines”
Companies will be required to understand base principles and objectives, how judgments are made, and how they are applied
IFRS for SMEIFRS for SME’’ssIFRS for SMEIFRS for SME’’ss
The biggest impacts of the transition to IFRS may be in areas other than accounting, such as:•systems requirements,•controls,•training,•resources,•banking covenants,•legal agreements,•compensation arrangements, etc.
Impact of IFRS for SMEImpact of IFRS for SME’’ssImpact of IFRS for SMEImpact of IFRS for SME’’ss
AICPA-IFRS for SME – US GAAP comparison tool: Http://wiki.ifrs.com
Free download of SME standards:http://go.iasb.org/IFRSforSMEsDownload (3 PDFs) includes:•Standard•Illustrative financial statements and disclosure checklist•Basis for conclusions
ResourcesResourcesResourcesResources
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Peter A. Margaritis, CPA, CGMA [email protected]
614.668.2936
Twitter: @pmargaritisLinkedIn: http://www.linkedin.com/pub/peter-
margaritis-cpa-cgma-macc/2/273/13www.petermargaritis.com
