IFRS Test
reduction of alternatives while maintaining a high degree of flexibility
harmonization
Is there a higher or lower threshold to recognize PPE under IFRS
higher
you can only write an asset back up to where it would be without the
impairment - calculated based on original depreciation
standards adopted were called (By IASB from IASC)
internatiaonl accoutnign standards
NEw standards created by the IASB were called
international financial reporting stnadards
created due to criticisms of international accounting stnadrds committee
interntaionl accounting stnadards baord
Follow the internationl organization of securiteis comissions
intertnational accounting standards committee
Subsequent measurement of PPE is
irrevocable
Who benefits the most from convergence?
students, academics, developing countries
organization that transcends boundaries
supra national
REasons to become multinational
tax benefits access to new market lower labor/material costs gain foothold in other economic block/portion of the world
The risks and issues multinational companies face
tax issues exchange rate risk cultural differences time zone issues performance evaluation of mngmt
the recoverable amount for assets under IFRS to detrmine if the asset is impaired or not (which is comapred to CV) is
the greater of PV expected cash flows Net selling price
Started the push for convergence with IFRS where all nations in the EU agreed to follow 1 set of rules they came u with fourth/seven directives
the international organization of securities commissions
what approach did the international accounting standards committee use in the first few years?
the lowest common denominator appraoch
the goal of harmonization is harmonization in _____, not in stnadards
practice
what are the 3 parts of relevance
predictive value confirmatory value materiality
something that can be identified and described today
present resource
refers to how you see things on the financial statements
presentaiton
IFRS is waht based and GAAP is what based
principles rules
The IASB was completed to be separate of
private interests
IASB says ________ is about good estimates and exercising caution - conservativism is about lowballing the numbers
prudence
what are the five parts of the conceptual frameowkr for the fasb
qualitative characteristics disclosure concepts presentation concepts reporting entity measurment concepts element definitions
Describe the types (ie qualities) of information that are likely to be most useful... Establishes concepts to underlie the use of judgment
qualitative characteristics of the conceptual framework
IASB has _______________ principles (when something should go on the books and when something should come off the books)
recognition and derecognition
How is inspection and overheal treated
reduces the value of the asset
ALL the fundamental qualitative characteristics _______ - capable of making a difference in the decisions made by users ___ _______- can make good predictions of future economic activity ____ ____- value that can confirm past predictions _______-information is material if omitting or misstating is could misstate F/S - it is entity specific - material for one company may not be material for another ___ _____- faithfully represents the economic phenomena that it purports to represent _____: all information with numbers or words that describes accurately or actually portrays the economic phenomena that occurs within the company ____ ______ ___ ____- estimates cant be free from error - should be good support in making estimates - correctness is describing the process
relevance predictive value confirmatory value materialtiy faithful representation complete netural free from error
what are the two types of fundmanetal characteristics what are the next type of characteristics
relevance faithful represntaiton enhancing
You only want to capture information that defines the
reporting entity
Positive revaluations on PPE go to the
revaluation surplus account which is an equity account similar to OCI
Assets are created by a ____ ___ ____ not necessarily ownership
right to use
Revaluation model exists for economies with
significnat inflation
investment used for rent or capital appreciation
some investment property
Financial reporting not intended to create
value
Which intangible assets are subject to annual impairment testing?
Indefinite life assets
What was the initial deadline for 620 summit
June 2011
Who benefits the most from non-convergence?
Small companies/ Acct firms
When should de recognition of an asset occur?
When the asset is disposed of or the asset provides no future economic benefit
the methods of expansion are
acquisiton and new operation
How do you measure goodwill when there is a noncontrolling interest
amount transferred + NCI - FV of firms acquired assets
Under IFRS an entity that acquired an intangible asset may use the revaluation model for subsequent measurement only if
an active market exists for the intangible asset
A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce [future] economic benefits.
asset
IFRS is more principles and is therefore harder to ______. But it does make it easier to _______.
audit translate
refer to assets which are a living plant or animal which are used in the agricultural process
biological assets
The triad - where most buy/sell occurs
china us EU
enables users to understand similarities in, and differences among, items
comparability
what are the ehnahcning characteristics?
comparability verifiability timeliness understandabiity
Occured during the internatiaonl accounting standards committees and started with the conceptual framework and with high level objectives and revised 10 standards and came up with new ones
comparability project of internationl standrs committee
what are the 3 parts of faithful representaiton
complete neutral free from error
a coherent system of interrelated objectives and fundamental concepts that prescribes the nature, function, and limits of financial accounting and reporting and that is expected to lead to consistent guidance.
conceptual framework
IFRS is a core principals based approach which is tied to the ______ ________ where significant ____ ____ is required and minimal ____.
conceptual framework professional judgement guidance
harmonization led to _____; using a single set of accounting standards and the same application of those standards
convergence
single set of global reporting standards
convergence
What are the two methods of measuring PPE?
cost
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
What is included in the cost of an asset on the books under IFRS?
1) Cost 2) costs necessary to bring the asset into its current condition and location 3) certain borrowing costs - interest paid on loans to finance construction 4) Dismantling/removing 5) restorin site
What three things are not included in IAS 16?
1) PPE held for sale 2) Biological Assets 3) Some investment property
The arguments for convergence
1) comparability betweens tandards for investors 2) reduces compliance costs through stream lining 3) easier to raise capital w/ 1 system 4) improve the standards applied in your country 5) easier to learn
What are some of the arguments against convergence?
1) expensive 2) SEC would lose power - they have the FASB in their back pocket 3) Just because you have same standards dosent mean they will be applied in the same way
what were the criticisms of the internatiaon accounting standards committee
1) lacked legitimecy 2) members not sekected for expertise 3) concerns that the IASC was private sector body
What are the three major classes of intangible assets and how does the accounting for them differ?
1) purchased - finitite or infinite life 2) acquired in a business combination - finite or infinite life 3) internally generated - can only be finite * Finite intangibles are subject to amortization over their usefull lifes * All intangibles are subject to impairment testing *Indefinite lived intangibles MUST be tested for impairment at least annually
leaders met together and said they wanted a single set of high quality standards following the 2008 financial meltdown
620 summit
How is goodwill for a cash generating unit impaired?
Annually using a bottom up test. In this test the carrying amount of the recoverable unit is compared with the recoverable amount of the cash generating unit. If recoverable amount of cash generating unit is less than carrying value it is deemed to be impaired
Conservatism does not exist anywhere in
FASB or IASB framework
PPE acquired through a monetary exchange is valued at? Unless?
FAir value unless the exchange lacks commercial substance or neither the asset received or rendered can be determined then the cost of the asset surrendered is used
What is the difference between internally generated intangibles in GAAP and IFRS
IFRS * internally generetaed intangibles are classified as research or development. research is expensed. development is capitalized after 6 requirements are met GAAP * R&D is always expensed * except Software which is capitalized
during the period of the international accounting standards committee international regulators agreed on 30 core stnadards that had to exist; every country but U.S Canada accepted
ISOCO agreement
what is the entry for IFRS impairmetn and reversal
Impairment loss Equipment Equipment Reversal of impairement (gain)
PPE? An entity harvests free-roaming "fish stocks" from the sea. A hospital has installed two identical backup generators. The "first" provides electricity when normal supply is interrupted. The "second" will be used in the unlikely event that the first fails. "Land" on which "trees" are growing to harvest peaches An airline is required to have aircraft "inspected" every two years to continue operating the aircraft. "Guard dogs" in a junk yard
NO - no control YESYES YESNO - land is PPE, trees are not PPE is PPE because is required to continue operaitng Yes:
Are FASB and IASB still working on convergence?
No
are spare parts/replacement parts capitalzied?
No
Cost of opening a new facility PPE? Introducing a new product or service PPE? Removal and dismantling PPE? Cost of conducting business in new location? Costs to get in condition and location of intended use? Administration and general overhead? Fees and fines?
No no yes No yes no no
TANGIBLE asset held in use in the production or supply of goods or services, for rental to others, or for administrative purposes; and expected to be used during more than one period
PPE
When you have dismantling and removing costs how are they treated for purposes of capitlizaing them to PPE?
The dismantling and removing costs are capitalzied at their PV and then depreciated The entry is DR PPE credit Provision interest expense is then recorded to show the buildup of the provision
Under GAAP for impairment what do you compare the carrying value to?
The sum of the future cash flows which are not present valued
having information to users in time to be capable of influencing decisions
Timeliness
- different knowledgeable and independent observers could reach consensus of faithful representation
Verifiability
IASB also has a chapter called capital and capital maintenance - stewardship management has to maintain capital - FASB
does not have
Investors, creditor's, and lenders are the
end users - both now and in the future
1) Research and development: because of the potential to produce the research may not have the ability to produce an economic benefit. The development activiites do. So research is ______; development is an____ for IASB; FASB says capitalize both 3) Water pipe from city system to home. Installed by homeowner, serviced by city, on owner's land. : Factory subject to strict government regulation: it is ______ because _____ 5) Government issued pollution permit: there is a right to pollute; there is potential benefit from it from cost savings; but is there control?
expensed capitalizes asset - individual still has control currently being debated
The entry point to becoming international is
exporting
When to recognize PPE under IFRS
it is probable that the future economic benefits will flow to the entity and the cost can be measured reliabily
when a previously recognized impairment loss is subsequently reversed what is the maximum aomunt at which the affected asset may be carried on the balance
its original cost
organization operating in multiple countries
multi-national
IASB framework talks about __________ not presented in a way that biases a user of the financial statements in a positive or negative way
neutrality
Should profit and loss ever increase from revaluing PPE?
no
does asset ownership need to be probable or likely
no
IASB combines the presentation and disclosure chapters into
one
The scope of financial reporting includes
only finances - nothing else
Management has access to whatever information they want- financial reporting is for
outside users
Assets are created by a "right to use" and not necessarily
ownership
The timing of revaluation for PPE is based on
the asset class - so that CV does not differ significantly from PPE
What is the required discsloure for the PPE model revaluation?
the required disclosure that would have been used under the cost model
things that must be done to keep operating: conditions of continuing operations
these are capitalized and depreciated over the life of the asset
Enhance the usefulness of information that is relevant and faithfully represented Total completeness is too costly - there is a
trade off
Qualitative characteristics establish concepts that
underlie the use of judgement
information is presented clearly and concisely
understanbility
The first thing that the IASB was adopt everything
written by the IASC
ARe MAJOR spare parts/replacement parts capitilaized?
yes
Do losses go to P/L when revaluing PPE?
yes
