IFRS Test

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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


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