Bài giảng Financial Accounting - Appendix E: International Financial Reporting Standards

International FinancialReporting StandardsAppendix ELearning ObjectivesExplain the reasons for differences in accounting practices across countriesUnderstand the role of the International Accounting Standards Board (IASB) in the development of International Financial Reporting Standards (IFRS)Recognize the major differences between U.S. GAAP and IFRSApp E-2Learning Objective 1Explain the reasons for differences in accounting practices across countriesApp E-3The Globalization of Accounting StandardsSEC voted to accept IFRS financial statements from “foreign private issuers” without reconciliationUS is moving toward converging U.S. GAAP with IFRSConvergence: process by which U.S. GAAP and IFRS will eventually merge to become a single set of accounting standards.App E-4Learning Objective 2Understand the role of the International Accounting Standards Board (IASB) in the development of International Financial Reporting Standards (IFRS)App E-5International Financial Reporting Standards (IFRS)International Accounting Standards CommitteeCreated a standard-setting body, (IASB)International Financial Reporting StandardsMore countries base their account standards on IFRSISACISABIFRSApp E-6Principles- vs. Rules-based StandardsIFRS—principles-based accounting standardsU.S. GAAP—rules-based accounting standardsFuture international accounting standards will need to be more principles-basedApp E-7Norwalk AgreementSigned by FASB & IASB—2002Formalizing convergence of U.S. GAAP and IFRSArguments against convergence to IFRSU.S. standards to remain customized to fit U.S. business environmentDifferences in implementation and enforcement could make accounting appear more uniform than it isNorwalk Agreement did not specify a timetablebut active efforts are ongoingApp E-8Learning Objective 3Recognize the major differences between U.S. GAAP and IFRSApp E-9Chapter 1: Accounting Information and Decision MakingUnited States—FASB’s conceptual frameworkGuide to standard settersInternationally—IASB’s conceptual frameworkServes to indicate GAAP when more specific standards are not availableFASB and the IASB are working together to develop a common conceptual frameworkUniform set of standards internationallyApp E-10Chapter 2: The Accounting Information SystemTiming and measurement of revenue recognitionU.S. GAAP and IFRS provide similar general guidanceU.S. GAAP includes many additional rules and other guidance promulgated by FASB, SEC, and othersApp E-11Chapter 3: The Financial Reporting ProcessFASB and IASB are working on a project to establish a common standard for presenting information in financial statementsApp E-12 Chapter 4: Cash and Internal ControlsAccounting for cash is the same under both U.S.GAAP & IFRSInternal controls:U.S.GAAP: Section 404 of the Sarbanes-Oxley Act (SOX) requires management to document and assess the effectiveness of all internal control processes that could affect financial reportingIFRS: burden of documenting effective internal controls is much less, or even nonexistentApp E-13Chapter 5: Receivables and SalesAccounting for receivables and uncollectible accounts same under both U.S. GAAP and IFRSApp E-14Chapter 6: Inventory and Cost of Goods SoldLIFO methodU.S.GAAP : allowedIFRS : not allowedMarket value in lower-of-cost-or-marketU.S GAAP : similar (market value – replacement cost)IFRS : similar (market value – net realizable value)Reversal of inventory write-downsU.S GAAP : not allowedIFRS : allowedApp E-15Chapter 7: Long-Term AssetsValuation of property, plant, and equipmentU.S.GAAP: Cost less accumulated depreciationIFRS: Cost less accumulated depreciation (or) Fair value(revaluation)Valuation of intangible assetsU.S GAAP: Revaluation prohibitedIFRS: Cost less accumulated amortization (or) Fair value(revaluation)Research and development expendituresU.S GAAP: Expensed in the period incurredIFRS:Research: expensed in the period incurredDevelopment—that meet specified criteria: capitalizedApp E-16Chapter 8: Current LiabilitiesContingenciesU.S. GAAP: accrue if it is probable and can be reasonably estimatedIFRS: threshold for “probable” is defined as “more likely than not” (greater than 50%)Valuation of long-term contingenciesU.S.GAAP: present value—only when timing of cash flows is certainIFRS: present value—time value of money is materialApp E-17Chapter 9: Long-Term LiabilitiesTreatment of convertible debtU.S. GAAP: entire issue price is recorded as a liabilityIFRS: convertible debt is divided into its liability (bonds) and equity (conversion option) elementsApp E-18Chapter 10: Stockholders’ EquityDistinction between debt and equity for preferred stockU.S. GAAP: most preferred stock is included in stockholders’ equity, with the dividends reported as a reduction in retained earningsIFRS: most preferred stock is reported as debt, with the dividends reported in the income statement as interest expenseReacquired shares: IFRS does not permit retirement of sharesAll buybacks are treated as treasury stockApp E-19Chapter 11: Statement of Cash FlowsClassification of cash flowsCash outflows for interest paymentsU.S. GAAP—operating cash flowsIFRS—either operating or financing cash flowsCash inflows from interest and dividends receivedU.S. GAAP—operating cash flowsIFRS—either operating or investing cash flowsDirect or indirect methodFASB and IASB both require direct method rather than permitting either the direct or indirect methodApp E-20Chapter 11: Statement of Cash Flows (continued)Disclosure of noncash activitiesU.S. GAAP: Reported either on the face of the statement of cash flows or in a disclosure noteIFRS:Disallows presentation on the face of the statement and requires reporting in a disclosure noteApp E-21Chapter 12: Financial Statement AnalysisDiscontinued operationsU.S. definition is broader than its international counterpartIFRS considers a component to be primarily either a major line of business or geographical area of operationsExtraordinary itemsU.S. GAAP : provides separate reportingIFRS : recording or disclosure not allowedApp E-22End of Chapter Appendix EApp E-23