International Financial Reporting Standards

1
International Financial Reporting Standards

• IntroductionWhats being covered in Acct 315

2
Where do IFRS come from?

• International Accounting Standards Board (IASB)
• Standards Advisory Council (SAC)
• International Financial Reporting Interpretations
  Committee (IFRIC)
• International Accounting Standards Committee
  Foundation (IASC Foundation)

3
(No Transcript)
4
HISTORY - IASC

• 1973 - IASC formed
• 1974 - First Exposure Draft published
• 1995 - Agreement with IOSCO to complete core
  standards by 1999
• 1999
• IOSCO review of IASC core standards begins
• IASC Board meetings opened to public observation

5
IOSCO created in 1983

• The International Organization of Securities
  Commissions (IOSCO)
• IOSCO is an international association of
  securities regulators
• Evolved from a predecessor organization of
  securities regulatory agencies from North South
  America (formed in 1974)
• Now has 181 members that regulate more than 90
  of the worlds securities markets
• Recognized today as one of the worlds key
  international standard setting bodies

6
HISTORY - IASC

• 2000
• IOSCO recommends that its members allow
  multinational issuers to use 30 IASC standards in
  cross-border offerings and listings
• 2001
• Trustees announce members of the International
  Accounting Standards Board
• European Commission presents legislation to
  require use of IASC Standards for all listed
  companies no later than 2005

7
(No Transcript)
8
(No Transcript)
9
Jurisdictions Using IFRS
10
Who uses IFRS?

• In 2007, used by 15,000 foreign companies
• By 2011, used by 27,000 foreign companies
• Used by foreign subsidiaries of US-based
  multi-national corporations
• Used by US firms that are subsidiaries of foreign
  corporation
• Foreign registrants with SEC can file using IFRS
  (without reconciliation to US GAAP)

11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
U.S. GAAP and IFRS Convergence WhereAre We Now?

• Boards have achieved high-level convergence in
  some areas
• Examples include income taxes, business
  combinations, share-based payments, fair value
  option, EPS, statement of cash flows, pensions
• Other areas, models are very different
• Examples include debt/equity classification,
  impairment of long-lived assets

15
SEC Roadmap

• Roadmap released in April 2005
• Intended to eliminate need for reconciliation
  between IFRS and U.S. GAAP by 2009 --
  accomplished
• SEC will continue to review IFRS primary
  financial statements of FPIs not mutual
  recognition
• Reaffirmed by SEC Chairman Cox and EC
  Commissioner McGreevy in February 2006
  Elimination of reconciliation requirement for
  FPIs
• Use of IFRS by Domestic Issuers Concept Release

16
(No Transcript)
17
Why learning IFRS matters

• SEC dropped Form 20-F reconciliation for adopters
  of IFRSs as issued by the IASB
• SEC taking steps to allow US companies to adopt
  IFRSs
• AICPA moving to including IFRSs on CPA exam
• AICPA has amended Ethics Rules 202-203 to refer
  to IFRSs
• Big-4 firms have launched programs to help
  educators adapt to IFRSs

18
A few big differences you should know

• IFRS is less rule based and requires more
  judgment as compared to US GAAP (at least thats
  the myth)
• No LIFO permitted under IFRS
• Revaluation above historical cost is permitted
  under IFRS
• Biological assets (cows, trees, etc.) must be
  carried at fair value and reported separately
• RD a portion can be capitalized rather than
  expensed

19
Financial Statements Arranged Differently

• Balance Sheet (assets)

20
Financial Statements Arranged Differently

• Balance Sheet (LOE)

21
Income statement similar to multi-step US GAAP
statement

• Differences
• No extraordinary items
• Discontinued operations shown but some
  differences in the rules

• Similarities
• Earnings per share data is shown at bottom
• Salaries, depreciation, etc. instead of broad
  functional area like selling and administrative

22
Long-term real estate and other assets

• IFRS

• US GAAP

• Two options available
• Cost basis, or
• Fair value
• Impairment loss recognized if cost basis is used
• Determination of loss rules are not the same as
  US GAAP
• Loss can be written up if events change

• Historical cost, less accumulated depreciation
• Impairment losses are recognized if justified by
  events
• No write-ups to carrying values permitted

23
Accounting for Inventory

• IFRS

• US GAAP

• Does not permit the use of LIFO in financial
  statements
• LCM (but rules are a little different than US)

• Allows the use of LIFO for inventory valuation in
  financial statements IFRS
• LCM applies (but rules are a little different
  than IFRS)