Which organization’s standards are the most authoritative in the hierarchy of international accounting?
The International Accounting Standards Board (IASB)
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Where is the first place management should look for guidance on international recognition and accounting policies?
The International Financial Reporting Standards (IFRS) issued by the IASB.
Which framework helps to develop standards for international accounting?
The IASB Framework helps develop standards for international accounting.
- The framework is NOT a standard itself.
- The framework does not supersede any standard’s authority.
What is the objective of the IFRS framework?
The objective of the IFRS framework is to provide users with information on international accounting.
What basis of accounting is allowed under IFRS?
Only the Accrual Basis of Accounting is allowed under IFRS.
What are the Qualitative Characteristics of accounting information within IFRS?
The qualitative characteristics of accounting information within IFRS are Relevance and Faithful Representation.
Relevance - Makes a difference to the user and includes:
- Predictive Value - Future Trends
- Confirming Value - Past Predictions
Faithful Representation includes:
- Completeness - Nothing omitted that would impact the decision-making of a user
- Neutrality - Information is presented without bias
- Free from Error - No material errors or omissions
What are the Enhancing Characteristics of IFRS?
The enhancing characteristics of IFRS are:
- Comparability - Allows users to compare different items among various periods
- Verifiability - Different people would reach a similar conclusion on the information presented
- Timeliness - Information is made available early enough to impact the decision making of users
- Understandability - Information is easy to understand
How does comparability differ under GAAP versus IFRS?
Comparative information from the prior year is required under IFRS.
GAAP requires that if multiple years are presented they are consistently prepared; however, it doesn’t require prior year comparative statements.
What is the Pervasive Constraint within IFRS?
Cost vs. Benefit
Which items are considered reporting elements under IFRS?
Under IFRS, the following items are considered reporting elements:
- Asset
- Liability
- Equity
- Income
- Expense
What are the criteria for recognition on IFRS financial statements?
- Probable future economic benefit
- Can be measured reliably
- If the value or outcome cannot be measured reliably, IFRS requires the use of the Cost Recovery Method.
When transitioning to IFRS, what type of financial statement must be produced for the first reporting period?
A full comparative statement using IFRS.
If IFRS was implemented in June 2018 for use in the December 31, 2018, financial statements, what is the Date of Transition?
January 1, 2017, is the Date of Transition because a full year of comparative statements is required from the previous year.
For Property Plant and Equipment, which election is the most efficient method for converting assets to IFRS?
The Fair Value election
Where on the financial statements are adjustments for adopting to IFRS made?
In the entity’s retained earnings or equity
How is LIFO treated under IFRS?
IFRS does not allow LIFO.
Which financial statements are required under IFRS?
The financial statements that are required under IFRS are:
- Statement of Comprehensive Income
- Statement of Changes in Equity
How is the term income used in IFRS?
Income is used instead of revenue and encompasses BOTH revenue and gains.
How is the term profit used in IFRS?
In IFRS, the term profit is used instead of Net Income.
How does IFRS treat gains?
They are treated the same as revenue and are not separated on the financial statements.
How does IFRS treat losses?
In IFRS, losses are treated the same as expenses but they are separated on the financial statements.
How does refinancing of current liabilities to long-term liabilities under IFRS differ from GAAP?
Under IFRS, current liabilities can only be refinanced into a non-current liability if the refinance agreement is EXECUTED prior to the balance sheet date.
GAAP requires only *intent* to refinance, not actual execution.
How do contingent liabilities differ between GAAP and IFRS?
Under GAAP, there are three classifications of contingent liabilities:
- Probable
- Reasonably Possible and
- Remote
Under IFRS, contingencies are uncertain future events and are classified as a provision if probable and measurable even if uncertain in timing or amount.
How are Financial Assets recorded under IFRS?
Under IFRS, financial assets are recorded on the Statement of Financial Position using one of three methods:
- Amortized Cost
- Fair Value through OCI, or
- Fair Value through Profit or Loss
How are deferred taxes treated under IFRS?
They use the liability method.
- All deferred tax liabilities must be reported but only probable deferred tax assets can be reported.
Like GAAP, they are non-current on the statement of financial position.
When can deferred tax assets and liabilities be netted under IFRS?
Deferred tax assets and liabilities can be netted under IFRS ONLY if they are related to the same country/taxing authority.
Example: China Deferred Tax Assets can’t offset Japan Deferred Tax Liabilities.
Which tax rates are used for calculating deferred tax assets/liabilities under IFRS?
The enacted rate or substantially enacted tax rate. (GAAP is the enacted tax rate only.)
Which items are recorded on the Income Statement in IFRS?
The following items are recorded on the Income Statement in IFRS:
- Income
- Finance Costs
- Tax Expense
- Discontinued Ops
- Profit/Loss
- Non-controlling interest in Profit/Loss
- Net profit/loss attributable to equity
How are property plant and equipment (PP&E) recorded and valued under IFRS?
Under IFRS, PP&E is:
- Recorded at cost.
- Valued using either:
Cost model - asset carried at cost less accumulated depreciation and impairment loss
Revaluation model - asset adjusted to fair value less accumulated depreciation
What are the requirements for using the revaluation model for PP&E under IFRS?
- Asset must be able to be reliably measured.
- Must be applied to the whole class of assets, not just one asset.
- No guidance on how often assets should be revalued under IFRS.
How is investment property reported under IFRS?
Under IFRS, investment property are:
- Initially recorded at cost
- Revalued using either Fair Value model or Cost model
How is profit or loss recorded in the current period for investment property under the Fair Value model of IFRS?
It is recorded on the Income Statement.
Investment P/L: IS
PP&E P/L: OCI
Under IFRS, how is investment property reported under the Cost Model?
It is carried at Cost minus Accumulated Depreciation.
Fair Value must still be disclosed in the notes to the financial statements.
How are leases reported under IFRS?
Operating Leases can be recorded as Investment Property if measured at Fair Value.
All other investment property must use Fair Value Model if one asset uses it.
How are intangible assets valued under IFRS?
Under IFRS, intangible assets are valued using either:
- the Cost Model (cost less Accumulated Depreciation and Impairment Loss), or
- the Revaluation Model (Fair Value less Accumulated Depreciation)
How is internally generated goodwill reported under IFRS?
It is not recognized.
How is amortization of intangibles handled under IFRS?
If asset has a finite life, it is amortized over useful life.
If asset has indefinite life, it is not amortized but is tested for impairment at the reporting date.
When must a lease be recorded as a Finance Lease under IFRS?
If the substantial risks of ownership have passed to the Lessee, then the Lease must be accounted for as a Finance Lease.
How are defined benefit plans recorded under IFRS?
Project-unit-credit method calculates the PV of the defined benefit obligation.
How are interest expense and/or finance costs classified on an IFRS statement of cash flows?
They can be classified as either Operating or Financing.
Once a classification is chosen, all future costs must be classified there
How are significant non-cash transactions recorded on an IFRS statement of cash flows?
They must be included in the notes to the financial statements.
How are Investments in Subsidiaries Valued?
Investments in Subsidiaries under IFRS are valued in three ways:
- Cost
- Fair Value
- Equity Method
