Essay Accounting 354

IFRS
International Accounting Standards Board (IASB)
•IASB issues International Financial Reporting Standards
–All new standards are named IFRS–IASC (prior Board) issued International Accounting Standards (IAS); many are still effective–IAS and IFRS are now collectively referred to as IFRS
IASB •Currently15 board members; independent •One additional member will be added by 2012 IFRS Currently there are:•41 IASs 9 IFRSs
Nearly 120 nations currently permit or require the use of IASB standards for financial reporting
Canada and Japan are planning to adopt IFRS in 2011
FASB/IASB Collaboration
“Norwalk Agreement” affirmed 2006
Goal is to jointly develop high-quality standards
To eliminate existing differences between U.S. GAAP and IFRS new standards through joint FASB/IASB projects
U.S. Securities and Exchange Commission (SEC) and FASB support convergence!
SEC issued rule allowing non-U.S. SEC registrants to file IFRS-based financial statements
Importance of Key Areas of Consideration
•SEC considers the first two areas (i.e., sufficient development and application of IFRS; Independence of standard setting
FASB established “Private Company Financial Reporting Committee
IASB and FASB are committed to completing joint projects by June 30, 2011
Fundamental Difference
IFRS•IFRS is primarily “Principles-based”•Often results in broad guidelines•May require enhanced professional judgmentU.S. GAAP•U.S. GAAP is primarily “Rules-based”•Detailed Rules
FoundationDifferences Between IFRS and U.S. GAAP-Inventory
IFRS•LIFO prohibited•LOCM rule:
Market is defined as net realizable value
Write downs will be reversed if subsequent recovery of value
U.S. GAAP•LIFO permitted•LOCM rule:
Market is replacement cost constrained by floor and ceilingWrite downs cannot be reversed

FoundationSome Significant Differences Between IFRS and U.S. GAAP•IFRS prohibits LIFO inventory cost flow assumption (IAS 2)•IFRS does not recognize category of “extraordinary item” (IAS 1)•IFRS allows revaluation of tangible and intangible long-lived assets to Market value (IAS 16)•IFRS allows reversal of most impairment write downs (IAS 36)•IFRS allows recognition of Development costs as assets (LIFO is commonly used in U.S. •Typically results in tax savings for those entities Differences Between IFRS and U.S. GAAP –Income Statement

IFRS•“Extraordinary items” category does not exist in statement of comprehensive income•Items would be classified as “other”
U.S. GAAP•Extraordinary items•Last category prior to net income Between IFRS and U.S. GAAP –Balance Sheet
IFRS•Classified Statement of Financial Position•Less liquid assets are presented first (usually PPE)•Non-current liabilities are presented prior to current liabilities
U.S. GAAP
•Classified Balance sheet •Most liquid assets (current assets) are presented first •Current liabilities are presented prior to non-current liabilities

Contingencies
IFRS•Both contingent liabilities and assets may be recognized under IFRS•Uses term “provisions”U.S. GAAP•Contingent assets generally are not recognized
IFRS
•Recognition threshold is lower•Probable defined as “more likely than not”¬Generally: > 50%U.S. GAAP•Recognition generally is threshold higher•Criteria: Probable/likely ¬Generally interpreted as fairly high likelihood

IFRS•Recognition when “virtually certain•This may lead to earlier recognition under IFRS than U.S. GAAP
U.S. GAAP•Generally only disclose•Recognition only when realized
FoundationIASB/FASB Projects•Memorandum of Understanding (2006)•IASB and FASB issued discussion memorandum (Nov. 2008)•Continued work on joint projects (convergence project)•Includes: –Financial Statement Presentation Project–Conceptual Framework Project–Revenue Recognition Project
CH2
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