International Accounting 1


Published on

FASB, accounting standard, International accounting, GAAP, APB, IACPA, IAS 1, extraordinary items, IAS 32, IAS 2, inventory cost, IAS 39, hedging, IPEs, IAS 182, IAS-7, IAS 1.106, IAS 1.107, IAS 1.114, financial disclosures, jose cintron, advance business consulting,

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

International Accounting 1

  1. 1. Jose Cintron, MBA-CPC (954) 374-8298 International Accounting
  2. 2. Explain the meaning of "generally accepted accounting principles." Generally accepted accounting principles are those principles that have substantial authoritative support, such as FASB Standards and Interpretations, APB Opinions and Interpretations, AICPAAccounting Research Bulletins, and other authoritative pronouncements.
  3. 3. Explain the need for accounting standards. In preparing financial statements, accountants are confronted with the potential dangers of bias, misinterpretation and inexactness. In order to minimize these dangers, the accounting profession has attempted to develop a set of standards that is generally accepted and universally practiced. Without this set of standards, each accountant or enterprise would have to develop its own standards, and readers of financial statements would have to familiarize themselves with every company’s peculiar accounting and reporting practices. As a result, it would be almost impossible to prepare statements that could be compare.
  4. 4. Identify the major financial statements and other means of financial reporting. The financial statements most frequently provided are (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners’ or stockholders 'equity. Financial reporting other than financial statements may take various forms. Examples include the president’s letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management’s forecasts, and descriptions of an enterprise’s social or environmental impact.
  5. 5. Time Table
  6. 6. What is IFRS? What is IFRS? Standards and Interpretations adopted by the International Accounting Standards Board (IASB). They comprise: International Financial Reporting Standards; International Accounting Standards (IAS) Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).
  7. 7. IFRS-IASB IFRS are developed by the International Accounting Standards Board (IASB), based in London. The IASB is the successor to the International Accounting Standards Committee (IASB) and is privately-funded. The IASB has 15 Members. The IASB’s objectives are: to develop and adopt global accounting standards to decide on publication of IFRICs to organize public events of the IFRS Foundation, the IASB and the IFRS Interpretations Committee and regular meetings The IFRS Advisory Council support and advises the IASB.
  8. 8. IFRS vs. GAAP IFRS vs. GAAP The key difference between IFRS and GAAP is that IFRS provides much less overall detail and industry-specific instructions. Effective Date An entity shall apply this IFRS if its first IFRS financial statements are for a period beginning on or after January 1, 2009. Although earlier application is permitted.
  9. 9. IFRS vs. GAAP IFRS: More 'principles-based' standards with limited application guidance. GAAP: More 'rule-based' standards with more specific application guidance.
  10. 10. Manny Differences are Not in Writing Since US GAAP is much more detailed and specific there are many contractual clauses that are covered in US GAAP that are not addressed in writing in IFRS. International auditors sometimes, but not always, look to US GAAP when IFRS is silent about a particular issue.
  11. 11. IAS 1 Comprehensive Income IFRS: Statement of changes in equity is required. A grand total of "comprehensive income" is permitted but not required. GAAP: Must present grand total of "comprehensive income". Can present in income statement, statement of comprehensive income, or changes in equity.
  12. 12. IAS1 Extraordinary Items IFRS: Prohibited. US: Extraordinary items are permitted but restricted to items that are both infrequent in occurrence and unusual in nature.
  13. 13. IAS2 Method for determine inventory cost IFRS: LIFO is prohibited. US: LIFO is permitted.
  14. 14. IAS 32 Classification of convertible debt instruments by the issuer IFRS: Split the instrument into its liability and equity components at issuance. GAAP: Classify the entire instrument as a liability. However, the intrinsic value of the conversion feature at the commitment date of the instrument, if any, is recognized as additional paid-in capital.
  15. 15. IAS 39 Basis Adjustment  IFRS: Fair value hedge: Required. Cash flow hedge of a transaction resulting in a financial asset or liability: Same as US GAAP. Cash flow hedge of a transaction resulting in a non-financial asset or liability: Choice of US GAAP or basis adjustment.  GAAP: Fair value hedge: Required. Cash flow hedge of a transaction resulting in an asset or liability: Gain/loss on hedging instrument that had been reported in equity remains in equity and is reclassified into earnings in the same period the acquired asset or incurred liability affects earnings.
  16. 16. IAS 39 Hedging gain or loss on net investment in a foreign entity IFRS: The portion determined to be an effective hedge is recognized in equity. GAAP: Gains and losses relating to hedge ineffectiveness is recognized in profit or loss immediately.
  17. 17. IAS 39 Use of "partial-term hedges" (hedge of a fair value exposure for only a part of the term of a hedged item) IFRS: Allowed. GAAP: Prohibited.
  18. 18. IAS 39 Option to designate any financial asset or financial liability to be measured at fair value through profit or loss IFRS: Option is allowed. GAAP: No such option.
  19. 19. IAS 39 Option to designate loans and receivables as available for sale to be measured at fair value through equity IFRS: Option is allowed. GAAP: No such option.
  20. 20. IFRS: Measured at fair value if reliably measurable; otherwise at cost. GAAP: Measured at cost. Investments in unlisted equity instruments
  21. 21. IAS 39 Held-to-Maturity Classification IFRS: Prohibited from using held-to-maturity classification for the next two years. GAAP: Prohibited from using held-to-maturity classification. SEC indicates that prohibition is generally for two years.
  22. 22. IAS 39 Derecognition of financial assets IFRS: Combination of risks and rewards and control approach. Can derecognize part of an asset. No "isolation in bankruptcy" test. Partial derecognition allowed only if specific criteria are complied with. GAAP: Derecognize assets when transferor has surrendered control over the assets. One of the conditions is legal isolation in bankruptcy. No partial derecognition.
  23. 23. IAS 39 Use of "Qualifying SPEs" IFRS: No such category of SPEs. GAAP: Necessary for derecognition of financial assets if transferee is not free to sell or pledge transferred assets.
  24. 24. IFRS Financial Statements include: Statement of Financial Position Statement of Comprehensive Income Statement of Cash Flow Statement of Changes in Equity Notes to Financial Statements Presentation of Financial Statements
  25. 25.  (a) property, plant and equipment;  (b) investment property;  (c) intangible assets;  (d) financial assets (excluding amounts shown under (e), (h) and (i));  (e) investments accounted for using the equity method;  (f) biological assets;  (g) inventories;  (h) trade and other receivables;  (i) cash and cash equivalents;  (j) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;  (k) trade and other payables;  (l) provisions;  (m) financial liabilities (excluding amounts shown under (k) and (l));  (n) liabilities and assets for current tax, as defined in IAS 12 Income Taxes;  (o) deferred tax liabilities and deferred tax assets, as defined in IAS 12;  (p) liabilities included in disposal groups classified as held for sale in  accordance with IFRS 5;  (q) non-controlling interests, presented within equity; and  (r) issued capital and reserves attributable to owners of the parent.  Other line items, headings and subtotals should be presented when the information is relevant in understanding the entity’s financial position. (IAS 1.55) Statement of Financial Position IAS 1:54 lists the minimum line items that must be presented:
  26. 26. An entity should present current and non- current assets, and current and non-current liabilities, as separate classifications in its statement of financial position…except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order of liquidity. (IAS 1.60) Presentation of Assets & Liabilities
  27. 27. An entity that supplies good and/or services would generally classify assets and liabilities using current or non-current distinctions. (IAS 1.62) An entity not supplying good and services, such as financial institutions, would provide more relevant and reliable presentation by listing in order of liquidity. (IAS 1.63). Presentation of Assets & Liabilities
  28. 28. Entities are also able to present a mixed basis of presentation and list some assets and liabilities as current/non-current and others in order of liquidity. (IAS 1.64) Make sure you are presenting the most reliable and relevant information in the financial statements by choosing the correct presentation. Presentation of Assets & Liabilities
  29. 29. IAS Definitions: Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period. (IAS 16) Property, Plant & Equipment
  30. 30. Accounting models for property, plant & equipment: Cost- after recognition of an asset, the item shall be carried at its cost less accumulated depreciation and any accumulated impairment losses. (IAS 16.30) Property, Plant & Equipment
  31. 31. Revaluation- after recognition of an asset whose fair value can be measured reliably can be carried at a revalued amount, which is its fair value at the date of the revaluation less any subsequent accumulated depreciation or impairment losses. Revaluations will be made with sufficient regularity to ensure that they carrying amount does not differ materially from that that would be determined using fair value at the end of the reporting period. (IAS 16.31) Property, Plant & Equipment
  32. 32. When the carrying value is increased, the increase is recognized in other comprehensive income, accumulated under the heading “Revaluation Surplus.” (IAS 16.39) If the value decreases, the decrease is recognized under profit & loss. (IAS 16.40) When the asset is derecognized, the revaluation surplus may be transferred to retained earnings. (IAS 16.41) Property, Plant & Equipment
  33. 33. IAS Definition of Intangibles: – An identifiable, non-monetary asset without physical substance. Intangibles
  34. 34. Important notes on Intangibles: – Internally generated goodwill is not an asset. (IAS 38.48) – No Intangibles from research can be recognized. (IAS 38.54) – Intangibles from development can only be recognized under certain conditions. (IAS 38.57) Intangibles
  35. 35. Intangibles can also be carried under either the cost or revaluation model like PP&E. For revaluation purposes, fair value is determined by reference to an active market. (IAS 38.74 & 75) Intangibles
  36. 36. An entity shall present all items of income and expense recognized in a period: – (a) in a single statement of comprehensive income, or – (b) in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income). (IAS 1.81) Statement of Comprehensive Income
  37. 37. IAS 1.82 As a minimum, the statement of comprehensive income shall include line items that present the following amounts for the period: – (a) revenue; – (b) finance costs; – (c) share of the profit or loss of associates and joint ventures accounted for using the equity method; – (d) tax expense; Components in The SOCI
  38. 38. – (e) a single amount comprising the total of: • (i) the post-tax profit or loss of discontinued operations • (ii) the post-tax gain or loss recognized on the disposal of the assets constituting the discontinued operation; – (f) profit or loss; – (g) each component of other comprehensive income classified by nature; – (h) share of the other comprehensive income of associates and joint ventures accounted for using the equity method; and – (i) total comprehensive income. Components in The SOCI (Cont.)
  39. 39. Revenue is the gross inflow of economic benefits (during the period) arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. (IAS 18.7) Revenue should be measured at the fair value of the consideration received or receivable. (IAS 18.9) Revenue
  40. 40. Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied(IAS 18.14): – the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; – the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; – the amount of revenue can be measured reliably; – it is probable that the economic benefits associated with the transaction will flow to the entity; – the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue Recognition
  41. 41. An entity shall classify its expenses based on – their nature or – their function within the entity Whichever provides information that is reliable and more relevant. (IAS 1.99) Expenses
  42. 42. Analysis by the ‘nature of expense’ method. – For example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs Analysis by the ‘function of expense’ or ‘cost of sales’ – For example, the costs of distribution or administrative activities. – At a minimum, an entity discloses its cost of sales under this method separately from other expenses. (IAS 1.103) Expenses
  43. 43. Expense Examples
  44. 44. The choice between the function of expense method and the nature of expense method depends on historical and industry factors and the nature of the entity. IFRS requires management to select the presentation that is reliable and more relevant. However, additional disclosure is required when the function of expense classification is used, because information on the nature of expenses is useful in predicting future cash flows, . (IAS 1.105) Expenses
  45. 45. An entity shall not present any items of income or expense as extraordinary items – Not in the statement of comprehensive income – Not in the separate income statement – Not in the notes. (IAS 1.87) Extraordinary Items
  46. 46. The components of other comprehensive income include: – changes in revaluation surplus – actuarial gains and losses on defined benefit plans – gains and losses arising from translating the financial statements of a foreign operation – gains and losses on premeasuring available-for-sale financial assets – gains and losses in a cash flow hedge Other Comprehensive Income
  47. 47. The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities. Statement of Cash Flow(IAS7)
  48. 48. Operating activities are the principal revenue- producing activities of the entity and other activities that are not investing or financing activities. An entity shall report cash flows from operating activities using either:(IAS7-17 to 20) (a) the direct method (b) the indirect method. Presentation of Statement of Cash Flow
  49. 49. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.(IAS7-16) Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. (IAS7-17) Statement of Cash Flow
  50. 50. An entity shall present a statement of changes in equity showing in the statement: a. total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; b. for each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with IAS IAS 1.106 Statement of change in equity
  51. 51. C. for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from: (i) profit or loss; (ii) each item of other comprehensive income; and (iii) transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control. IAS 1.106 (cont.)
  52. 52. An entity shall present, either in the statement of changes in equity or in the notes, the amount of dividends recognised as distributions to owners during the period, and the related amount per share. IAS 1.107
  53. 53. The notes shall: a. present information about the basis of preparation of the financial statements and the specific accounting policies used in accordance with paragraphs 117–124; b. disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and c. provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them. IAS 1.112 Notes to the Financial Statements
  54. 54. An entity normally presents notes in the following order, to assist users to understand the financial statements and to compare them with financial statements of other entities: a. statement of compliance with IFRSs (see paragraph 16); b. summary of significant accounting policies applied (see paragraph 117); IAS 1.114
  55. 55. c. supporting information for items presented in the statements of financial position and of comprehensive income, and in the statements of changes in equity and of cash flows. d. other disclosures, including: (i) contingent liabilities (ii) non-financial disclosures, IAS 1.114 (cont.)
  56. 56. An entity shall disclose in the summary of significant accounting policies: a. the measurement basis (or bases) used in preparing the financial statements, and b. the other accounting policies used that are relevant to an understanding of the financial statements. IAS 1.117
  57. 57. Advantages Same basis with foreign competitors, easy to make comparison Easy to consolidate the parent’s company and the foreign subsidiaries Disadvantages Effectiveness of GAAP will be lost Discourage the domestic public companies which have no significant market outside the US Conclusion
  58. 58. Financial statement disclosures Disclosures are governed by Generally Accepted Accounting Principles (GAAP) and the SEC for publicly traded companies. While most disclosure requirements are similar for all publicly traded companies, some industries are required to provide more specific disclosures based on the operations of a business.
  59. 59. Financial statement disclosures Financial statement disclosures are secondary information provided by companies to clarify or interpret certain published financial information. Disclosures are designed to assist outside reviewers of financial information for the purpose of making investments in the business. Management also use disclosures to attest to the accuracy and validity of reported financial information as required by the (SEC). disclosures.html
  60. 60. The new GAAP: Internationally accepted accounting principles Trends toward globalization and open markets have expanded the playing field for U.S. commerce. And one of the trade offs may be a fast-growing international movement to unify basic principles of financial reporting.
  61. 61. Financial statement disclosures Mandatory Disclosures Disclosures are required by GAAP for certain items in a financial statement, such as accounting changes or errors, asset retirement and insurance contract modifications. By requiring disclosures for these technical items, investors will have a clearer picture of the financial health of the company. Additionally, future expenses can be calculated so investors can determine long-term growth opportunities and projected cash outflows for a business.
  62. 62. IASB Since 2000, the International Accounting Standards Board, whose members represent many countries, has been issuing accounting standards and interpretations and developing a new international accounting framework that can work as well in Shanghai as it does in San Francisco.
  63. 63. International Financial Reporting Standards The result is the International Financial Reporting Standards (IFRS), which now serves as the mandatory financial reporting tool for publicly held companies within the European Union(EU). Australia, Eastern Europe, Russia, China and a growing number of other nations are either moving toward IFRS or adopting standards substantially consistent with IFRS, while retaining some local identity The EUs adoption of the standard was the biggest change in global financial reporting in recent memory.
  64. 64. FASB creation The SEC has statutory authority to establish financial accounting and reporting standards for publicly held companies under the Securities Exchange Act of 1934. Throughout its history, however, the Commission’s policy has been to rely on the private sector for this function to the extent that the private sector demonstrates ability to fulfill the responsibility in the public interest. FASB
  65. 65. FASB Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental entities.
  66. 66. The mission of the FASB The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive and independent process that encourages broad participation,
  67. 67. Sources for accounting principles 1. The Board identifies a financial reporting issues based on requests/recommendations from stakeholders or through other means. 2. The FASB Chairman decides whether to add a project to the technical agenda, after consultation with FASB Members and others as appropriate, and subject to oversight by the Foundation's Board of Trustees. 3. The Board deliberates at one or more public meetings the various reporting issues identified and analyzed by the staff. 4. The Board issues an Exposure Draft to solicit broad stakeholder input. (In some projects, the Board may issue a Discussion Paper to obtain input in the early stages of a project) the Board holds a public roundtable meeting on the Exposure Draft, if necessary. 5. The staff analyzes comment letters, public roundtable discussion, and any other information obtained through due process activities. 6. The Board redeliberates the proposed provisions, carefully considering the stakeholder input received, at one or more public meetings. 7. The Board issues an Accounting Standards Update describing amendments to the Accounting Standards Codification.
  68. 68. Public Company Accounting Oversight Board. The Sarbanes-Oxley Act of 2002, which created the PCAOB, required that auditors of U.S. public companies be subject to external and independent oversight for the first time in history. Previously, the profession was self-regulated. The SEC has oversight authority over the PCAOB, including the approval of the Board’s rules, standards, and budget. The five members of the PCAOB Board, including the Chairman, are appointed to staggered five-year terms by the Securities and Exchange Commission (SEC
  69. 69. Public Company Accounting Oversight Board. The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports.
  70. 70. It is up to you!