Full IFRS and IFRS for SMEs
ICPAS Fox River Trail Chapter
September 24, 2009

Barrett Peterson, C.P.A.
Manager, Accounting...
IFRS: Large and Small
Why IFRS
Why not IFRS yet for US Companies
IFRS overview
Key differences – full IFRS and US GAAP...
Why IFRS?
• Global Efficiency for Multi-National Companies
– Financial operations and reporting efficiency
– Reduce risk o...
Adopting IFRS – Managing Expectations
Expectation

Challenge

 Global set of high quality standards
 Increased comparabi...
Transparency in Accounting Standards

September 24, 2009

ICPAS Fox River Trail Chapter Presentation

5
Standards and Frauds – a Short Digression
 Both US GAAP and IFRS depend significantly upon the ethical

practices of both...
Why not yet for US Companies
No significant non-US operations reduces statutory,

covenant, or other requirements
Limite...
IFRS Overview
• Governance and Process
– Governance structure
– Due Process
• Standards Literature Comprised Of:
– Preface...
IFRS Governance Structure

Source: Deloitte IASPlus website
September 24, 2009

ICPAS Fox River Trail Chapter Presentation...
IFRS Standards Literature - Preface
• Describes IASB’s Objectives
• Describes scope of IFRS
• Describes IASB’s due process...
IFRS Standards Literature Framework
Contains definitions
Describes recognition criteria and measurement

concepts for:

...
IFRS Standards Literature Standards
Encompasses standards issued by the current IASB

[IFRSs]and the predecessor IASC [IA...
IFRS Standards Literature Interpretations
• Authoritative interpretations are issued by the

International Financial Repor...
Selected Differences between full IFRS and
US GAAP
LIFO prohibited under IFRS. Inventory write downs can

be reversed
No...
Selected Differences between full IFRS and US
GAAP, Continued
Revaluation of property, plant, and equipment and

intangib...
Selected Differences Between Full IFRS and US
GAAP, Continued
• Revenue recognition standards are less rules based and

ma...
Comparison of US GAAP and IFRS - Inventories
US GAAP
Permits a variety of costing

methods including FIFO,
LIFO, average,...
Comparison of US GAAP and IFRS – PP&E
US GAAP
 Historical cost is the prescribed

model for measurement.

 Revaluations ...
Comparison of US GAAP and IFRS - Intangibles
US GAAP
 Research and development

expensed as incurred except certain
softw...
Comparison of US GAAP and IFRS – Impairment
Testing of long-lived assets
US GAAP
 Two step test and measurement
 Carryin...
Comparison of US GAAP and IFRS – Contingency
Provisions
US GAAP
Recognition occurs if a

contingent liability arising
fro...
Comparison of US GAAP and IFRS – Debt
Classification
US GAAP
 Compound securities generally not addressed

in US GAAP.

...
Comparison of US GAAP and IFRS – Deferred
Income Taxes
US GAAP
 Classification follows the related

non-tax asset or liab...
Comparison of US GAAP and IFRS – Revenue
Recognition
US GAAP
 SEC regulations prescribe general

requirements with signif...
Comparison of US GAAP and IFRS – Revenue
Recognition; Continued
US GAAP
 Customer loyalty programs have

divergent criter...
Comparison of US GAAP and IFRS – Accounting
for Employee Benefits
US GAAP
 Defined benefit multi-employer plan

accounted...
Comparison of US GAAP and IFRS – Accounting
for Employee Benefits, Continued
US GAAP
 Actuarial gains and losses can be a...
Comparison of US GAAP and IFRS – Consolidated
Entities
US GAAP
 Consolidation of certain entities

based on a two step ev...
Comparison of US GAAP and IFRS – Income
Statement Presentation
US GAAP
 Generally follows SEC requirement

that expenses ...
IFRS for SMEs
 The IASB Standard International Financial Reporting for Small and

Medium-sized Entities [SMEs] is a separ...
IFRS for SMEs – Omitted Topics
Earnings per share
Interim financial reporting
Segment reporting
Special accounting for...
IFRS for SMEs – Reduced Options
Proportionate consolidation not permitted.
Revaluation option not permitted for either p...
IFRS for SMEs – Simplified
Recognition and Measurement
 Investments in financial instruments meeting certain criteria are...
IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs
Preface

Full IFRS
Preface

1.

Small and Medium Sized En...
IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs

Full IFRS

11& Basic Financial Instruments and Other
12
...
IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs

Full IFRS

22 Liabilities and Equity

IAS 1, IAS 32

23 ...
IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs

Full IFRS

32 Events after the End of the Reporting Peri...
Comparison of Full and SMEs IFRS - Objectives
Full IFRS
 Purposes

IFRS for SMEs
 Purposes

 Report financial position
...
Comparison of Full and SMEs IFRS – Required
Financial Statements
Full IFRS
 Statement of Financial Position

[required na...
Comparison of Full and SMEs IFRS – Financial
Instruments
Full IFRS
 Four categories of financial

instruments

 Two topi...
Comparison of FULL and SMEs IFRS – Property,
Plant, and Equipment
Full IFRS
 Accounting policy choice

between historical...
Comparison of Full and SMEs IFRS – Investments
in Associates and Joint Ventures
Full IFRS
 Investments in associates
 Ac...
Comparison of Full and SMEs IFRS - Intangibles
Full IFRS
 Provides an accounting policy

choice between the cost model
an...
Comparison of FULL and SMEs IFRS – Defined
Benefit Pension Plans
Full IFRS
 Actuarial gains and losses
 Choice to recogn...
Comparison of Full and SMEs IFRS – Income Taxes
Full IFRS
 A deferred tax asset is

recognized only if it is probable
the...
Comparison of Full and SMEs for IFRS – Business
Combinations
Full IFRS
 Transaction costs are excluded

from acquisition ...
Next Steps - Preparation for Adoption of IFRS
 Accounting systems
 Data collection procedures for information and attrib...
Comparison of FULL and SMEs IFRS – Selected
Additional Resources
IASB Website: www.iasb.co.uk
AICPA’s IFRS website: www....
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  • Monitoring Board of public regulatory authorities established February 1, 2009. Initial membership comprised of relevant leaders of the European Commissions [not filled as of September 22, 2009], the Commissioner of the Financial Services Agency of Japan, the Chairman of the US SEC, the Chairman of the Emerging Markets Committee of IOSCO, and the Vice-Chairman of the Technical Committee of IOSCO [International Organization of Securities Commissions].
  • US GAAP permits consolidated subsidiaries to use accounting policies different from the parent. IFRS requires reporting to reflect consistent accounting policies throughout the consolidated group.
  • The development of this Standard, over a couple of years, has contained, then dropped, a description of “small and Medium” entities as those with annual revenues under $25 [or$50] Million, assets under $12.5 million, and fewer than 50 employees.
  • Under US GAAP the terms ‘Statement of Financial Position” and “Balance Sheet” are both acceptable.
  • Bppresentationifrslargeandsmallicpaspresentationseptember24200920090912 100423231953-phpapp01

    1. 1. Full IFRS and IFRS for SMEs ICPAS Fox River Trail Chapter September 24, 2009 Barrett Peterson, C.P.A. Manager, Accounting Standards, Procedures, and Analysis , TTX
    2. 2. IFRS: Large and Small Why IFRS Why not IFRS yet for US Companies IFRS overview Key differences – full IFRS and US GAAP IFRS for SMEs compared to full IFRS What to do now A short list of additional resources September 24, 2009 ICPAS Fox River Trail Chapter Presentation 2
    3. 3. Why IFRS? • Global Efficiency for Multi-National Companies – Financial operations and reporting efficiency – Reduce risk of errors – Increased control over financial reporting • High Quality set of Standards – Facilitate global financial system – Common language for global business transactions including joint ventures, outsourcing, financing • Uniform/Comparable, Transparent – “Principles Based” – Globally consistent and comparable for investors – Minimize cost of capital September 24, 2009 ICPAS Fox River Trail Chapter Presentation 3
    4. 4. Adopting IFRS – Managing Expectations Expectation Challenge  Global set of high quality standards  Increased comparability  US GAAP recognized as high quality  Fewer rules, and more judgments likely  Increased transparency    More resistant to fraud  Principles based standards superior to  rules based  Minimize cost of capital  US GAAP too complex September 24, 2009   to decrease as much as increase comparability Transparency affected by country specific cultural norms, legal practices, and business and ownership structures Fraud has occurred in IFRS countries as well as under US GAAP, although more frequently under US GAAP Difference exaggerated: US standards are principles based with a substantial number of rules; IFRS are principles based with far fewer [but some] rules US already enjoys the world’s lowest cost of capital. Likely to aid other countries. Rules and legal structures make US complex; judgments make IFRS complex ICPAS Fox River Trail Chapter Presentation 4
    5. 5. Transparency in Accounting Standards September 24, 2009 ICPAS Fox River Trail Chapter Presentation 5
    6. 6. Standards and Frauds – a Short Digression  Both US GAAP and IFRS depend significantly upon the ethical practices of both business executives and their auditors. The “rules” in US GAAP are intended to alleviate this dependence. But…  Fraud and Accounting irregularities are driven primarily by ego issues:  Aspiration for money    Bookkeeper level – Gucci bag or a Cadillac rather then a Chevrolet Executive level – Brioni suit, stock options and bonus payments, and a Mercedes Mogul level – Homes in St. Barts and London, a yacht, and a jet to get to the yacht  Status – the drive for bragging rights    Company profitability Company growth rate Meet investment analysts [Wall Street] expectations September 24, 2009 ICPAS Fox River Trail Chapter Presentation 6
    7. 7. Why not yet for US Companies No significant non-US operations reduces statutory, covenant, or other requirements Limited global capital market access required Non-Standard Standards; Country variations Limited understanding by US banks and credit raters Lack of comparability if not universally required and used Training and skills – staff, auditors, others September 24, 2009 ICPAS Fox River Trail Chapter Presentation 7
    8. 8. IFRS Overview • Governance and Process – Governance structure – Due Process • Standards Literature Comprised Of: – Preface to IFRS – IASB Framework – Standards – full IFRS – Interpretations – full IFRS – IFRSs for SMEs – Adopted July, 2009, Effective immediately September 24, 2009 ICPAS Fox River Trail Chapter Presentation 8
    9. 9. IFRS Governance Structure Source: Deloitte IASPlus website September 24, 2009 ICPAS Fox River Trail Chapter Presentation 9
    10. 10. IFRS Standards Literature - Preface • Describes IASB’s Objectives • Describes scope of IFRS • Describes IASB’s due process procedures • Describes policies on effective dates • Describes format used in Standards – Principles in bold – “Black” – Guidance not bolded type – “Gray” • Identifies English as the official language of IFRS September 24, 2009 ICPAS Fox River Trail Chapter Presentation 10
    11. 11. IFRS Standards Literature Framework Contains definitions Describes recognition criteria and measurement concepts for: Assets and liabilities Income and expenses Required to be considered for resolving accounting issues not directly addressed by a standard [by IAS 8.11] September 24, 2009 ICPAS Fox River Trail Chapter Presentation 11
    12. 12. IFRS Standards Literature Standards Encompasses standards issued by the current IASB [IFRSs]and the predecessor IASC [IASs] still outstanding The IASB has issued 8 IFRSs The predecessor IASC issued 41 IASs, of which 29 are still outstanding. The remainder have been superseded by IFRSs or withdrawn. Similar to US GAAP, IFRS Standards are primarily by topic. September 24, 2009 ICPAS Fox River Trail Chapter Presentation 12
    13. 13. IFRS Standards Literature Interpretations • Authoritative interpretations are issued by the International Financial Reporting Interpretations Committee [IFRIC] when approved by the IASB, and the predecessor Standing Interpretations Committee [SIC] • IFRIC has issued 18 interpretations, 15 of which remain in effect • SIC issued 31 interpretations, 11 of which remain in effect September 24, 2009 ICPAS Fox River Trail Chapter Presentation 13
    14. 14. Selected Differences between full IFRS and US GAAP LIFO prohibited under IFRS. Inventory write downs can be reversed No “extraordinary items” and fewer “discontinued operations” under IFRS Some development costs [R&D] capitalized under IFRS Advertising costs expensed as incurred – little “prepaid” Contingency recognition threshold is lower and amount recognized may be higher under IFRS Securities considered equities in the US with contingent redemption provisions accounted and reported for as debt under IFRS September 24, 2009 ICPAS Fox River Trail Chapter Presentation 14
    15. 15. Selected Differences between full IFRS and US GAAP, Continued Revaluation of property, plant, and equipment and intangibles permitted under IFRS Impairment testing model likely to produce more impairments under IFRS Option available under IFRS to record benefit plans’ actuarial gains and losses directly to equity and permanently exclude from regular net income – SoRIE required. Return and interest components can be classified as financing costs. Return calculated on actual, not average, asset value. Component depreciation is required when applicable and appropriate All deferred income taxes must be classified as noncurrent September 24, 2009 ICPAS Fox River Trail Chapter Presentation 15
    16. 16. Selected Differences Between Full IFRS and US GAAP, Continued • Revenue recognition standards are less rules based and may alter timing of revenue recognition under IFRS • Consolidations rules may be very different under IFRS – More entities will be required to be consolidated under the control model. FAS 166 and 167 will reduce the differences. – Proportional consolidation permitted for certain joint venture investments • The timing and amounts recorded for share-based payments will differ under IFRS • The classification of debt on the balance sheet is NOT affected by post balance sheet date refinancing or covenant waiver agreements under IFRS September 24, 2009 ICPAS Fox River Trail Chapter Presentation 16
    17. 17. Comparison of US GAAP and IFRS - Inventories US GAAP Permits a variety of costing methods including FIFO, LIFO, average, and specific identification. Requires reduction to lower of cost or market. Reserves cannot be reversed. September 24, 2009 IFRS Permits a variety of costing methods including FIFO, average, and specific identification. LIFO not permitted. Reserves for market value declines can be reversed, but not above cost. ICPAS Fox River Trail Chapter Presentation 17
    18. 18. Comparison of US GAAP and IFRS – PP&E US GAAP  Historical cost is the prescribed model for measurement.  Revaluations not permitted.  Component depreciation not specified and not used often.  Useful life, residual value, and depreciation methods reviewed only when “needed”. September 24, 2009 IFRS  Historical cost is the primary model, but a revaluation model is permitted.  Revaluation amounts can be adjusted and are recorded through “revaluation surplus” in equity.  Component depreciation required.  Useful life, residual value, and depreciation method required to be reviewed at least as of each balance sheet date. ICPAS Fox River Trail Chapter Presentation 18
    19. 19. Comparison of US GAAP and IFRS - Intangibles US GAAP  Research and development expensed as incurred except certain software development costs.  Revaluation not permitted.  Costs of other than direct response advertising expensed or deferred until when advertising first used. Direct response advertising may be eligible for deferral and amortization. September 24, 2009 IFRS  Development costs permitted to be capitalized. Software development costs treated the same for internal use or for sale software.  Intangibles permitted to use a revaluation model adjusted through “revaluation surplus” in equity.  Advertising costs expensed as incurred unless prepaid before right to access the goods or services. ICPAS Fox River Trail Chapter Presentation 19
    20. 20. Comparison of US GAAP and IFRS – Impairment Testing of long-lived assets US GAAP  Two step test and measurement  Carrying amount compared to undiscounted cash flows  Adjust to fair value if carrying amount below undiscounted cash flows  Reversals of impairments are not permitted. September 24, 2009 IFRS  A one step assessment is used. The carrying amount is compared to the higher of fair value less selling costs or value in use calculated as discounted cash flows.  Reversals of impairments are permitted if certain criteria are met.  Impairments of revalued assets recorded directly in “revaluation surplus” to the extent of prior upward revaluations. ICPAS Fox River Trail Chapter Presentation 20
    21. 21. Comparison of US GAAP and IFRS – Contingency Provisions US GAAP Recognition occurs if a contingent liability arising from a past event is probable, usually considered 75% likely to require settlement. Measurement guidance not provided, but if a range of outcomes exists, the low end is used. September 24, 2009 IFRS Recognition of a contingent loss from a past event required if a loss is probable, usually considered 50%, and capable of being estimated. Measurement is best estimate or the midpoint of a range or outcomes. ICPAS Fox River Trail Chapter Presentation 21
    22. 22. Comparison of US GAAP and IFRS – Debt Classification US GAAP  Compound securities generally not addressed in US GAAP.  Most equity type securities with contingent redemption provisions are recognized as equity. US GAAP requires debt classification for unconditional provisions.  Warrants settled in net shares are recognized as equity.  Debt can be classified as non-current if agreements completed subsequent to the balance sheet date to refinance or waive covenant violations are completed. Disclosure required. September 24, 2009 IFRS  Bifurcation required of compound securities containing both equity and debt features with the debt reflected at fair value using discounted cash flows for the component.  Securities with a contingent redemption provision [changes in control, e.g.] are required to be recognized as debt. Distributions are finance costs, not dividends.  Warrants settled in net shares are derivative instruments recognized at fair value through profit and loss.  Amounts classifiable as current are not affected by post balance sheet date agreements to refinance or waive breaches of loan covenants. Disclosure required. ICPAS Fox River Trail Chapter Presentation 22
    23. 23. Comparison of US GAAP and IFRS – Deferred Income Taxes US GAAP  Classification follows the related non-tax asset or liability for financial reporting purposes.  FIN 48 prescribes detailed rules for recognition and disclosures, including a roll-forward in the footnotes.  Accounting policy choice, required to be disclosed, to classify as income tax expense or in pre-tax expenses. September 24, 2009 IFRS  The net liability for a taxing jurisdiction is reflected as noncurrent.  No detailed requirements for uncertain tax positions exist, although the concept is acknowledged.  Interest and penalties classified as either interest expenses or other operating expenses, with disclosure of choice. ICPAS Fox River Trail Chapter Presentation 23
    24. 24. Comparison of US GAAP and IFRS – Revenue Recognition US GAAP  SEC regulations prescribe general requirements with significant detail for agreements with multiple deliverables and for specific industries. IFRS  Revenue standards of four transaction categories:  Sale of goods  Rendering of services  Others’ use of an asset [lessor, lender]  Recognition criteria include requirement that persuasive evidence of the existence of an arrangement.  Multiple deliverable rules prohibit estimated cost plus margin, and reverse residual method.  Discounting of revenues required only in limited circumstances and industries. September 24, 2009  Construction contracts  Recognition criteria include a less strict requirement than in US, including “probable” flow of economic benefits . Other requirements are similar  Multiple deliverable rules permit a cost plus reasonable margin approach, and reverse residual method permitted in some circumstances.  Discounting revenue required when revenue deferred. ICPAS Fox River Trail Chapter Presentation 24
    25. 25. Comparison of US GAAP and IFRS – Revenue Recognition; Continued US GAAP  Customer loyalty programs have divergent criteria by industry, and often reflect the incremental method.  Sales of services prohibit percentage complete method. Generally proportional performance or deferral until complete.  Construction contract revenue measurement can use percent completion, zero profit, or completed contract methods. Combining and segmenting contracts is permitted, but not required.  Contingent consideration not recognized until contingency resolved [SAB topic 13] September 24, 2009 IFRS  Specific guidance for customer loyalty programs generally reflecting multiple deliverable practices [IFRIC 13].  Sales of services requires percentage of completion. Revenue may be deferred in certain cases.  Construction contract revenue prohibits completed contract. Percentage completion and zero profit are permitted. Combining and segmenting contracts required in some cases.  Contingent consideration recognized if benefit to selling entity probable. ICPAS Fox River Trail Chapter Presentation 25
    26. 26. Comparison of US GAAP and IFRS – Accounting for Employee Benefits US GAAP  Defined benefit multi-employer plan accounted for as a defined contribution plan.  Group administration [multiple employer plans] accounted for as a defined benefit plan.  “Funded status” is net of obligation and fair value of assets. Actuarial gains and losses and past service costs recognized in profit and loss or included in equity[AOCI].  All actuarial gains and losses eventually reflected in profit and loss, usually by amortization after initial recording in AOCI in equity September 24, 2009 IFRS  Defined benefit multi-employer plan accounted for as a defined benefit plan if required information available; defined contribution plan otherwise.  Group administration plans accounted for as either a defined benefit or a defined contribution plan.  “Funded status” is net of obligation and fair value of assets reduced or increased by net unrecognized actuarial gain and losses and past service cost [US funded status plus or minus US AOCI].  Actuarial gain and losses can be reflected outside net income in comprehensive income if recognized in full each year. A “SoRIE’ – statement or recognized income and expense required ICPAS Fox River Trail Chapter Presentation 26
    27. 27. Comparison of US GAAP and IFRS – Accounting for Employee Benefits, Continued US GAAP  Actuarial gains and losses can be amortized using a “corridor” approach over remaining service life or life expectancy.  Past service costs amortized over remaining service life or life expectancy.  No limit on funded status asset size.  Measurement frequency required annually on balance sheet date.  Return component calculated on “marketrelated” average value of a period up to five years, a “smoothing” device. September 24, 2009 IFRS  Actuarial gains and losses can be amortized to profit and loss using a “corridor” approach similar to US. Amounts differ by year for any of a wide array of amortization choices.  Past service cost recognized immediately if vested, or recognized over the vesting period.  Funded status net asset limited in size.  No specified measurement frequency.  Return component required to be based on fair value of assets [more volatile than US]. ICPAS Fox River Trail Chapter Presentation 27
    28. 28. Comparison of US GAAP and IFRS – Consolidated Entities US GAAP  Consolidation of certain entities based on a two step evaluation of variable interests then voting control. FAS 166 and 167 move US closer to IFRS with power to control emphasis.  Proportional consolidation used only for unincorporated entities in specific industries. Rare in the US. September 24, 2009 IFRS  Consolidation based on control based, in turn, on ability to determine operations, not just voting rights.  Proportional consolidation permitted for certain jointly controlled entities. ICPAS Fox River Trail Chapter Presentation 28
    29. 29. Comparison of US GAAP and IFRS – Income Statement Presentation US GAAP  Generally follows SEC requirement that expenses be presented by function [e.g. cost of goods sold], with depreciation [nature] being permitted as a separate line item.  Permitted to use a single-step method or a multiple-step method separating operating and nonoperating before pre-tax income.  Extraordinary items defined as infrequent and unusual. Rare in practice. September 24, 2009 IFRS  Entities can present expense either by function or by nature. Additional disclosure by nature required if function chosen. The two methods should not be mixed.  Required disclosure of specific items including revenue, finance expense, tax expense, and share of post tax results applicable to affiliates accounted for by the equity method.  Exceptional items not defined.  Extraordinary items prohibited. ICPAS Fox River Trail Chapter Presentation 29
    30. 30. IFRS for SMEs  The IASB Standard International Financial Reporting for Small and Medium-sized Entities [SMEs] is a separate standard from the “full” IFRS standards and interpretations. Standard is 232 pages vs. 2,700 pages for full IRS. Examples and implementation guide an additional 65 pages.  Small and Medium Size entities is a misleading title. The distinction is based on the absence of public accountability. Entities are SMEs, regardless of size, if they have no publically held debt or equity securities outstanding and do not hold funds for others in a fiduciary capacity as a regular part of their business operations.  IFRS for SMEs differs from full IFRS in that:  Certain full IFRS topics are omitted  Options under full IFRS are replaced with a single, simpler option  Many principles for recognizing assets, liabilities, income, and expenses are simplified.  Required disclosures are significantly fewer and simpler many resulting from the omitted and simplified items. September 24, 2009 ICPAS Fox River Trail Chapter Presentation 30
    31. 31. IFRS for SMEs – Omitted Topics Earnings per share Interim financial reporting Segment reporting Special accounting for assets held for sale September 24, 2009 ICPAS Fox River Trail Chapter Presentation 31
    32. 32. IFRS for SMEs – Reduced Options Proportionate consolidation not permitted. Revaluation option not permitted for either property, plant, and equipment, or intangible assets. Investments in financial securities carried at amortized costs except equities with a readily identifiable market value which are carried at fair value with changes recorded in profit and loss. Investment property measurement is driven by circumstances rather than a choice between the cost and fair value models. September 24, 2009 ICPAS Fox River Trail Chapter Presentation 32
    33. 33. IFRS for SMEs – Simplified Recognition and Measurement  Investments in financial instruments meeting certain criteria are measured at cost or amortized costs. All others measured at fair value through profit and loss.  All research and development costs expensed as incurred.  Goodwill and other indefinite life intangibles always amortized over estimated useful life or ten years.  Investments in joint ventures at cost unless there is a published price, in which case fair value is required.  Borrowing costs must be recognized as expenses  Annual review of PPE lives, residual value, and depreciation method NOT required.  For defined benefit post-employment plans:  Recognize all past service costs immediately in profit and loss  Recognize all actuarial gains and losses immediately in profit and loss or other comprehensive income – through SoRIE. No “corridor” amortization option. September 24, 2009 ICPAS Fox River Trail Chapter Presentation 33
    34. 34. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEs Preface Full IFRS Preface 1. Small and Medium Sized Entities 2. Concepts and Pervasive Principles IASB Framework, IAS 1, Presentation of Financial Statements 3. Financial Statement Presentation IAS 1 4. Statement of Financial Position IAS 1 5. Statement of Comprehensive Income and Income Statement IAS 1 6. Statement of Changes in Equity and Statement of Comprehensive Income and Retained Earnings IAS 1 7. Statement of Cash Flows IAS 7, Statement of Cash Flows 8. Notes to the Financial Statements IAS 1 9. Consolidated and Separate Financial Statements IAS 27, Consolidated and Separate Financial Statements 10. Accounting Policies, Estimates and Errors September 24, 2009 IAS 8, Accounting Polices, Changes in Accounting Estimates and Errors ICPAS Fox River Trail Chapter Presentation 34
    35. 35. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEs Full IFRS 11& Basic Financial Instruments and Other 12 Financial Instruments Issues IAS 32, Financial Instruments: Presentation IAS 39, Financial Instruments: Recognition and Measurement IFRS 7, Financial Instruments: Disclosures 13 Inventories IAS 2, Inventories 14 Investments in Associates IAS 28, Investments in Associates 15 IAS 31, Investments in Joint Ventures Investments in Joint Ventures 16 Investment Property IAS 40, Investment Property 17 IAS 16, Property, Plant and Equipment Property, Plant and Equipment 18 Intangible Assets Other than Goodwill IAS 38, Intangible Assets 19 Business Combinations and Goodwill IFRS 3, Business Combinations 20 Leases IAS 17, Leases 21 IAS 37, Provisions, Contingent Liabilities and Contingent Assets Provisions and Contingencies September 24, 2009 ICPAS Fox River Trail Chapter Presentation 35
    36. 36. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEs Full IFRS 22 Liabilities and Equity IAS 1, IAS 32 23 Revenue IAS 11, Construction Contracts IAS 18, Revenue 24 Government Grants IAS 20, Accounting for Government Grants and Disclosure of Government Assistance 25 Borrowing Costs IAS 23, Borrowing Costs 26 Share-based Payment IFRS 2, Share-based Payment 27 Impairment of Assets IAS 2, IAS 36, Impairment of Assets 28 Employee Benefits IAS 19, Employee Benefits 29 Income Tax IAS 12, Income Taxes 30 Foreign Currency Translation IAS 21, The Effects of Changes in Foreign Exchange Rates 31 Hyperinflation IAS 29, Financial Reporting in Hyperinflationary Economies September 24, 2009 ICPAS Fox River Trail Chapter Presentation 36
    37. 37. IFRS for SMEs Compared to Full IFRS Section in the IFRS for SMEs Full IFRS 32 Events after the End of the Reporting Period IAS 10, Events after the Reporting Period 33 Related Party Disclosures IAS 24, Related Party Disclosures 34 Specialized Activities IAS 41, Agriculture IFRS 6, Exploration for and Evaluation of Mineral Resources 35 Transition to the IFRS for SMEs IFRS 1, First-time Adoption of International Financial Reporting Standards September 24, 2009 ICPAS Fox River Trail Chapter Presentation 37
    38. 38. Comparison of Full and SMEs IFRS - Objectives Full IFRS  Purposes IFRS for SMEs  Purposes  Report financial position  Report financial position  Report performance  Report performance  Report changes in financial position  Report cash flows  Attributes  Attributes  Accrual basis  Relevant  Going concern  Reliable  Understandability  Comparability  Relevance  Complete  Reliability – requires prudence  Prudence  Comparability  Reflect substance over form  Accrual basis  Presumes going concern  Materiality  Timeliness September 24, 2009 ICPAS Fox River Trail Chapter Presentation 38
    39. 39. Comparison of Full and SMEs IFRS – Required Financial Statements Full IFRS  Statement of Financial Position [required name]  Statement of Income or Comprehensive Income  Statement of Changes in Equity. If SoRIE used for comprehensive income, equity changes required in notes.  Statement of Cash Flows  Notes to Financial Statements September 24, 2009 IFRS for SMEs  Statement of Financial Position – may be called “Balance Sheet”  Statement of Income or Comprehensive Income  Statement of Changes in Equity. A combined statement of income and retained earnings permitted if earnings and dividends are the only activity  Statement of Cash Flows  Notes to Financial Statements ICPAS Fox River Trail Chapter Presentation 39
    40. 40. Comparison of Full and SMEs IFRS – Financial Instruments Full IFRS  Four categories of financial instruments  Two topics in IFRS for SMEs  Basic financial instruments,  Financial assets or liabilities at fair value through profit and loss  Held-to-maturity investments  Loans and receivables  Available-for-sale assets September 24, 2009 IFRS for SMEs generally reflected at amortized cost.  Complex financial instruments generally reflected at fair value through profit and loss. ICPAS Fox River Trail Chapter Presentation 40
    41. 41. Comparison of FULL and SMEs IFRS – Property, Plant, and Equipment Full IFRS  Accounting policy choice between historical cost and revaluation models.  Component depreciation required.  Annual review of useful life, residual value, and depreciation rate required. September 24, 2009 IFRS for SMEs  Historical cost model only. Revaluation model not permitted.  Component depreciation required only if major parts of a PP&E item have “significantly different patterns of consumption of economic benefits”.  Review of useful life, residual value, and depreciation rate only if there is a significant change in the asset or its use. ICPAS Fox River Trail Chapter Presentation 41
    42. 42. Comparison of Full and SMEs IFRS – Investments in Associates and Joint Ventures Full IFRS  Investments in associates  Accounted for by equity method  Cost and fair value models not permitted except in separate company statements  Investments in joint ventures  Proportionate consolidation or  Equity method IFRS for SMEs  Investments in associates or jointly controlled entity may be accounted for by:  The cost model [less any impairments]  The equity method  The fair value model through profit and loss  Cost and fair value models not permitted September 24, 2009 ICPAS Fox River Trail Chapter Presentation 42
    43. 43. Comparison of Full and SMEs IFRS - Intangibles Full IFRS  Provides an accounting policy choice between the cost model and the revaluation model  Useful life either finite or indefinite. Indefinite life intangibles, including goodwill, are not amortized, but an annual impairment test is required.  Some development costs are capitalized.  Some borrowing costs are capitalized. September 24, 2009 IFRS for SMEs  The cost model is required and the revaluation model is prohibited.  All intangible assets are amortized over their useful life or ten years.  All research and development costs expensed as incurred.  All borrowing costs expensed as incurred. ICPAS Fox River Trail Chapter Presentation 43
    44. 44. Comparison of FULL and SMEs IFRS – Defined Benefit Pension Plans Full IFRS  Actuarial gains and losses  Choice to recognize immediately in profit and loss, or  Recognize immediately in comprehensive income without ever going through profit and loss, or  Deferred and amortized through profit and loss over estimated service life [corridor approach].  Calculation of liability  Unit credit method required.  Recognition of past service cost IFRS for SMEs  Actuarial gains and losses  Choice to recognize immediately in profit and loss, or  Recognize immediately in other comprehensive income  Deferral and amortization [corridor approach] not permitted.  Calculation of liability  Use unit credit method, or simplify calculation by ignoring:   Immediately if vested   Over remaining vesting period for  unvested amounts September 24, 2009 Future salary increases Future service of current employees Possible in-service mortality  Recognize past service cost immediately in profit and loss. ICPAS Fox River Trail Chapter Presentation 44
    45. 45. Comparison of Full and SMEs IFRS – Income Taxes Full IFRS  A deferred tax asset is recognized only if it is probable there will sufficient future profit to realize the tax asset.  No specific guidance on uncertain tax positions. In practice a liability established at either the single best estimate or a probability weighted average amount of all possible outcomes. September 24, 2009 IFRS for SMEs  Recognize a valuation allowance to reduce the net asset to an amount more likely than not to be realized.  Recognize the effect of the possible outcomes of a review by tax authorities using the probability weighted average of all possible outcomes. ICPAS Fox River Trail Chapter Presentation 45
    46. 46. Comparison of Full and SMEs for IFRS – Business Combinations Full IFRS  Transaction costs are excluded from acquisition costs.  Contingent consideration is recognized in acquisition costs regardless of the probability of payment. September 24, 2009 IFRS for SMEs  Transaction costs are included in acquisition costs.  Contingent consideration is included as part of the acquisition costs if it is probable the amount will be paid and the amount can be measured reliably. ICPAS Fox River Trail Chapter Presentation 46
    47. 47. Next Steps - Preparation for Adoption of IFRS  Accounting systems  Data collection procedures for information and attributes not currently captured  Redesign of sales contracts and procedures  Software requirements  Loan, lease , outsourcing, and other contract covenants – IFRS “aware”  Tax planning  Business unit and corporate metrics – dashboard revisions  Incentive [cash, stock] compensation plan provisions – base and award factors included in computations  Documentation of controls over financial reporting, and other processes  Staff training needs – identify and arrange  Timing to provide two years of comparable basis data in the year of adoption  Development of plan for conversion including resources required September 24, 2009 ICPAS Fox River Trail Chapter Presentation 47
    48. 48. Comparison of FULL and SMEs IFRS – Selected Additional Resources IASB Website: www.iasb.co.uk AICPA’s IFRS website: www.ifrs.com Deloitte website: www.iasplus.com PWC website: www.pwc.com/usifrs Books from Wiley – available from Wiley and on Amazon.com, where they are less expensive September 24, 2009 ICPAS Fox River Trail Chapter Presentation 48

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