1. Full IFRS and IFRS for SMEs
ICPAS North Shore Industry & Barrett Peterson, C.P.A.
Business Forum Manager, Accounting
November 12, 2012 Standards, Procedures,
and Analysis , TTX

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 2

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 3

4. Adopting IFRS – Managing Expectations
Expectation Challenge
 Global set of high quality standards  US GAAP recognized as high quality
 Increased comparability  Fewer rules, and more judgments likely
to decrease as much as increase
comparability
 Transparency affected by country
 Increased transparency
specific cultural norms, legal practices,
and business and ownership structures
 Fraud has occurred in IFRS countries as
 More resistant to fraud well as under US GAAP, although more
frequently under US GAAP
 Principles based standards superior to  Difference exaggerated: US standards
rules based 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
 Minimize cost of capital
of capital. Likely to aid other countries.
 Rules and legal structures make US
 US GAAP too complex
complex; judgments make IFRS complex
November 12, 2012 ICPAS North Shore Industry & Business Forum 4

5. Transparency in Accounting Standards
November 12, 2012 ICPAS North Shore Industry & Business Forum 5

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 6

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 7

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 8

9. IFRS Governance Structure
Source: Deloitte IASPlus website
November 12, 2012 ICPAS North Shore Industry & Business Forum 9

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 10

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]
November 12, 2012 ICPAS North Shore Industry & Business Forum 11

12. IFRS Standards Literature -
Standards
 Encompasses standards issued by the current IASB
[IFRSs]and the predecessor IASC [IASs] still
outstanding
 The IASB has issued 13 IFRSs
 The predecessor IASC issued 41 IASs, of which 28 are
still outstanding, with one to be superseded January 1,
2015. Three revised in 2011, and the remainder have
been superseded by IFRSs or withdrawn.
 Similar to US GAAP, IFRS Standards are primarily by
topic.
November 12, 2012 ICPAS North Shore Industry & Business Forum 12

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 20 interpretations, 17 of which
remain in effect
• SIC issued 33 interpretations, 11 of which remain in
effect
November 12, 2012 ICPAS North Shore Industry & Business Forum 13

14. Selected Differences between full IFRS and
US GAAP
 IFRS directed at for profit entities; does not apply to non-profits,
unlike U.S. 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
 Private Company [SMEs] have a separate standard.
November 12, 2012 ICPAS North Shore Industry & Business Forum 14

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
 Required, under IFRS to record benefit plans’ actuarial
gains and losses directly to OCI and permanently exclude
from regular “net income”. 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 non-current
 IFRS does not always “recycle” AOCI
November 12, 2012 ICPAS North Shore Industry & Business Forum 15

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 [now ASC 810 – Consolidations] reduced 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
• IASB/IFRS places greater emphasis on Balance Sheet
November 12, 2012 ICPAS North Shore Industry & Business Forum 16

17. Comparison of US GAAP and IFRS - Inventories
US GAAP IFRS
 Permits a variety of costing  Permits a variety of costing
methods including FIFO, methods including FIFO,
LIFO, average, and specific average, and specific
identification. identification. LIFO not
permitted.
 Requires reduction to lower  Reserves for market value
of cost or market. Reserves declines can be reversed, but
cannot be reversed. not above cost.
November 12, 2012 ICPAS North Shore Industry & Business Forum 17

18. Comparison of US GAAP and IFRS – PP&E
US GAAP IFRS
 Historical cost is the prescribed  Historical cost is the primary
model for measurement. model, but a revaluation model
is permitted.
 Revaluation amounts can be
 Revaluations not permitted. adjusted and are recorded
through “revaluation surplus” in
equity.
 Component depreciation
 Component depreciation not
required.
specified and not used often.
 Useful life, residual value, and
 Useful life, residual value, and depreciation method required to
depreciation methods reviewed be reviewed at least as of each
only when “needed”. balance sheet date.
November 12, 2012 ICPAS North Shore Industry & Business Forum 18

19. Comparison of US GAAP and IFRS - Intangibles
US GAAP IFRS
 Research and development  Development costs permitted to be
expensed as incurred except certain capitalized. Software development
software development costs. costs treated the same for internal
use or for sale software.
 Revaluation not permitted.  Intangibles permitted to use a
revaluation model adjusted through
“revaluation surplus” in equity.
 Costs of other than direct response
 Advertising costs expensed as
advertising expensed or deferred
until when advertising first used. incurred unless prepaid before right
Direct response advertising may be to access the goods or services.
eligible for deferral and
amortization.
November 12, 2012 ICPAS North Shore Industry & Business Forum 19

20. Comparison of US GAAP and IFRS – Impairment
Testing of long-lived assets
US GAAP IFRS
 Two step test and measurement  A one step assessment is used. The
 Carrying amount compared to carrying amount is compared to the
undiscounted cash flows higher of fair value less selling costs
 Adjust to fair value if carrying or value in use calculated as
amount below undiscounted cash discounted cash flows.
flows
 Reversals of impairments are
permitted if certain criteria are met.
 Reversals of impairments are not
 Impairments of revalued assets
permitted.
recorded directly in “revaluation
surplus” to the extent of prior
upward revaluations.
November 12, 2012 ICPAS North Shore Industry & Business Forum 20

21. Comparison of US GAAP and IFRS – Contingency
Provisions
US GAAP IFRS
 Recognition occurs if a  Recognition of a contingent
contingent liability arising loss from a past event
from a past event is probable, required if a loss is probable,
usually considered 75% likely usually considered 50%, and
to require settlement. capable of being estimated.
 Measurement guidance not  Measurement is best estimate
provided, but if a range of or the midpoint of a range or
outcomes exists, the low end outcomes.
is used.
November 12, 2012 ICPAS North Shore Industry & Business Forum 21

22. Comparison of US GAAP and IFRS – Debt
Classification
US GAAP IFRS
 Compound securities generally not addressed  Bifurcation required of compound securities
in US GAAP. 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
 Most equity type securities with contingent
redemption provisions are recognized as provision [changes in control, e.g.] are
equity. US GAAP requires debt classification required to be recognized as debt.
for unconditional provisions. Distributions are finance costs, not dividends.
 Warrants settled in net shares are derivative
 Warrants settled in net shares are recognized
as equity. instruments recognized at fair value through
profit and loss.
 Debt can be classified as non-current if
 Amounts classifiable as current are not
agreements completed subsequent to the
balance sheet date to refinance or waive affected by post balance sheet date agreements
covenant violations are completed. to refinance or waive breaches of loan
Disclosure required. covenants. Disclosure required.
November 12, 2012 ICPAS North Shore Industry & Business Forum 22

23. Comparison of US GAAP and IFRS – Deferred
Income Taxes
US GAAP IFRS
 Classification follows the related  The net liability for a taxing
non-tax asset or liability for jurisdiction is reflected as non-
financial reporting purposes. current.
 FIN 48 prescribes detailed rules  No detailed requirements for
for recognition and disclosures, uncertain tax positions exist,
including a roll-forward in the although the concept is
footnotes. acknowledged.
 Accounting policy choice,  Interest and penalties classified
required to be disclosed, to as either interest expenses or
classify as income tax expense or other operating expenses, with
in pre-tax expenses. disclosure of choice.
November 12, 2012 ICPAS North Shore Industry & Business Forum 23

24. Comparison of US GAAP and IFRS – Revenue
Recognition
US GAAP IFRS
 SEC regulations prescribe general  Revenue standards of four transaction
requirements with significant detail for categories:
agreements with multiple deliverables  Sale of goods
and for specific industries.  Rendering of services
 Others’ use of an asset [lessor, lender]
 Recognition criteria include requirement  Construction contracts
that persuasive evidence of the existence  Recognition criteria include a less strict
of an arrangement. requirement than in US, including
“probable” flow of economic benefits .
Other requirements are similar
 Multiple deliverable rules permit a cost
 Multiple deliverable rules prohibit
estimated cost plus margin, and reverse plus reasonable margin approach, and
residual method. reverse residual method permitted in
some circumstances.
 Discounting of revenues required only in
 Discounting revenue required when
limited circumstances and industries.
revenue deferred.
November 12, 2012 ICPAS North Shore Industry & Business Forum 24

25. Comparison of US GAAP and IFRS – Revenue
Recognition; Continued
US GAAP IFRS
 Customer loyalty programs have  Specific guidance for customer loyalty
divergent criteria by industry, and often programs generally reflecting multiple
reflect the incremental method. deliverable practices [IFRIC 13].
 Sales of services prohibit percentage  Sales of services requires percentage of
complete method. Generally completion. Revenue may be deferred in
proportional performance or deferral certain cases.
until complete.
 Construction contract revenue prohibits
 Construction contract revenue completed contract. Percentage
measurement can use percent completion and zero profit are
completion, zero profit, or completed permitted. Combining and segmenting
contract methods. Combining and contracts required in some cases.
segmenting contracts is permitted, but
not required.
 Contingent consideration recognized if
 Contingent consideration not recognized
benefit to selling entity probable.
until contingency resolved [SAB topic 13]
November 12, 2012 ICPAS North Shore Industry & Business Forum 25

26. Comparison of US GAAP and IFRS – Accounting
for Employee Benefits
US GAAP IFRS
 Defined benefit multi-employer plan  Defined benefit multi-employer plan
accounted for as a defined contribution plan. accounted for as a defined benefit plan if
required information available; defined
 Group administration [multiple employer contribution plan otherwise.
plans] accounted for as a defined benefit plan.  Group administration plans accounted for as
either a defined benefit or a defined
contribution plan.
 “Funded status” is net of obligation and fair
 “Funded status” is net of obligation and fair
value of assets. Actuarial gains and losses and
past service costs recognized in profit and loss value of assets reduced or increased by net
or included in equity[AOCI]. unrecognized actuarial gain and losses and
past service cost [US funded status plus or
minus US AOCI].
 All actuarial gains and losses eventually  Actuarial gain and losses under IAS 19
reflected in profit and loss, usually by amended in 2011, must be reflected in OCI
amortization after initial recording in AOCI in [not “profit and loss”] in the year they occur,
equity which is not “recycled to “profit and loss” as it
is under GAAP.
November 12, 2012 ICPAS North Shore Industry & Business Forum 26

27. Comparison of US GAAP and IFRS – Accounting
for Employee Benefits, Continued
US GAAP IFRS
 Actuarial gains and losses can be amortized  Actuarial gains and losses can be amortized to
using a “corridor” approach over remaining profit and loss using a “corridor” approach
service life or life expectancy. similar to US. Amounts differ by year for any
of a wide array of amortization choices.
 Past service costs amortized over remaining  Past service cost recognized immediately if
service life or life expectancy. vested, or recognized over the vesting period.
 No limit on funded status asset size.  Funded status net asset limited in size.
 Measurement frequency required annually on  No specified measurement frequency.
balance sheet date.
 Return component calculated on “market-  Return component required to be based on
related” average value of a period up to five fair value of assets [more volatile than US].
years, a “smoothing” device.
November 12, 2012 ICPAS North Shore Industry & Business Forum 27

28. Comparison of US GAAP and IFRS – Consolidated
Entities
US GAAP IFRS
 Consolidation of certain entities  Consolidation based on control
based on a two step evaluation based, in turn, on ability to
of variable interests then voting determine operations, not just
control. FAS 166 and 167 [ASC voting rights.
810 - Consolidations] moved US
closer to IFRS with power to
control emphasis.
 Proportional consolidation used
 Proportional consolidation
only for unincorporated entities
in specific industries. Rare in permitted for certain jointly
the US. controlled entities.
November 12, 2012 ICPAS North Shore Industry & Business Forum 28

29. Comparison of US GAAP and IFRS – Income
Statement Presentation
US GAAP IFRS
 Generally follows SEC requirement  Entities can present expense either
that expenses be presented by by function or by nature.
function [e.g. cost of goods sold], Additional disclosure by nature
with depreciation [nature] being required if function chosen. The
permitted as a separate line item. two methods should not be mixed.
 Permitted to use a single-step  Required disclosure of specific items
method or a multiple-step method including revenue, finance expense,
separating operating and non- tax expense, and share of post tax
operating before pre-tax income. results applicable to affiliates
accounted for by the equity method.
 Extraordinary items defined as  Exceptional items not defined.
infrequent and unusual. Rare in  Extraordinary items prohibited.
practice.
November 12, 2012 ICPAS North Shore Industry & Business Forum 29

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.
November 12, 2012 ICPAS North Shore Industry & Business Forum 30

31. IFRS for SMEs – Omitted Topics
 Earnings per share
 Interim financial reporting
 Segment reporting
 Special accounting for assets held for sale
November 12, 2012 ICPAS North Shore Industry & Business Forum 31

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.
November 12, 2012 ICPAS North Shore Industry & Business Forum 32

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.
November 12, 2012 ICPAS North Shore Industry & Business Forum 33

34. IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs Full IFRS
Preface 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 IAS 1
Income Statement
6. Statement of Changes in Equity and Statement IAS 1
of Comprehensive Income and Retained
Earnings
7. Statement of Cash Flows IAS 7, Statement of Cash Flows
8. Notes to the Financial Statements IAS 1
9. Consolidated and Separate Financial IAS 27, Consolidated and Separate Financial
Statements Statements
10. Accounting Policies, Estimates and Errors IAS 8, Accounting Polices, Changes in Accounting
Estimates and Errors
November 12, 2012 ICPAS North Shore Industry & Business Forum 34

35. IFRS for SMEs Compared to Full IFRS
Section in the IFRS for SMEs Full IFRS
11& Basic Financial Instruments and Other IAS 32, Financial Instruments: Presentation
12 Financial Instruments Issues 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 Investments in Joint Ventures IAS 31, Investments in Joint Ventures
16 Investment Property IAS 40, Investment Property
17 Property, Plant and Equipment IAS 16, 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 Provisions and Contingencies IAS 37, Provisions, Contingent Liabilities
and Contingent Assets
November 12, 2012 ICPAS North Shore Industry & Business Forum 35

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 36

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 37

38. Comparison of Full and SMEs IFRS - Objectives
Full IFRS IFRS for SMEs
 Purposes  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
November 12, 2012 ICPAS North Shore Industry & Business Forum 38

39. Comparison of Full and SMEs IFRS – Required
Financial Statements
Full IFRS IFRS for SMEs
 Statement of Financial Position  Statement of Financial Position –
[required name] may be called “Balance Sheet”
 Statement of Income or  Statement of Income or
Comprehensive Income Comprehensive Income
 Statement of Changes in Equity.  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
 Statement of Cash Flows
 Notes to Financial Statements
 Notes to Financial Statements
November 12, 2012 ICPAS North Shore Industry & Business Forum 39

40. Comparison of Full and SMEs IFRS – Financial
Instruments
Full IFRS IFRS for SMEs
 Four categories of financial  Two topics in IFRS for SMEs
instruments  Basic financial instruments,
 Financial assets or liabilities at generally reflected at amortized
fair value through profit and loss cost.
 Held-to-maturity investments  Complex financial instruments
 Loans and receivables generally reflected at fair value
through profit and loss.
 Available-for-sale assets
November 12, 2012 ICPAS North Shore Industry & Business Forum 40

41. Comparison of FULL and SMEs IFRS – Property,
Plant, and Equipment
Full IFRS IFRS for SMEs
 Accounting policy choice  Historical cost model only.
between historical cost and Revaluation model not
revaluation models. permitted.
 Component depreciation  Component depreciation
required. required only if major parts of a
PP&E item have “significantly
different patterns of
consumption of economic
benefits”.
 Annual review of useful life,
 Review of useful life, residual
residual value, and depreciation value, and depreciation rate only
rate required. if there is a significant change in
the asset or its use.
November 12, 2012 ICPAS North Shore Industry & Business Forum 41

42. Comparison of Full and SMEs IFRS – Investments
in Associates and Joint Ventures
Full IFRS IFRS for SMEs
 Investments in associates  Investments in associates or
 Accounted for by equity method jointly controlled entity may be
 Cost and fair value models not accounted for by:
permitted except in separate  The cost model [less any
company statements impairments]
 Investments in joint ventures  The equity method
 Proportionate consolidation or  The fair value model through
 Equity method profit and loss
 Cost and fair value models not
permitted
November 12, 2012 ICPAS North Shore Industry & Business Forum 42

43. Comparison of Full and SMEs IFRS - Intangibles
Full IFRS IFRS for SMEs
 Provides an accounting policy  The cost model is required and
choice between the cost model the revaluation model is
and the revaluation model prohibited.
 Useful life either finite or  All intangible assets are
indefinite. Indefinite life amortized over their useful life
intangibles, including goodwill, or ten years.
are not amortized, but an annual
impairment test is required.
 Some development costs are
 All research and development
capitalized. costs expensed as incurred.
 Some borrowing costs are
 All borrowing costs expensed as
capitalized. incurred.
November 12, 2012 ICPAS North Shore Industry & Business Forum 43

44. Comparison of FULL and SMEs IFRS – Defined
Benefit Pension Plans
Full IFRS IFRS for SMEs
 Actuarial gains and losses  Actuarial gains and losses
 Choice to recognize immediately in  Choice to recognize immediately in
profit and loss, or profit and loss, or
 Recognize immediately in  Recognize immediately in other
comprehensive income without ever comprehensive income, but not
going through profit and loss, or “recycled
 Deferred and amortized through  Deferral and amortization [corridor
profit and loss over estimated service approach] not permitted.
life [corridor approach].  Calculation of liability
 Calculation of liability  Use unit credit method, or simplify
 Unit credit method required. calculation by ignoring:
 Recognition of past service cost  Future salary increases
 Future service of current employees
 Immediately if vested
 Possible in-service mortality
 Over remaining vesting period for
unvested amounts  Recognize past service cost
immediately in profit and loss.
November 12, 2012 ICPAS North Shore Industry & Business Forum 44

45. Comparison of Full and SMEs IFRS – Income Taxes
Full IFRS IFRS for SMEs
 A deferred tax asset is  Recognize a valuation allowance
recognized only if it is probable to reduce the net asset to an
there will sufficient future profit amount more likely than not to
to realize the tax asset. be realized.
 No specific guidance on  Recognize the effect of the
uncertain tax positions. In possible outcomes of a review by
practice a liability established at tax authorities using the
either the single best estimate or probability weighted average of
a probability weighted average all possible outcomes.
amount of all possible outcomes.
November 12, 2012 ICPAS North Shore Industry & Business Forum 45

46. Comparison of Full and SMEs for IFRS – Business
Combinations
Full IFRS IFRS for SMEs
 Transaction costs are excluded  Transaction costs are included in
from acquisition costs. acquisition costs.
 Contingent consideration is  Contingent consideration is
recognized in acquisition costs included as part of the
regardless of the probability of acquisition costs if it is probable
payment. the amount will be paid and the
amount can be measured
reliably.
November 12, 2012 ICPAS North Shore Industry & Business Forum 46

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
November 12, 2012 ICPAS North Shore Industry & Business Forum 47

48. Will the U.S. Adopt IFRS?
 Not like to replace GAAP with IFRS.
 Likely to eventually [10 or more years] consider some
form of the SEC’s “Condorsement” idea if IFRS
substantially reduces its diversity of application in
practice and becomes more globally uniform. Likely
also tied to more global uniformity in audit standards
and practice.
 Should receive attention as “convergence” will
continue and ideas “cross-pollinate”. These become US
GAAP upon adoptions by the FASB.
November 12, 2012 ICPAS North Shore Industry & Business Forum BP

49. Principal Convergence Items Currently Underway
 Leases
 Revenue Recognition
 Financial Instruments
 Consolidations
 Insurance Contracts
 Delayed –
 Financial Statement Presentation
 Intangible Assets
 Financial Instruments With Characteristics of Equity
November 12, 2012 ICPAS North Shore Industry & Business Forum BP

50. 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
 Deloitte 2012 Model IFRS financial statements [140 pages]
 SEC Staff Comparison of GAAP and IFRS [52 pages]
November 12, 2012 ICPAS North Shore Industry & Business Forum 48