HOMEWORK ASSIGNMENTS week 2Questions PLEASE ANSWER THESE QUESTI

HOMEWORK ASSIGNMENTS: week 2
Questions PLEASE ANSWER THESE QUESTION TO HELP
WITH THE PROJECT
· How does harmonization differ from convergence?
· Are you for or against convergence and why? Write a short,
one-paragraph statement supporting your position.
I will provide a summary of your positions at the end of the
week.
· MNC Assignment
· On what exchange(s) is(are) your MNC listed? What are its
call letters?
· Look at your MNC’s most recent published annual report. Are
the consolidate financial statements in conformity with U.S.
GAAP? IFRS?
HOMEWORK: week3
There are two assignments this week…
Question
Select any two of the IAS or IFRS standards presented this
week, identify which two you have selected and then discuss
how your MNC handles the standards. Post your response in
this week’s forum so that everyone can benefit from your
posting and also provide their comments
ANSWER:
Discussion on IAS 1

IAS 1 describes the presentation of financial statements, which
is usually closely accompanied by IAS 34, which is interim
financial reporting, and IAS 7 that guides the Statement of cash
flows. Financial statements comprise assets, liabilities, equity,
income and expenses, cash flows, and notes to the financial
statements. IAS 1 outlines what a financial statement should
look like in terms of structure and utilization of concepts such
as going concerned of an institution and differentiating short-
and long-term assets or liabilities. IAS 1 ensures that financial
statements are prepared and presented concerning International
Financial Reporting Standards (IFRSs), which is essential for
the users of financial information such as investors in making
decisions about their investment.
How Costco handles IAS 1
Multinational corporations which include Costo utilize this
standard because it is vital most in the preparation of their
financial statements. Costco must obey the double entry concept
in preparing the financial statements (Hoyle, J. B 2018).
Discussion on IAS 24.
1. IAS 24 Related Party Disclosures tries to outline
when a person or entity is related to an entity preparing its
financial statements. Disclosures are done concerning related
party relationships and transactions, commitments done between
entities and related parties, identifying circumstances when
disclosure of related party is required, and determining related
party transactions. Additionally, IAS 24 is attached to IAS 8 is
an essential part of disclosures. It provides transparency on
financial statement issues whereby it guides on selecting
accounting policies, accounting for changes, dealing with
changes in accounting estimates, and correcting errors. IAS 24
is also attached to IAS 10, which outlines when an entity should
conduct changes to the financial statement after the balance
sheet date with the necessary disclosures that are required to be
made.
1. How Costco handles IAS 24
1. A multinational corporation like Costco needs to make all

the reacted party transactions according to IAS 24 to ensure
transparency to the various stakeholders this is done by
disclosing the facts of the value of assets in a company. (Ignat,
I 2019).
1. Accounting diversity refers to the differences in bookkeeping
and financial statements whereby different countries hold
different principles; hence it varies from one country to another.
Due to accounting diversity, it isn't easy to interpret different
financial statements due to the different legislation by
parliaments of those countries. Legal systems are one of the
factors that result in accounting diversity due to complicated
legal systems encountered.
1. Part two of Homework week 3
1. Answer this questions pick two.
1. There are six major reasons for accounting diversity
throughout the world:
1. Legal systems
1. Taxation
1. Sources of financing
1. Inflation
1. Political and economic ties
1. Culture
Two additional factors to consider
1. Level of economic development
1. Education
Select which one factor has exerted the greatest influence on the
development of accounting (in general you are not focusing on a
specific country) in your opinion and why. Again, post your
homework in this week’s forum. Once everyone has submitted
their response, I will post a summary of your opinions and also
include my own along with previous author’s opinions.
Homework Assignment week 4 part 1
Question

Research your MNC and report on any accounting issues
covered in this chapter related to foreign currency transactions
and hedging activities. Post your report in this week’s
discussion area by nlt Saturday evening. By the end of Week 4,
you are required to also respond to at least one other post. If
someone asks a question of you, please take the time to also
respond to those questions
Answer
.Costco wholesale is an international business enterprise that
operates internationally. Being a global organization, the
organization has issues when it comes to financial statement
disclosures. It is brought about by different use of currencies in
other continents. Presentation of financial statements becomes
an issue since all financial statements must be computed in one
economic value. In this case, if the organization is to use the
dollar as the means of disclosing financial statements, all other
branches have to publish their financial comments in dollar
form. It means that they have to exchange their values for the
dollar to ensure the financial statements' consistency. The result
is that currency value keeps changing with time and is not
essential for organizations operating in different economic
zones. An increase in the value of a foreign currency will result
in a foreign exchange gain on a foreign currency receivable and
a loss on a payable. The vice versa is also true (Kim 2017).
Homework Assignment week 4 part two
question
Read up and research this new standard and write a paragraph or
two (in your words) on any issue that you find interesting or
intriguing. Please cite your source(s). You should also include
reflection on your MNC and the impact, if any, it will have.
Post your report in this week’s discussion area by nlt Saturday
evening under the Foreign Currency Exposure & Revenue

Recognition topic.
The new rule will provide direction applicable to accounting for
revenue for an entity that arises from an agreement with a client
to transference goods and agreements to handover non-financial
assets, except those contracts are within the scope of other
guidance. In the case study, this will help acknowledge the
transfer of goods from the organization to the customer. It is
based on the principle that a reporting entity should distinguish
revenue to portray the handover of goods promised to customers
in an amount that replicates the deliberation to which the
wholesale expects to be entitled in exchange for goods. For this
new rule, it is essential to note that all organizations that
contract with clients to allocate goods will be impacted in some
way by the new administration, except the agreement is
expected explicitly from application to the revenue standard. It
means that Costco Wholesale will be affected in a way, and they
should look at ways to advance on their reporting issues (Dixon,
Odoner & Alterbaum 2017).
Translation of Foreign Currency in Financial Statements
And
Preparation of Journal Entries
This week’s focus is on the translation of foreign currency
financial statements for the purpose of preparing consolidated
financials and posting journal entries.
IAS 21 The Effects of Changes in Foreign Exchange Rates is
the standard that explains
· what exchange rate is applied,
· in what circumstances recorded amounts are translated again

at current exchange rates, and
· how to account for any exchange differences that arise.
IAS 21 provides guidance on what exchange rates should be
used to translate the financial statements and explains how to
account for exchange differences.
Please note that IAS 21 does do apply to
· foreign currency derivatives.
· hedge accounting. or
· cash flows arising from transactions in a foreign currency.*
* Reference IFRS 9 Financial Instruments for the first two and
IAS 7 Statement of Cash Flows for the last one for guidance.
When preparing consolidated financial statements on a
worldwide basis, the foreign currency financial statements
prepared by foreign operations must be translated into the
parent company’s reporting currency.
Issues related to this translation:
1. Which method should be used, and
2. Where should the resulting translation adjustment be reported
in the consolidated financial statements.
Translation methods differ based on which accounts are
translated at the current exchange rate and which are translated
at historical rates. Accounts translated at the current exchange
rate are exposed to translation adjustment (balance sheet
exposure).
Different translation methods give rise to different concepts of
balance sheet exposure and translation adjustments of differing
sign and magnitude.
There are four major methods of translating foreign currency

financial statements:
1.current/noncurrent method
2.monetary/non-monetary method
3.temporal method
4.current rate
We will be focusing on the temporal and current rate methods.
CURRENT RATE METHOD
All assets and liabilities are translated at the current exchange
rate giving rise to a balance sheet exposure equal to the foreign
subsidiary’s net assets. Stockholders’ equity accounts are
translated at historical exchange rates. Income statement items
are translated at the average exchange rate for the current
period.
· Appreciation of the foreign currency results in a positive
translation adjustment
· Depreciation of the foreign currency results in a negative
translation adjustment
Translating all assets and liabilities at the current exchange rate
maintains the relationships that exist in the foreign currency
financial statements.
Translating assets carried at historical cost at the current
exchange rate results in amounts being reported on the parent’s
consolidated balance sheet that have no economic meaning.
TEMPORAL METHOD
A method of foreign currency translation that uses exchange
rates based on the time assets and liabilities are acquired or
incurred. The exchange rate used also depends on the method of
valuation that is used. Assets and liabilities valued at current

costs use the current exchange rate and those that use historical
exchange rates are valued at historical costs. Source:
INVESTOPEDIA
With the temporal method assets are carried at current or future
value (cash, marketable securities, receivables) and liabilities
are re-measured at the current exchange rate.
· Assets carried at historical cost and stockholders’ equity
accounts are re-measured at historical exchange rates.
· Expenses related to assets re-measured at historical exchange
rates are re-measured using the same rates.
· Other income statements items are re-measured using the
average exchange rate for the period.
· When liabilities are greater than the sum of cash, marketable
securities, and receivables, a net liability balance sheet
exposure exists.
· Appreciation of the foreign currency results in a re-
measurement loss.
· Depreciation of the foreign currency results in a re-
measurement gain.
Re-measuring assets carried at historical cost at historical
exchange rates maintains the underlying valuation method used
by the foreign operation in preparing its financial statements.
Re-measuring some assets at historical exchange rates and other
assets at the current exchange rate distorts the relationships that
exist among account balances in the foreign currency financial
statements.
All of the above is determined by identifying the functional
currency of a foreign operation.
· The financial statements of a foreign operation whose

functional currency is different from the parent’s reporting
currency are translated using the current rate method, with the
resulting translation adjustment deferred in stockholders’ equity
until the foreign entity is disposed of. Upon disposal of the
foreign operation, the accumulated translation adjustment is
recognized as a gain or loss in net income.
· The financial statements of foreign operations whose
functional currency is the same as the parent’s reporting
currency are re-measured using the temporal method with the
resulting re-measurement gain or loss reported immediately in
net income.
FASB RULES
Statement #52 Summary
Foreign Currency Translation (Issued 12/81)
Summary
Application of this Statement will affect financial reporting of
most companies operating in foreign countries. The differing
operating and economic characteristics of varied types of
foreign operations will be distinguished in accounting for them.
Adjustments for currency exchange rate changes are excluded
from net income for those fluctuations that do not impact cash
flows and are included for those that do. The requirements
reflect these general conclusions:
The economic effects of an exchange rate change on an
operation that is relatively self-contained and integrated within
a foreign country relate to the net investment in that operation.
Translation adjustments that arise from consolidating that
foreign operation do not impact cash flows and are not included
in net income.
The economic effects of an exchange rate change on a foreign
operation that is an extension of the parent's domestic
operations relate to individual assets and liabilities and impact
the parent's cash flows directly. Accordingly, the exchange

gains and losses in such an operation are included in net
income.
Contracts, transactions, or balances that are, in fact, effective
hedges of foreign exchange risk will be accounted for as hedges
without regard to their form.
More specifically, this Statement replaces FASB Statement No.
8, Accounting for the Translation of Foreign Currency
Transactions and Foreign Currency Financial Statements and
revises the existing accounting and reporting requirements for
translation of foreign currency transactions and foreign
currency financial statements. It presents standards for foreign
currency translation that are designed to (1) provide information
that is generally compatible with the expected economic effects
of a rate change on an enterprise's cash flows and equity and (2)
reflect in consolidated statements the financial results and
relationships as measured in the primary currency in which each
entity conducts its business (referred to as its "functional
currency").
An entity's functional currency is the currency of the primary
economic environment in which that entity operates. The
functional currency can be the dollar or a foreign currency
depending on the facts. Normally, it will be the currency of the
economic environment in which cash is generated and expended
by the entity. An entity can be any form of operation, including
a subsidiary, division, branch, or joint venture. The Statement
provides guidance for this key determination in which
management's judgment is essential in assessing the facts.
A currency in a highly inflationary environment (3-year
inflation rate of approximately 100 percent or more) is not
considered stable enough to serve as a functional currency and
the more stable currency of the reporting parent is to be used
instead.
The functional currency translation approach adopted in this
Statement encompasses:
a. Identifying the functional currency of the entity's economic
environment

b. Measuring all elements of the financial statements in the
functional currency
c. Using the current exchange rate for translation from the
functional currency to the reporting currency, if they are
different
d. Distinguishing the economic impact of changes in exchange
rates on a net investment from the impact of such changes on
individual assets and liabilities that are receivable or payable in
currencies other than the functional currency
Translation adjustments are an inherent result of the process of
translating a foreign entity's financial statements from the
functional currency to U.S. dollars. Translation adjustments are
not included in determining net income for the period but are
disclosed and accumulated in a separate component of
consolidated equity until sale or until complete or substantially
complete liquidation of the net investment in the foreign entity
takes place.
Transaction gains and losses are a result of the effect of
exchange rate changes on transactions denominated in
currencies other than the functional currency (for example, a
U.S. company may borrow Swiss francs or a French subsidiary
may have a receivable denominated in kroner from a Danish
customer). Gains and losses on those foreign currency
transactions are generally included in determining net income
for the period in which exchange rates change unless the
transaction hedges a foreign currency commitment or a net
investment in a foreign entity. Intercompany transactions of a
long-term investment nature are considered part of a parent's
net investment and hence do not give rise to gains or losses.
SOURCE: fasb.org
IFRS RULES
IAS 21
An entity may carry on foreign activities in two ways. It may

have transactions in foreign currencies or it may have foreign
operations. In addition, an entity may present its financial
statements in a foreign currency. The objective of this
Standard is to prescribe how to include foreign currency
transactions and foreign operations in the financial statements
of an entity and how to translate financial statements into a
presentation currency. The principal issues are which exchange
rate(s) to use and how to report the effects of changes in
exchange rates in the financial statements.
This Standard does not apply to hedge accounting for foreign
currency items, including the hedging of a net investment in a
foreign operation. IAS 39 applies to hedge accounting.
This Standard does not apply to the presentation in a statement
of cash flows of the cash flows arising from transactions in a
foreign currency, or to the translation of cash flows of a foreign
operation (see IAS 7 Statement of Cash Flows).
Functional currency
Functional currency is the currency of the primary economic
environment in which the entity operates. The primary
economic environment in which an entity operates is normally
the one in which it primarily generates and expends cash. An
entity considers the following factors in determining its
functional currency:
(a) the currency:
(i) that mainly influences sales prices for goods and services
(this will often be the currency in which sales prices for its
goods and services are denominated and settled); and
(ii) of the country whose competitive forces and regulations
mainly determine the sales prices of its goods and services.
(b) the currency that mainly influences labor, material and other
costs of providing goods or services (this will often be the
currency in which such costs are denominated and settled).

Reporting foreign currency transactions in the functional
currency
Foreign currency is a currency other than the functional
currency of the entity.
Spot exchange rate is the exchange rate for immediate delivery.
Exchange difference is the difference resulting from translating
a given number of units of one currency into another currency at
different exchange rates.
Net investment in a foreign operation is the amount of the
reporting entity’s interest in the net assets of that operation.
A foreign currency transaction shall be recorded, on initial
recognition in the functional currency, by applying to the
foreign currency amount the spot exchange rate between the
functional currency and the foreign currency at the date of the
transaction.
At the end of each reporting period:
(a) foreign currency monetary items shall be translated using
the closing rate;
(b) non-monetary items that are measured in terms of historical
cost in a foreign currency shall be translated using the exchange
rate at the date of the transaction; and
(c) non-monetary items that are measured at fair value in a
foreign currency shall be translated using the exchange rates at
the date when the fair value was measured.
Exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were translated on initial recognition during
the period or in previous financial statements shall be
recognized in profit or loss in the period in which they arise.

However, exchange differences arising on a monetary item that
forms part of a reporting entity’s net investment in a foreign
operation shall be recognized in profit or loss in the separate
financial statements of the reporting entity or the individual
financial statements of the foreign operation, as appropriate. In
the financial statements that include the foreign operation and
the reporting entity (e.g. consolidated financial statements when
the foreign operation is a subsidiary), such exchange differences
shall be recognized initially in other comprehensive income and
reclassified from equity to profit or loss on disposal of the net
investment.
Furthermore, when a gain or loss on a non-monetary item is
recognized in other comprehensive income, any exchange
component of that gain or loss shall be recognized in other
comprehensive income. Conversely, when a gain or loss on a
non-monetary item is recognized in profit or loss, any exchange
component of that gain or loss shall be recognized in profit or
loss
Translation to the presentation currency/Translation of a foreign
operation
The Standard permits an entity to present its financial
statements in any currency (or currencies). For this purpose, an
entity could be a stand-alone entity, a parent preparing
consolidated financial statements or a parent, an investor or a
venturer preparing separate financial statements in accordance
with IAS 27 Consolidated and Separate Financial Statements. If
the presentation currency differs from the entity’s functional
currency, it translates its results and financial position into the
presentation currency.
For example, when a group contains individual entities with
different functional currencies, the results and financial position
of each entity are expressed in a common currency so that
consolidated financial statements may be presented.

An entity is required to translate its results and financial
position from its functional currency into a presentation
currency (or currencies) using the method required for
translating a foreign operation for inclusion in the reporting
entity’s financial statements.
The results and financial position of an entity whose functional
currency is not the currency of a hyperinflationary economy
shall be translated into a different presentation currency using
the following procedures:
(a) assets and liabilities for each statement of financial position
presented (i.e. including comparatives) shall be translated at the
closing rate at the date of that statement of financial position;
(b) income and expenses for each statement of comprehensive
income or separate income statement presented (i.e. including
comparatives) shall be translated at
exchange rates at the dates of the transactions; and
(c) all resulting exchange differences shall be recognized in
other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition of that foreign
operation shall be treated as assets and liabilities of the foreign
operation. Foreign operation is an entity that is a subsidiary,
associate, joint venture or branch of a reporting entity, the
activities of which are based or conducted in a country or
currency other than
those of the reporting entity.
On the disposal of a foreign operation, the cumulative amount
of the exchange differences relating to that foreign operation,
recognized in other comprehensive income and accumulated in
the separate component of equity, shall be reclassified from
equity to profit or loss (as a reclassification adjustment) when

the gain or loss on disposal is recognized (see IAS 1
Presentation of Financial Statements (as revised in 2007)).
On the partial disposal of a subsidiary that includes a foreign
operation, the entity shall re-attribute the proportionate share of
the cumulative amount of the exchange differences recognized
in other comprehensive income to the non-controlling interests
in that foreign operation. In any other partial disposal of a
foreign operation the entity shall reclassify to profit or loss only
the proportionate share of the cumulative amount of the
exchange differences recognized in other comprehensive
income.
SOURCE: ifrs.org
IFRS/GAAP MAJOR DIFFERENCES
FUNCTIONAL CURRENCY DETERMINATION
Primary Indicators
Secondary Indicators
IFRS
1. Currency that mainly influences sales prices
for goods and services; often the price sales
transaction is denominated
2. Currency of the country whose competitive forces and
regulations that determines the sales prices of its goods and
services.
3. Currency that mainly influences the labor, materials, and
other costs of providing goods and services.
1. Currency in which financing activities are generated.
2. Currency in which receipts from operating activities are
usually retained.
3. Extensions of reporting entity or autonomous.

4. Reporting entity transaction are high or low proportion.
5. Affect of cash flows on reporting entity.
6. Can fulfill debt service without funds from reporting entity.
U.S. GAAP
1. Currency in which the entity primarily generates and expends
cash, if direct extension of parent, may not be local currency.
2. Operations are self contained and integrated in that country.
NO similar indicators
SOURCE: www.grantthornton.com April 2012 IFRS vs. US
GAAP Reporting Webinar
PLEASE USE THE LINK BELOW FOR DETAILS
REGARDING POSTING JOURNAL ENTRIES.
· Preparation of Journal Entries
AIS documentation:
http://docs.oracle.com/cd/E16582_01/doc.91/e15123/enterforeig
ncurrencyje.htm
This link will serve as your reference (textbook) for this topic.
There are five sections included in this Chapter 11 Entering and
Processing Foreign Currency Journal Entries.

IAS FUNCTIONAL CURRENCY INDICATORS
Factors Considered in Determining the Functional Currency.
Keep in mind that the functional currency of an entity can be
difficult to determine in some cases.
In accordance with IAS 21, The Effects of Changes in Foreign
Exchange Rates, the following factors should be considered first
in determining an entity’s functional currency:
1. The currency (a) that mainly influences sales prices for goods
and services and (b) of the country whose competitive forces
and regulations mainly determine the sales prices of its goods
and services.
2. The currency that mainly influences labor, material, and
other costs of providing goods and services.
If the primary factors listed above are mixed and the functional
currency is not obviously, the following secondary factors must
be considered:
3. The currency is which funds from financing activities are
generated.
4. The currency in which receipts from operating activities are
usually retained.
5. Whether the activities of the foreign operation are an
extension of the parent’s or are carried out with a significant
amount of autonomy.
6. Whether transaction with the parent are a large or a small
proportion of the foreign entity’s activities.
7. Whether cash flows generated by the foreign operation
directly affect the cash flow of the parent and are available to
be remitted to the parent.
8. Whether operating cash flows generated by the foreign
operation are sufficient to service existing and normally
expected debt or whether the foreign entity will need funds
from the parent to service its debt.

*International Accounting, Doupnik and Perera, 3rd edition,
page 419 Exhibit 8.3
Homework Assignment
This week we are discussing functional currency...what is the
definition?
Functional currency is the currency of the subsidiary’s primary
economic environment. It is usually identified as the currency
in which the company generates and expends cash.
Your assignment is to report on the functional currency of your
MNC. When researching your answer keep in mind the
following and include details regarding your MNC:
Both U.S. GAAP and IFRS recommend the following factors:
· the location of primary sales markets,
· sources of materials and labor,
· the source of financing, and
· the amount of intercompany transactions should be evaluated
in identifying an entity’s functional currency.
U.S. GAAP does not provide any guidance as to how these
factors are to be weighted (equally or otherwise) when
identifying an entity’s functional currency. Unlike U.S. GAAP,
IAS 21 provides a hierarchy of factors to consider (reference
the exhibit on the next page for details).
Your initial post reporting on your MNC’s functional currency
must be posted up by nlt Saturday evening in order to give
everyone in the class the opportunity to respond.
ALSO, you are required to read the postings and respond to at

least two of them. If someone asks a question of you, please
take the time to also respond to those questions.
Your homework is to be posted in the chapter conference.
WEEK 5 LECTURE NOTES
Analysis of Financial Statements & Other Reporting Issues
This week we will conclude with the following specific
financial reporting topics:
· Inflation - accounting for changing prices.
· Business combinations and consolidated financials.
· Segment reporting.
Historical cost accounting in a period of inflation understates
asset values (and related expenses) and overstates income. It
ignores the gains and losses in purchasing power caused by
inflation that arise from holding monetary assets and liabilities.
Methods of accounting for inflation are
· general purchasing power (GPP) accounting, and
· current cost (CC) accounting.
General Purchasing Power Accounting
· Nonmonetary assets and stockholders’ equity accounts are
restated for changes in the general price level.
· Cost of goods sold and depreciation/amortization are based on
restated asset values and the net purchasing power gain/loss on
the net monetary liability/asset position is included in income.
· Income is the amount that can be paid as a dividend while
maintaining the purchasing power of capital.

Current Cost Accounting
· Nonmonetary assets are revalued to current cost.
· Cost of goods sold and depreciation/amortization are based on
revalued amounts.
· Income is the amount that can be paid as a dividend while
maintaining physical capital.
IAS 29
IAS 29 Financial Reporting in Hyperinflationary
Economies applies where an entity's functional currency is that
of a hyperinflationary economy. The standard does not prescribe
when hyperinflation arises but requires the financial statements
(and corresponding figures for previous periods) of an entity
with a functional currency that is hyperinflationary to be
restated for the changes in the general pricing power of the
functional currency.
IAS 29 was issued in July 1989 and is operative for periods
beginning on or after 1 January 1990.
https://www.iasplus.com/en/standards/ias/ias29
IAS 21
IAS 21 The Effects of Changes in Foreign Exchange
Rates outlines how to account for foreign currency transactions
and operations in financial statements and how to translate
financial statements into a presentation currency. An entity is
required to determine a functional currency (for each of its
operations if necessary) based on the primary economic
environment in which it operates and generally records foreign
currency transactions using the spot conversion rate to that
functional currency on the date of the transaction.
IAS 21 was reissued in December 2003 and applies to annual
periods beginning on or after 1 January 2005.
IAS 29 requires the use of GPP accounting by firms that report

in the currency of a hyperinflationary economy.
IAS 21 requires the financial statements of a foreign operation
located in a hyperinflationary economy to first be adjusted for
inflation in accordance with IAS 29 before translation into the
parent company’s reporting currency.
IFRS 3
IFRS 3 Business Combinations outlines the accounting when an
acquirer obtains control of a business (e.g. an acquisition or
merger). Such business combinations are accounted for using
the 'acquisition method', which generally requires assets
acquired and liabilities assumed to be measured at their fair
values at the acquisition date.
A revised version of IFRS 3 was issued in January 2008 and
applies to business combinations occurring in an entity's first
annual period beginning on or after 1 July 2009.
https://www.iasplus.com/en/standards/ifrs/ifrs3
The core principle of IFRS 3 is that an acquirer of a business
recognizes the assets acquired and liabilities assumed at their
acquisition-date fair values and discloses information that
enables users to evaluate the nature and financial effects of the
acquisition.
The objective of IFRS 3 is to improve the relevance, reliability,
and comparability of the information that a reporting entity
provides in its financial statements about a business
combination and its effects. To accomplish this, IFRS 3
establishes principles and requirements for how the acquirer:
· recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree;
· recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and

· determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects
of the business combination.
Issues that must be resolved in accounting for a business
combination:
A. Selection of an appropriate method
IFRS 3 and US GAAP both require the purchase method in
accounting for business combinations; the pooling-of-interests
method is not allowed.
B. Recognition and measurement of goodwill
Goodwill is recognized on the consolidated balance sheet as an
asset and tested annually for impairment under both IFRS 3 and
U.S. GAAP.
C. Measurement of minority interest.
When less than 100% of a company is acquired, IFRS 3 requires
the acquired assets and liabilities to be recorded at full fair
value and minority interest is initially measured at the minority
shareholders’ percentage ownership in the fair value of the
acquired company’s net assets. This is known as the economic
unit or entity concept.
Note:
In addition to the economic unit or entity concept, U.S. GAAP
also allows use of the parent company concept in which the
acquired assets and liabilities are initially measured at book
value plus the parent’s ownership percentage in the difference
between fair value and book value. Under this approach,
minority interest is initially measured at the minority
shareholders’ percentage ownership in the book value of the
subsidiary’s net assets.

IAS 28
IAS 28 Investments in Associates and Joint Ventures (as
amended in 2011) outlines the accounting for investments in
associates. An associate is an entity over which an investor has
significant influence, being the power to participate in the
financial and operating policy decisions of the investee (but not
control or joint control), and investments in associates are, with
limited exceptions, required to be accounted for using the
equity method.
IAS 28 was reissued in December 2003, applies to annual
periods beginning on or after 1 January 2005, and is superseded
by IAS 28Investments in Associates and Joint
Ventures and IFRS 12Disclosure of Interests in Other
Entities with effect from annual periods beginning on or after 1
January 2013.
Also reference Week 3 lecture notes for details and a chart that
should help you to visualize how IAS28 and
IFRS 11 relate.
IAS 28 and US. GAAP require use of the equity method when
an investor has the ability to exert significant influence over an
investee; significant influence is presumed when the investor
owns 20% or more of the investee’s voting shares. It is also
defined as the power to participate in the financial and
operating policy decisions of the investee, but is not control or
joint control over those policies
IAS 31
IAS 31 Interests in Joint Ventures sets out the accounting for an
entity's interests in various forms of joint ventures: jointly
controlled operations, jointly controlled assets, and jointly
controlled entities. The standard permits jointly controlled
entities to be accounted for using either the equity method or by
proportionate consolidation.
IAS 31 was reissued in December 2003, applies to annual

periods beginning on or after 1 January 2005, and is superseded
by IFRS 11Joint Arrangements and IFRS 12Disclosure of
Interests in Other Entities with effect from annual periods
IAS 27
IAS 27 Consolidated and Separate Financial Statements outlines
when an entity must consolidate another entity, how to
account for a change in ownership interest, how to prepare
separate financial statements, and related disclosures.
Consolidation is based on the concept of 'control' and changes
in ownership interests while control is maintained are
accounted for as transactions between owners as owners in
equity.
IAS 27 was reissued in January 2008 and applies to annual
periods beginning on or after 1 July 2009, and is superseded by
IAS 27Separate Financial Statements and IFRS 10Consolidated
Financial Statements with effect from annual periods
IAS 27 defines a subsidiary as an enterprise controlled by
another enterprise known as the parent.
Control is defined as the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. Control can exist without owning a majority of
shares of stock, for example, when one company has power over
more than half of the voting rights through agreements with
other shareholders.
Historically, U.S. companies have relied on majority stock
ownership as evidence of control.
IAS 27 requires a parent to consolidate all subsidiaries unless
(a) the subsidiary was acquired with the intent to dispose of it

within 12 months, and
(b) management is actively seeking a buyer.
U.S. GAAP requires all subsidiaries to be consolidated unless
the parent has lost control due to bankruptcy or severe
restrictions imposed by a foreign government.
The aggregation of all a company’s activities into consolidated
totals masks the differences in risk and potential existing across
different lines of business and in different parts of the world.
To provide information that can be used to evaluate these risks
and potentials, companies disaggregate consolidated totals and
provide disclosures on a segment basis.
IFRS 8
IFRS 8 Operating Segments requires particular classes of
entities (essentially those with publicly traded securities) to
disclose information about their operating segments, products
and services, the geographical areas in which they operate, and
their major customers. Information is based on internal
management reports, both in the identification of operating
segments and measurement of disclosed segment information.
IFRS 8 was issued in November 2006 and applies to annual
IFRS 8 was issued in 2006 to converge with U.S. GAAP. Both
IFRS and U.S. GAAP follow the so-called management
approach in determining operating segments, which are
components of a business that:
· Engage in activities from which they earn revenues and incurs
expenses.
· Are regularly reviewed by the chief operating decision maker
to assess performance and make resource allocation decisions.

· Have discrete financial information available.
IFRS and U.S. GAAP also require enterprise-wide disclosures
related to:
I.
Major customers – any customer from which the enterprise
generates 10% or more of revenues.
The existence of major customers must be disclosed along with
the operating segment generating the revenues, but the identity
of the customer need not be revealed.
II.
Products and services – if operating segments are not organized
along these lines.
External revenues derived from each major product or service
line must be disclosed when the company has only one
operating segment or operating segments are based on
something other than products/services.
III.
Geographic areas – if operating segments are not organized
geographically.
If operating segments are not based on geography, revenues and
long-lived assets must be disclosed for (a) the domestic country,
(b) all foreign countries in total, and (c) for each foreign
country in which a material amount of revenues or long-lived
assets are located. A quantitative threshold for determining
materiality is not specified.
Analysis of Foreign Financial Statements

Reasons to analyze financials whether the company is US based
or foreign are for the most part the same:
· Portfolio investment decisions
· Merger and acquisition decisions
· Credit decisions about foreign customers
· Evaluation of suppliers
· Benchmarking against competitors
Potential problems or differences when analyzing US-based vs
foreign companies’ financials:
· finding and obtaining financial information about a foreign
company (data accessibility),
· understanding the language in which the financial statements
are presented,
· the currency used in presenting monetary amounts,
· terminology differences that result in uncertainty as to the
information provided,
· differences in format that lead to confusion and missing
information,
· lack of adequate disclosures,
· financial statements are not made available on a timely basis
(timeliness),
· accounting differences that hinder cross-country comparisons,
and

· differences in business environments that might make ratio
comparisons or analysis meaningless even if accounting
differences are eliminated.
Solution
s:
· Some of the potential problems can be removed by companies
through their preparation of convenience translations in which
language, currency, and perhaps even accounting principles
have been restated for the convenience of foreign readers
OR
· The analyst can restate foreign financials in terms of a
preferred GAAP through the use of a reconciliation worksheet
in which debit/credit entries summarizing the differences in
GAAP are used to adjust the original reported amounts.
· All income differences also affect stockholders’ equity
through retained earnings.
· In addition to adjustments resulting from differences in
GAAP, an adjustment also will be needed for the deferred tax
effect of the aggregate difference in pre-tax income.
Another Perspective on the Challenges and Opportunities in
Cross-Border Analysis

Cross border analysis involves multiple jurisdictions.
Challenges
Nations vary dramatically in ….
· Accounting practices
· Disclosure quality
· Legal and regulatory systems
· Nature and extent of business risk
· Modes of conducting business
· Providing credible information
· Vast differences in financial reporting
· Government continuing to publish highly suspect information
Positives
· Accounting harmonization of standards allows for
comparability

· Companies worldwide are disclosing more information
· Improving availability and quality of that information
· Impact of the worldwide web and accessibility to information
· Globalization of capital markets
· Increased competition
· Inter-dependencies are growing
Business Analysis Framework
Four stages of analysis….
1. business strategy analysis
2. accounting analysis
3. financial analysis (ratio and cash flow)
4. prospective analysis
1.

Business Strategy Analysis
Provides a qualitative understanding of a company and its
competitors
in relation to its economic environment.
Ensures analysis is performed using a holistic perspective.
By identifying key profit drivers and business risks, forecasts
are realistic.
2.
Accounting Analysis
The purpose is to assess the extent to which a firm’s report
results reflect economic reality.
Need: evaluate the firm’s accounting policies and estimates, and

Assess the nature and extent of a firm’s accounting flexibility
Six Steps in Accounting Analysis
>
Identify key accounting policies
>
Assess accounting flexibility
>
Evaluate accounting strategy
>
Evaluate the quality of disclosure
>

Identify potential red flags
>
Adjust for accounting distortions
3.
International Financial Analysis
Goal:
evaluate a firm’s current and past performance, and
to judge whether its performance can be sustained.
Ratio and cash flow analysis are important tools.
Ratio analysis
1st – do cross-country differences in accounting principles

cause significant variation in financial statement amounts of
companies from different countries?
2nd – how do differences in local culture and economic and
competitive conditions affect the interpretation of accounting
measures in financial ratios, even if account measurements from
different countries are restated to achieve “accounting
comparability”?
Cash flow analysis
Cash-flow related measures are especially useful in
international analysis because they are less affected by
accounting principle differences than are earnings-based
measures.
4.
International Prospective Analysis

Two steps:
1. Forecasting – analysts make explicit forecasts of a firm’s
prospects based on its business strategy.
2. Valuation – analysts convert quantitative forecasts into an
estimate of a firm’s value.
All four stages of business analysis (business strategy,
accounting, financial and prospective analysis may be affected
by the following:
· Information access
· More widely available due to the world wide web
· Timeliness of information
· Varies dramatically by country
· In the U.S. quarterly financial reporting is generally accepted;
this is seldom the case elsewhere.
· Financial reporting lags can also be estimated by comparing a
company’s fiscal year end with its audit report date, an

indication of when financial information becomes public.
· Language and terminology barriers
· Language and accounti ng terminology differences can cause
difficulty.
· Foreign currency issues
· Reader convenience: i.e., financials presented in dollars vs
foreign currency
· Information content
· Differences in types and formats of financial statements
· Balance sheet and income statement format varies from
country to country
· Classification differences abound internationally.
Homework Assignment:
The week’s discussion covered the following International
Accounting Standards (IAS):

#21
The Effects of Changes in Foreign Exchange Rates
#27
Separate Financial Statements
#28
Investments in Associates and Joint Ventures
#29
Financial Reporting in Hyperinflationary Economies
#31
Interests in Joint Ventures (superseded by IFRS 11 Joint
Arrangements and IFRS 12
Disclosures of Interests in Other Entities)
and
IFRS 3 Business Combinations
IFRS 8 Operating Segments
This part of the homework is twofold. First research your MNC
and report which, if any, of these standards are applicable for
your MNC. Second, select one of those standards and explain
how your MNC handles it.
Part III of the homework….

Question: What companies might your MNC include in a
benchmarking study and in which countries are those companies
located. Your answer should include, at least, four other
companies for the comparison. As an example of the response
for this assignment, consider Ford Motor Company.
Ford might want to include the following companies in a
benchmarking study:
U.S. – General Motors, Chrysler
Japan – Honda, Toyota, Subaru
Germany – BMW, Volkswagen, Audi
Korea – Hyundai, Kia
France – Renault, Peugeot

Your homework for Parts I and III must be posted by nlt
Saturday evening. It will give everyone time to read and
respond to the various posts.
I would also suggest, when reading and responding to the
benchmarking studies component, if you have any other
companies you would include, please mention them in your
response….especially those of you who are located outside of
the U.S.
Homework is to be posted in this week’s discussion.
WEEK 4 LECTURE NOTES PART II
REVENUE RECOGNITION
REVENUE RECOGNITION
In May 2014, the IASB and FASB converged the Revenue
Recognition Standard. Since I’ve received a dozen or more
notices on this, I thought it would be relevant to discuss this
topic at length so our Week 4 will include not only foreign
currency exposure but all revenue recognition.
As reported by the IFRS,

“The convergence of the standard on the recognition of revenue
from contracts with customers will improve financial reporting
of revenue and improve comparability of the top line in
financials globally.”
The comparability of financials is the key to the convergence of
reporting worldwide.
It is important to understand that with the new standard
· all previous practices are no longer valid.
· Any industry exceptions or special rules are void.
· Every business will be following this new single standard.
My perspective is that it should simplify revenue recognition
since there will no longer be any industry-specific guidance.
JOURNAL OF ACCOUNTANCY
On May 28 (see attached file specific to this topic) and again on
June 2 (included in file labeled IASB and FASB converge
standard), the Journal posted six things to consider as guidance
with this new standard. I’ve listed the six items below…for
details open either of the files I referenced above)

1. Disclosures are a big key.
2. Software, telecom, and real estate will be most affected.
3. IFRS will become more rigorous.
4. The transition resource group will provide some direction.
5. Sales of nonfinancial assets may be represented better
6. The transition date is firm.
ACCOUNTING POLICY & PRACTICE SPECIAL REPORT
The above-reference report was copyrighted in 2014 by Tax
Management Inc., a subsidiary of The Bureau of National
Affairs, Inc.
The report is 60 plus pages, but I wanted to highlight a few
areas taken directly from the report:
· Scope
· Core Principle
· Ten Most Important things to Know about the New Guidance
SCOPE
“The new rules provide guidance relevant to an entity’s

accounting for revenue that arises from a contract with a
customer to transfer goods or services as well as contracts to
transfer nonfinancial assets, unless those contracts are within
the scope of other guidance. The rules do not apply to revenue
that arises from other types of events (e.g., revenue that arises
from a change in the value of an assets). The following types of
contracts are outside the scope of the new rules:
· Leases (ASC840, Leases);
· Insurance contracts (ASC944, Financial Services-Insurance);
· Financial instruments and other contractual rights or
obligations that are within the scope of other ASC Topics;
· Guarantees (other than product or service warranties) that are
within the scope of ASC460, Guarantees; and
· Nonmonetary exchanges between entities in the same line of
business to facilitate sales to customers, or potential
customers.”
CORE PRINCIPLE
“The new revenue guidance is based on the core principle that a
reporting entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services.”

TEN MOST IMPORTANT THINGS TO KNOW ABOUT THE
NEW GUIDANCE
1. Most industry-specific guidance is out; thus, the new
approach is more reliant on professional judgment and contract
terms and conditions
2. All entities that enter into contracts with customers to
transfer goods or services will be affected in some way by the
new rules unless the contract is specifically excepted from
application of the revenue standard.
3. The key to revenue recognition under the new approach is the
“transfer of control” (not the transfer of risks and rewards or
the culmination of an earning process).
4. A single contract may contain a different number of
performance obligations than under current US GAAP.
5. Collectability is a criterion for determining whether a
contract exists but does not affect the measurement of
transaction price.
6. The new rules introduce a constraint on revenue that applies
to variable consideration (i.e., rebates, refunds, credit and
incentives).
7. The approach to accounting for long-term contracts has
changed.
8. The approach to accounting for licenses has changed
9. All reporting entities will allocate the transaction price to the

good or service underlying each performance obligation on a
relative stand-along selling price basis.
10. For public entities applying US GAAP, the new rules are
generally effective for annual reporting periods beginning after
December 15, 2016, including interim reporting periods therein.
Early application is prohibited.
Obviously, this standard will take time to implement. The
timeline was as follows:
· U.S. Public Companies ---annual reporting periods beginning
after 12.15.16
· Companies using IFRS ---annual reporting periods beginning
on or after 1.1.17
In July 2015 FASB delayed revenue recognition effective date
by one year.
FY beginning after 12/15/17 for Public Companies
FY beginning after 12/15/18 for Private Companies
The IASB has also proposed a one-year delay.
Check the following link for details:
http://www.journalofaccountancy.com/news/2015/jul/revenue-

recognition-effective-date-extended-201512608.html
Fast forward to May 2020 and you will learn that FASB voted to
delay the effective date for private companies again in response
to the COVID-19 impact. The board voted on Wednesday, May
20 to give private companies and not-for-profit organizations an
extra year to comply with the revenue recognition and leases
standards.
For private companies and private not-for-profits, the effective
date will be for fiscal years beginning after Dec. 15, 2021 and
interim periods within fiscal years beginning after Dec. 15,
2022.
Here’s the link for details…
https://www.journalofaccountancy.com/news/2020/may/fasb-
delays-revenue-recognition-for-private-companies-amid-
coronavirus.html?utm_source=mnl:alerts&utm_medium=email&
utm_campaign=20May2020&utm_content=button
Others and policies impacted (reference file New Standard
Could Affect Tax Practitioners for details)
· Tax practitioners

· Auditors
· Transfer pricing policies (Week 7 topic)
· SEC Staff Accounting Bulletin 74
· License revenue
Components of the new standard are open to interpretation,
which ties to a principle-based approach vs a rules-based
approach.
Remember: Both US GAAP and IFRS are both principles and
rules based with GAAP being more rules based and IFRS
principles based.
In the April 29, 2016 AICPA CPA Letter Daily, the news was to
go to the definitive source for AICPA revenue recognition
tools….
The revenue recognition standard eliminates the transaction-
and industry-specific guidance under current US GAAP and
replaces it with a principles-based approach for determining
revenue recognition. Visit the link below to find comprehensive
resources.

https://www.aicpa.org/interestareas/frc/accountingfinancialrepo
rting/revenuerecognition/
FINAL NOTE: The revenue recognition standard (IFRS 15) is
comprehensive and also ties to IAS 11 and 18. It has had a
significant impact on public companies and effective this
December 2018 private companies will be using the standard.
Implementing the standard is no easy task.
Homework Assignment
Read up and research this new standard and write a paragraph or
two (in your words) on any issue that you find interesting or
intriguing. Please cite your source(s). You should also include
reflection on your MNC and the impact, if any, it will have.
Post your report in this week’s discussion area by nlt Saturday
evening under the Foreign Currency Exposure & Revenue
Recognition topic.
Reminder: By the end of Week 4, you are required to also
respond to at least one other post.
WEEK 4 LECTURE NOTES PART I
FOREIGN CURRENCY EXPOSURE
FOREIGN EXCHANGE
Country→currency→unit of value for purchases and sales of

goods and services
For example,United Statesdollar
United Kingdompound
Japanyen
Switzerlandfranc
There are several currency arrangements
1. Pegged to another country’s currency, often the US dollar
2. Independent float – value fluctuates based on market forces
3. European Monetary System (euro) – currency established by
the European Central Bank
Foreign exchange rates
· Rates are available daily not only in newspapers but on the
web
· These rates are the ones banks and foreign exchange brokers
charge each other to exchange currencies
· Typically…
· Rates to buy are lower than selling rates, which are higher
· Resulting in profits on foreign exchange trades
·
Trades can occur on a spot or a forward basis

SPOT RATEis the price at which a foreign currency can be
purchased or sold today
FORWARD RATEis the price that can be locked-in today at
which foreign currency can be purchased or sold at a
predetermined date in the future.
FORWARD
SPOT
CURRENCY SELLING @
0.0916
0.0902
Premium in forward market
0.0811
0.0902
Discount
Companies enter into forward contracts with their banks to fix
the price at which they can buy or sell foreign currency at a
specified future date.
Note: There is no upfront cost to enter into a forward contract.
When the contract matures, the forward contract must be
honored, with the company buying or selling foreign currency at

the predetermined forward rate.
Companies can also purchase a foreign currency option that
gives them the right, but not the obligation, to buy or sell
foreign currency at a specified future date at a predetermined
price; known as the strike price.
Note: The company purchases the option by paying an option
premium
Upon maturity, the company can choose to exercise the option
and buy or sell currency at the strike price or allow the option
to expire unexercised.
FOREIGN EXCHANGE RISK
Export sales and import purchases are international transactions
that are denominated in a foreign currency create exposure to
risk
· An increase in the value of a foreign currency will result in a
foreign exchange gain on a foreign currency receivable and a
loss on a payable
· A decrease in the value of a foreign currency will result in a
foreign exchange loss on a foreign currency receivable and a
gain on the payable.

FINANCIAL STATEMENT PREPARATION
· Foreign currency balances must be revalued to their current
domestic currency equivalent using current exchange rates when
the financials are prepared.
· Gains and losses on foreign currency balances are recognized
in income in the period in which the exchange rate change
occurs; referred to as the two-transaction perspective, accrual
approach.
HEDGING
Exposure to foreign exchange risk can be eliminated through
hedging...
Establishing a price today at which a foreign currency to be
received in the future can be sold in the future or at which a
foreign currency to be paid in the future can be purchased in the
future.
The two most used instruments for hedging foreign exchange
risk are
1. Foreign currency forward contracts*
2. Foreign currency options*

*See above notes under the spot and forward rate for
definitions.
Guidance for Hedging
There are two International Accounting Standards (IAS) that
apply - IAS32 and IAS39; also, IFRS 9 and 7 are applicable.
According to the Deloitte website….
Overview:
IAS 32 Financial Instruments: Presentation outlines the
accounting requirements for the presentation of financial
instruments, particularly as to the classification of such
instruments into financial assets, financial liabilities and equity
instruments. The standard also provides guidance on the
classification of related interest, dividends and gains/losses, and
when financial assets and financial liabilities can be offset.
IAS 32 was reissued in December 2003 and applies to annual
Objective of IAS 32

The stated objective of IAS 32 is to establish principles for
presenting financial instruments as liabilities or equity and for
offsetting financial assets and liabilities. [IAS 32.1]
IAS 32 addresses this in a number of ways:
· clarifying the classification of a financial instrument issued by
an entity as a liability or as equity
· prescribing the accounting for treasury shares (an entity's own
repurchased shares)
· prescribing strict conditions under which assets and liabilities
may be offset in the balance sheet
IAS 32 is a companion to IAS 39Financial Instruments:
Recognition and Measurement and IFRS 9Financial Instruments.
IAS 39 deals with, among other things, initial recognition of
financial assets and liabilities, measurement subsequent to
initial recognition, impairment, derecognition, and hedge
accounting. IAS 39 is progressively being replaced by IFRS 9 as
the IASB completes the various phases of its financial
instruments project.
For more details use the following link below or reference the
lecture notes from Week 3.
http://www.iasplus.com/en/standards/ias/ias32

In January 2014 IASB finalized a new hedge accounting model.
According to KPMG The IASB’s recently issued general hedge
accounting standard, which aligns hedge accounting more
closely with risk management, will result in additional risk
management strategies qualifying for hedge accounting under
International Financial Reporting Standards.
The new standard does not fundamentally change the three types
of hedging relationships or the requirement to measure and
recognize ineffectiveness.
Assessing the effectiveness of a hedging relationship will
require more judgment and applying the new guidance in some
areas remains complex.
Key Facts
The new IASB standard:
· Allows fair value elections for certain credit exposures and
own-use contracts;
· Allows cash instruments to be used as hedging instruments in
additional circumstances;
· Allows the time value of purchased options, the forward

element of forward contracts, and foreign currency basis
spreads to be deferred or amortized as a cost of hedging;
· Extends the availability of hedge accounting to additional risk
exposures;
· Removes bright lines from hedge effectiveness testing; and
· Requires rebalancing hedging relationships without
terminating hedge accounting in certain situations and prohibits
voluntary termination of otherwise qualifying hedging
relationships.
Key Impacts
For entities following IFRS:
· The new IASB standard will enable them to better reflect in
their financial statements how they manage risks with financial
instruments.
· If they have significant commodity price exposures, they
could benefit because hedge accounting will be allowed for risk
components of nonfinancial items.
DERIVATIVES

According to Investopedia.com…
A derivative is a contract between two or more parties whose
value is based on an agreed-upon underlying financial asset,
index or security. Common underlying instruments include:
bonds, commodities, currencies, interest rates, market indexes
and stocks.
Futures contracts, forward contracts, options, swaps and
warrants are common derivatives.
Derivatives are used for speculating and hedging purposes.
Speculators seek to profit from changing prices in the
underlying asset, index or security.
A derivative is a financial instrument or other contract within
the scope of IAS 32 and IFRS 9
For our purpose, derivative contracts are used to hedge foreign
exchange prices.
Most common derivatives are
· Foreign currency forward contracts
· Foreign currency options

Hedge accounting is appropriate if the derivative is
(a) used to hedge an exposure to foreign exchange risk,
(b) highly effective in offsetting changes in the fair value or
cash flows related to the hedged item, and
(c) properly documented as a hedge.
Under hedge accounting gains and losses on the hedging
instruments are reported in net income in the same period as
gains and losses on the item being hedged.
Fundamental Requirement
· All derivatives are carried on the balance sheet at fair value
· Positive value = asset
· Negative value = liability
As a result, another accounting issue is the treatment of
unrealized gains and losses, which are recognized in net
income.
Homework Assignment COSTCO WHOLESALE
Research your MNC and report on any accounting issues
covered in this chapter related to foreign currency transactions
and hedging activities. Post your report in this week’s

discussion area by nlt Saturday evening. By the end of Week 4,
you are required to also respond to at least one other post. If
someone asks a question of you, please take the time to also
respond to those questions.
WEEK 3
International Financial Reporting Standards (IFRS)
Since all of you have already taken Intermediate Accounting
and are aware of US GAAP, the focus this week will be on the
International Accounting Standards (IAS) with some
comparison comments to US GAAP. Also included this week is
a Grant Thornton report, Comparison between U.S. GAAP and
IFRS.
IAS1 PRESENTATION OF FINANCIAL STATEMENTS
This Standard prescribes the basis for presentation of general
purpose financial statements to ensure comparability both with
the entity’s financial statements of previous periods and with

the financial statements of other entities. It sets out overall
requirements for the presentation of financial statements,
guidelines for their structure and minimum requirements for
their content.*
When reviewing this IAS, keep in mind two other standards that
are closely tied to IAS 1; namely,
IAS 34 Interim Financial Reporting, and
IAS 7 Statement of Cash Flows
*Source: http://annualreporting.info/ifrs_sta ndard_title/ias-1-
presentation-of-financial-statements/
IAS2 INVENTORIES
Guidance is more extensive than US GAAP and includes
· Cost of inventories
· Purchase, conversion and other costs
· Excluding abnormal costs of wasted materials, labor or other
production costs; storage costs, administrative overhead and
selling costs.
· Cost formulas to be used when expenses
· LIFO is not allowed; only FIFO or weighted-average
· Measurement of inventories on financials
· Inventory on balance sheet is either at lower of cost or net

realizable value (NRV)
· NRV is estimated selling price less estimates costs of
completion and costs necessary to make the sale.
IAS7 STATEMENT OF CASH FLOWS
The statement contains details on the requirements. Reference
link below for details.
http://www.iasplus.com/en/standards/ias/ias7
IAS8 ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES & ERRORS
Provide guidance for
· The selection of accounting policies,
· Accounting for changes,
· Dealing with changes in accounting estimates and
· Correction of errors
When reviewing this IAS, keep in mind two other standards that
closely tie to IAS 8; namely,
IAS 10 Events After the Reporting Date, and

IAS 24 Related Party Disclosures
IAS10 EVENTS AFTER THE REPORTING PERIOD
Explains when an entity should adjust its financials for event
occurring after the balance sheet date and the disclosures
needed.
IAS11 CONSTRUCTION CONTRACTS
Identifies two types of construction contracts: fixed-price and
cost-plus. Revenues and expenses should be recognized using
the percentage-of-completion method when the outcome of the
contract can be estimated reliability.
This standard ties closely to IAS 18 Revenue. Both IAS 11 and
18 have been superseded by IFRS 15 Revenue from Contracts
with Customers, effective January 2018.
IAS12 INCOME TAXES
Standard uses an asset-and-liability approach that requires
recognition of deferred tax assets and liabilities for temporary
differences and for operating losses and tax credit carry-
forwards. A deferred tax asset is recognized only if it is

probably that a tax benefit will be realized.
IAS14 SEGMENT REPORTING
Replaced by IFRS 8, Operating Segments – see below for
details.
IAS16 PROPERTY, PLANT & EQUIPMENT (PPE)
The following guidance is provided for:
1. Initial costs of PPE
2. Subsequent costs
3. Measurement at initial recognition and afterward
4. Depreciation
a. Allows for component depreciation (US GAAP does not)
5. Retirement and disposal
IAS16 allows PPE to be carried at cost less accumulated
depreciation and impairment losses
or
at a revalued amount less any subsequent accumulated
depreciation and impairment losses.

NOTE: US GAAP does not permit use of the revaluation model.
IAS17 LEASES
There is a distinction between finance (capitalized) l eases and
operating leases. IAS17 also provides guidance for sale-
leaseback transactions.
Finance lease – transfers substantially all the risks and rewards
incidental to ownership to the lessee. Examples are provided by
IAS17.
Any lease not classified as above is considered an operating
lease and payments are expensed by lessee and recognized as
income by the lessor
Sales-leaseback – sale of an asset by initial owner of asset who
then leases it back.
If the event is a finance lease, the initial owner must defer any
gain on the sale and amortize it to income over the lease term.
If an operating lease, difference between fair value and carrying
value is recognized immediately as income.

IAS 17 Leases Update
February 25, 2016 FASB released ASU 2016-02 Leases
This brings the project to overhaul lease accounting.
New guidance – effective for public business entities in fiscal
years beginning after 12/15/2018
– effective date for most other entities (private) deferred for one
year to 2020; in October, 2019
the effective date was moved to January 2021. In May, 2020,
because of the coronavirus fallout, the date was moved again
to 2022.
– early adoption permitted for all entities
Important points:
· Lessees will be required to recognize most leases “on balance
sheet.”
· The new guidance retains a dual lease accounting model for
purposes of income statement recognition, continuing the
distinction between what are currently known as “capital” and
“operating” leases for lessees.
· Lessors will focus on whether control of the underlying asset
has transferred to the lessee to assess lease classification.
· A new definition of a “lease” could cause some contracts

formerly accounted for under ASC 840 to fall outside the scope
of ASC 842, and vice versa.
· A modified retrospective transition will be required, although
there are significant elective transition reliefs available for both
lessors and lessees.
Source: http://www.grantthornton.com
Bottom line: Nearly all of the lessees’ leases will be on the
balance sheet, unless the lease terms are 12 months or less.
Lessors will also see changes that will align with this revised
lessee model and also to comply with FASB’s new revenue
recognition guidance.
NOTE: IAS 17 will be superseded by IFRS16 Leases as of 1
January 2019. January 1 effective date with the annual report
date of 12/31/2019. Early adoption only if IFRS 15 (Revenue
Recognition) is also adopted.
SPECIAL NOTES:
Leases, for the most part, will now be on the Balance Sheet,
which changes the reported assets and liabilities….in some
cases, significantly. Although the Standard implementation

isn’t until 2019, it’s never to earlier to start familiarizing
yourself with its components.
IAS18 REVENUE
Requires that revenue be measured at the fair value of the
consideration received or receivable. This standard will be
superseded by IFRS 15 Revenue from Contracts with Customers
effective January 2018.
IAS19 EMPLOYEE BENEFITS
Standard that covers all forms of employee compensation and
benefits other than share-based compensation; i.e., stock
options, which are covered in IFRS 2 (see below).
Four type of employee benefits:

1. Short-term benefits (i.e., compensated absences and profit-
sharing and bonus plans)
a. Recognize an expense and a liability at the time that the
employee provides services; amount recognized is
undiscounted.
2. Post-employment benefits (i.e., pensions, medical benefits
and other post-employment benefits)
a. Distinguishes between a defined contribution plan and
defined benefit plan
i. Defined contribution plan is simple…the employees accrues
an expense and a liability at the time the employees renders
services for the amount employers is obligated to contribute.
The liability is reduced when the contributions are made.
ii. Defined benefit plans are considerably more complicated.
3. Other long-term employee benefits (i.e., deferred
compensation and disability benefits)
a. A liability should be recognized for the benefit equal to the
difference between the present value of the defined benefit
obligation and the fair value of plan assets (if any).
4. Termination benefits (i.e., severance pay and early retirement
benefits)
a. Benefits recognized as an expense and a liability when an
employer is demonstrably committed to either terminating the
employment of an employee or a group of employees or
providing termination benefits as a result of an offer made to

encourage voluntary termination.
IAS20 ACCOUNTING FOR GOVERNMENT GRANTS AND
DISCLOSURES OF GOVERNMENT ASSISTANCE
This standard outlines how to account for government grants
and other assistance. For details please reference the following
link:
IAS21 THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES
Accounting for foreign currency transactions and foreign
operations in the financial statements of an entity as well as the
translation of financial statement into a presentation currency.
Scope of IAS 21
· Accounting for transactions and balances in a foreign
currency, that is a currency other than the functional currency
of an entity
· Translating the results and financial position of an entity for

· consolidation or equity accounting purposes and
· where financial statements are presented in a different
currency from that in which they are prepared, in other words
where the presentation currency is different from the functional
currency of an entity.
The following situations are those in which IAS 21 does not
apply: Foreign currency derivatives, hedge accounting, and cash
flows arising from transactions in a foreign currency.
IAS23 BORROWING COSTS
Capital costs to the extent that they are attributable to the
acquisition, construction or production of a qualifying assets;
other costs are expensed in the period incurred.
IAS 24 RELATED PARTY DISCLOSURES
A related party is a person or entity that is related to the entity
that is preparing its financial statements (referred to as the
“reporting entity”).

The scope of IAS 24 is applied as follows:
· Identifying related party relationships and transactions;
· Identifying outstanding balances, including commitments,
between an entity and its related parties;
· Identifying the circumstances in which disclosure of related
party items is required;
· Determining the related party disclosures
This IAS also ties to IAS 8 and 10
IAS26 ACCOUNTING AND REPORTING BY RETIREMENT
BENEFIT PLANS
This standard outlines the requirements for the preparation of
financial statements of retirement benefit plans.
Please see the following reference for details:
IAS27 SEPARATE FINANCIAL STATEMENTS
This standard has a history, which started in April 2001 when

the IASB adopted IAS27 Consolidated Financial Statements and
Accounting for Investments in Subsidiaries.
In 2008 it was amended and entitled Consolidated and Separate
Financial Statements as part of the joint project on business
combinations with FASB.
In May 2001 the IASB issued IAS27, concurrently with IFRS10,
with a modified title of Separate Financial Statements.
IAS 27 addresses only the accounting and disclosure
requirements for investments in subsidiaries, joint ventures, and
associates when an entity prepares separate financial
statements. Some jurisdictions require entities to present both
consolidated and separate (parent-only) financial statements.
The standard requires an entity preparing separate financial
statements to account for those investments either at cost, in
accordance with IFRS 9, Financial Instruments, or using the
equity method.
Note that financial statements of an entity that does not have a
subsidiary, associate, or joint venturer's interest in a joint
venture are not separate financial statements.
IFRS 10 replaces the guidance formerly included in IAS 27 and

establishes the principle of control and the requirements for the
preparation of consolidated financial statements.
Note: The information in this section reflects an amendment
issued by the IASB in August 2014, titled Equity Method in
Separate Financial Statements. The purpose of this amendment
is to restore the option to use the equity method to facilitate
convergence of local GAAP in those jurisdictions with IFRS.
Entities should apply this amendment for annual periods
beginning on or after January 1, 2016, retrospectively in
accordance with IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors. Earlier application is
permitted with proper disclosure.
IAS28 INVESTMENTS IN ASSOCIATES AND JOINT
VENTURES
IAS 28 defines an associate and provides criteria to determine
whether an investment meets that definition. It ties directly
with IFRS 11, which defines a joint arrangement and provides
criteria to determine whether a joint arrangement is a joint
operation or a joint venture.

In terms of accounting for these investments, IAS 28 discusses
the accounting treatment for associates and joint ventures; IFRS
11 discusses how to account for joint operations.
Here’s a chart to help visualize how each standard works.
The objective of IAS 28 is to prescribe the accounting for
investments in associates and requirements for the application
of the equity method when accounting for investments in
associates and joint ventures. It does not define financial or
operating policy.
The objective of IFRS 11 is to establish the principles for
financial reporting by entities that have an interest in
arrangements that are controlled jointly (i.e. joint
arrangements).
IAS29 FINANCIAL REPORTING IN HYPERINFLATIONARY
ECONOMIES
This standard applies when an entity’s functional currency is

that of a hyperinflationary economy. See the following link for
details:
IAS32 FINANCIAL INSTRUMENTS: PRESENTATION
Defines a financial instrument as any contract that gives rise to
both a financial asset of one entity and a financial liability or
equity instrument of another entity. This standard ties closely
with IFRS 9 and 7 and IAS 39.
The objective of IAS 32 is to establish principles for presenting
financial instruments as liabilities or equity and for offsetting
financial assets and financial liabilities. IAS 32 applies to the
classification of financial instruments, from the perspective of
the issuer, into financial assets, financial liabilities, and equity
instruments; the classification of related interest, dividends,
losses, and gains; and the circumstances under which financial
assets and financial liabilities should be offset.
IAS33 EARNINGS PER SHARE
The objective of IAS 33, Earnings per Share, is to prescribe the
principles for the determination and presentation of earnings per
share, so as to improve performance comparisons between

different entities in the same reporting period and between
different reporting periods for the same entity.
Even though earnings per share data have limitations because of
the different accounting policies that may be used to determine
"earnings," a consistently determined denominator enhances
financial reporting. Therefore, the focus of IAS 33 is on the
denominator for the earnings per share calculation. The scope
applies to separate or individual financials statements of an
entity and then consolidated financials of a group with a parent.
IAS34 INTERIM FINANCIAL REPORTING
An interim financial report is a financial report that contains
either a complete or condensed set of financial statements for a
period shorter than an entity's full financial year.
This standard does not mandate which entities should publish
interim financial reports, how frequently, or how soon after the
end of an interim period. These matters should be decided by
national governments, securities regulators, stock exchanges,
and accountancy bodies. This standard applies when a company
is required or elects to publish an interim financial report.

IAS 34 defines the minimum content of an interim financial
report, including disclosures, and identifies the accounting
recognition and measurement principles that should be applied
in an interim financial report.
For the most part requires interim period to be treat as discrete
reporting periods; i.e. unlike US GAAP, an annual bonus would
be recognized in the interim period that it was given and not
spread over four quarters.
This standard ties to IAS 1 and 7.
IAS36 IMPAIRMENT OF ASSETS
Requires testing of PPE; intangibles, including goodwill; and
long-term investments.
An entity must assess annually whether there are any indicators
that an asset is impaired; that is, when an asset’s carrying value
exceeds its recoverable amount.
· Recoverable amount is the great of net selling price and value
in use
· Net selling price is the price of an asset in an active market
less disposal costs
· Value is use is determined as the present value of future net

cash flows expected to arise from continued use of the assets
over its remaining useful life and upon disposal.
Measurement of impairment loss is the amount by which
carrying value exceeds recoverable amount and it is recognized
in income.
At each balance sheet date a review should be undertaken to
determine if an impairment loss should be reversed. Reversals
are recognized in income immediately.
Here’s a link that provides more detail if you are interested:
NOTE: US GAAP does not allow reversals.
IAS37 PROVISIONS, CONTINGENT LIABILITIES &
CONTINGENT ASSETS
Guidance for reporting liabilities and assets of uncertain timing,
amount or existence. Also contains specific rules related to
arduous* contracts and restructuring costs.
*contract in which the unavoidable costs of meeting the
obligation of the contract exceed the economic benefits

expected to be received.
Provisions are defined as liabilities of uncertain timing or
amounts.
Restructuring is a program that is planned and controlled by
management and that materially changes either the scope of a
business undertaken by an entity or the manner in which the
business is conducted; i.e., sale of a line of business, closure of
a location, changes in management structure.
Contingent asset is a probable asset that arises from past events
and whose existence will be confirmed only by the occurrence
or nonoccurrence of a future event. These assets should not be
recognized but disclosed when the inflow of economic benefits
is probable.
IAS38 INTANGIBLE ASSETS
Definition: nonmonetary asset without physical substance held
for use in the production of goods or services, rental to others
or administrative purposes.
IAS38 provides guidance as follows:
· Purchased intangible assets

· Initially measured at cost
· Useful life is assessed as finite or indefinite
· Intangibles acquired in a business combination
· Patents, trademarks and customer lists acquired are recognized
at their fair value
· Development costs are capitalized
· Goodwill is included with IFRS 3, Business Combinations and
not included here. See below under IFRS3 for information on
goodwill.
· Internally generated intangibles
· The expenditure(s) giving rise to the potential intangible
needs to be classified as either research or development
expenditures. If the distinction cannot be established, then all
are classified as research expenditures and expensed as
incurred…no intangible asset would be recognized.
· Judgment becomes key since you are determining where
research ends, and development begins. IAS38 provides
extensive lists as a reference.
IAS39 FINANCIAL INSTRUMENTS: RECOGNITION AND
MEASUREMENT
Establishes categories into which all financial assets (four) and
liabilities (two) must be classified. The classification

determines how it will be measured. This standard is closely
tied to IAS 32 and IFRS 9 and 7.
Replaced by IFRS 9 Financial Instruments
· See IFRS 9 for more details. There is also a file attached to
this week’s lecture that further explains the standard.
IAS40 INVESTMENT PROPERTY
Land and/or buildings held to earn rentals, capital appreciation
or both.
Options: Use of fair value model or cost model
NOTES: US GAAP requires use of cost model.
IAS41 AGRICULTURE
This standard sets out the accounting for agricultural activity.
It was issued in December 2000 and applied to annual periods
beginning on or after January 2003.
See the following link for more details:

For additional information on any of the above IAS, use the
following link…
https://www.iasplus.com/en/standards/
IAS vs IFRS…is there a difference? From my research, the
International Accounting Standards Committee (IASC) was
established in 1973 and issued a number of standards. The
above list includes all of the standards issued by IASC.
In 2001 it was restructured and became the International
Accounting Standards Board (IASB). It was agreed that all of
the above standards would be adopted by the IASB but moving
forward all standards would become IFRS…International
Financial Reporting Standards.
One major implication IFRS principles take precedence over
IAS. So when contradictory IFRS standards are issued by the
IASB, older ones (IAS) are usually disregarded.
IFRS 1 FIRST-TIME ADOPTION OF IFRS
The objective of IFRS 1 is to ensure that the entity’s first IFRS
financial statements and its interim financial reports for the
portion of the period recorded in those financial statement,

contain high-quality information that:
· Is transparent for users and comparableover all periods
presented,
· Provides a suitable starting point for accounting in accordance
with International Financial Reporting Standards (IFRSs), and
· Can be generated at a cost that does not exceed the benefits.
Please note: It is continually being updated….
IFRS 2 SHARE-BASED PAYMENT
Sets out measurement principles and specific requirements for
three types of payments:
1. Equity-settled share-based payment transactions
2. Cash-settled share-based payment transactions
3. Choice-of-settlement share-based transactions
Requires entity to recognize all share-based payment
transactions in its financial statements; no exceptions. Standard
applies a fair-value approach.
Note: Reference IAS 19 Employee Benefits for additional
details on this topic.
IFRS 3 BUSINESS COMBINATIONS

The core principle of IFRS 3 is that an acquirer of a business
recognizes the assets acquired and liabilities assumed at their
acquisition-date fair values and discloses information that
enables users to evaluate the nature and financial effects of the
acquisition.
The objective of IFRS 3 is to improve the relevance, reliability,
and comparability of the information that a reporting entity
provides in its financial statements about a business
combination and its effects. To accomplish this, IFRS 3
establishes principles and requirements for how the acquirer:
· recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree;
· recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and
· determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects
of the business combination.
Includes initial measurement of goodwill as follows:
· The difference between
· Consideration transferred by the acquiring firm plus any
amount recognized as non-controlling interest
· The fair value of net assets acquired.

If the first one exceeds the second, goodwill is recognized as an
asset. If reversed, then it is a “bargain purchase” and the
difference becomes negative goodwill and is recognized as a
gain in net income by the acquiring firm.
IFRS 4 INSURANCE CONTRACTS
IFRS 4 Insurance Contracts applies, with limited exceptions, to
all insurance contracts (including reinsurance contracts) that an
entity issues and to reinsurance contracts that it holds. In light
of the IASB's comprehensive project on insurance contracts, the
standard provides a temporary exemption from the requirements
of some other IFRSs, including the requirement to consider IAS
8Accounting Policies, Changes in Accounting Estimates and
Errors when selecting accounting policies for insurance
contracts.
Note: IFRS 4 was issued in March 2004 and applies to annual
periods beginning on or after 1 January 2005. IFRS 4 will be
replaced by IFRS 17 as of 1 January 2021.
For additional details
IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS
In theory, IFRS classifies an asset based upon how management
intends to realize its future economic benefits. A non-current
asset is basically an asset which management cannot or does not
expect to realize, sell, or use up within its normal operating
cycle or at least twelve months after the reporting period's end.
The main principle of IFRS 5 is that management intent
determines measurement and presentation of non-current assets.
Management intent regarding asset use can change over time.
This chart shows how management's intended use affects the
classification of several major types of non-current assets
The second part of IFRS 5 sets standards for discontinued
operations, which is a component of an entity that has been
disposed of or is classified as held for sale, and that
· represents a separate major line of business or major
geographical area of operations, or
· is part of a single coordinated plan to dispose of a separate
major line of business or major geographical area of operations,
or

· is a subsidiary acquired exclusively with a view to resale.
For more details reference
IFRS 6 EXPLORATION FOR AND EVALUATION OF
MINERAL RESOURCES
IFRS 6 Exploration for and Evaluation of Mineral
Resources has the effect of allowing entities adopting the
standard for the first time to use accounting policies for
exploration and evaluation assets that were applied before
adopting IFRSs. It also modifies impairment testing of
exploration and evaluation assets by introducing different
impairment indicators and allowing the carrying amount to be
tested at an aggregate level (not greater than a segment).
For more details reference
IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES
Requires disclosure of information about the significance of
financial instruments to an entity, and the nature and extent of
risks arising from those financial instruments, both in
qualitative and quantitative terms. Specific disclosures are
required in relation to transferred financial assets and a number
of other matters.

When learning this topic you also have to reference IFRS 9
Financial Instruments, which establishing principles for the
financial reporting of financial assets and financial liabilities
that will present relevant and useful information to users of
financial statements for their assessment of the amounts, timing,
and uncertainty of an entity's future cash flows.
Also, for this topic reference IAS 32 and 39.
IFRS 8 OPERATING SEGMENTS
Extensive disclosures are required for each separately
reportable operating segment.
Operating segments are components of a business:
1. That generate revenues and expenses
2. Whose operating results are regularly reviewed by the COO,
and
3. For which separate financial information is available.
For additional guidelines reference
IFRS 9 FINANCIAL INSTRUMENTS (Replacement of IAS39)

The International Accounting Standards Board (IASB)
completed the final element of its comprehensive response to
the financial crisis with the publication of IFRS 9 Financial
Instruments in July 2014. The package of improvements
introduced by IFRS 9 includes a logical model for classifi cation
and measurement, a single, forward-looking ‘expected loss’
impairment model and a substantially-reformed approach to
hedge accounting.
The IASB has previously published versions of IFRS 9 that
introduced new classification and measurement requireme nts (in
2009 and 2010) and a new hedge accounting model (in 2013).
The July 2014 publication represents the final version of the
Standard, replaces earlier versions of IFRS 9 and completes the
IASB’s project to replace IAS 39 Financial Instruments:
Recognition and Measurement.
The objective of IFRS 9, Financial Instruments, is to establish
principles for the financial reporting of financial assets and
financial liabilities that will present relevant and useful
information to users of financial statements for their assessment
of the amounts, timing, and uncertainty of an entity's future
cash flows.
IFRS 9, Financial Instruments, is effective for annual periods

beginning on or after 1 January 2018. Earlier application is
permitted.
IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
The objective of IFRS 10 is to establish principles for the
presentation and preparation of consolidated financial
statements when an entity controls one or more other entities.
An entity that is a parent should present consolidated financial
statements with some exceptions. The basis for consolidation is
control and the standard provides detailed guidance for applying
the control principle.
IFRS 10 replaces the pats of IAS 27 Separate Financial
Statements that deal with consolidatio ns. For more details
reference https://www.iasplus.com/en/standards/ifrs/ifrs10
IFRS 11 JOINT ARRANGEMENTS
Outlines the accounting by entities that jointly control an
arrangement. Return to page 5 and take note of the information
provide on IFRS 11 and review the charts that were provided.
IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES
When discussing IFRS 12 you also have to consider IAS 28 and

IFRS 11. IFRS 12 provides the disclosure requirements for
interests in subsidiaries, joint arrangements, associates and
unconsolidated structured entities.
IFRS 13 FAIR VALUE MEASUREMENT
The objective of IFRS 13 is to provide a definition of fair value,
include all related guidance in one standard, and outline the
required disclosures for fair value.
Additional information
IFRS 14 REGULATORY DEFERRAL ACCOUNTS
Permits an entity which is a first-time adopter of International
Financial Reporting Standards to continue to account, with
some limited changes, for 'regulatory deferral account balances'
in accordance with its previous GAAP, both on initial adoption
of IFRS and in subsequent financial statements.
Details can be found at

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
Focus is entirely on identifying the contract with a customer
and the performance obligations that result from that contract
rather than on a particular transaction or event. It does not
apply to leases, insurance contracts, or financial instruments
and other contractual rights within the scope of IFRS9. It does
tie to IAS 11 and 18.
We will be covering this topic in more detail in Week 4. This
standard is full converged with US GAAP; reference ASU 2014-
09.
IFRS 16 LEASES
The objective is to prescribe, for lessees and lessors, the
appropriate accounting policies and disclosures to apply in
relation to finance and operating leases.
In January 2016, the IASB issued IFRS 16, Leases, which will
replace the current standard on leases (IAS 17) and related
interpretations. The effective date of this standard is January 1,
2019. Entities can choose to apply IFRS 16 before that date but
only in conjunction with the application of IFRS 15, Revenue
from Contracts with Customers. Reference IAS 17 on pages 2

and 3 for more details.
This standard is a high-priority for both the FASB and the
IASB…working toward convergence.
IFRS 17 INSURANCE CONTRACTS (Replacement of IFRS4)
The International Accounting Standards Board (IASB) issued a
standard for insurance contracts to help investor’s and others
better understand insurers’ risks exposure, profitability and
financial position. Goal is for transparency in reporting and
consistency in accounting for insurance contracts. It goes into
effect on January 1, 2021 and early application is permitted.
As reported in AccountingToday.com on October 2019: The
insurance contracts standard would be delayed for both public
and private companies, as well as for nonprofits. The deferral
moves the effective date for SEC filers from January 2021 to
January 2022. Other public business entities, including smaller
reporting companies, would see the effective date move from
January 2021 to January 2024. For private companies and
nonprofits, the effective date would move from January 2022 to
January 2024.

QUALIFYING NOTE: Many of these standards are still being
developed and improved upon; you may find in your research
differences from these lecture notes. If you do, please bring it
to my attention.
REFERENCE SOURCES: The International Financial Reporting
Standards Database and Textbook (online) and
International Accounting, 3rd edition, Doupnik & Perera
AICPA Certificate Program for International Financial
Reporting Standards
Online resources for IAS and IFRS
PLEASE SEE THE NEXT PAGE FOR THE HOMEWORK
ASSIGNMENTS
HOMEWORK:
There are two assignments this week…
· Select any two of the IAS or IFRS standards presented this
week, identify which two you have selected and then discuss
how your MNC handles the standards. Post your response in
this week’s forum so that everyone can benefit from your
posting and also provide their comments
· There are six major reasons for accounting diversity

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