IFRS and GAAP are very similar in _________________
accounting for cash
_________________ is the only standard that discusses issues specifically related to cash
IAS No. 1 (revised), “Presentation of Financial Statements,”
Fraud triangle internationally
Applicable to all international countries
Nearly have of companies have been victims to fraud in the two-year period
FASB announced that it intends to _______________
introduce more principles-based standards
Definition for cash equivalents
is the same under IFRS
Internal control procedures related to cash_______
are the same under IFRS
Cash and Cash equivalents under IFRS
are listed together
Comprised of cash on hand and demand deposits
Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value
Under proposed new standards for financial statements
Companies would not be allowed to combine cash equivalents with cash
IFRS: Restricted Cash
Restricted cash funds may be reported as a current or non-current asset depending on the circumstances.
Cash Equivalents under IFRS
May be required to be reported seperately from cash in the future
IFRS requires that loans and receivables be accounted for at________________
amortized cost, adjusted for allowances for doubtful accounts
adjusted for estimated loss provisions
Allowances sometimes known as _________ under IFRS
Entry to record Allowance under IFRS:
Bad Debt Expense XXX
Allowance for Doubtful Accounts XXXX
Picemeal approach to fair value
1.disclosure of fair value information in the notes.
2.the fair value option, which permits, but does not require, companies to record some types of financial instruments at fair values in the financial statements.
Factoring transaction: IFRS
Combination of focus on risks and rewards & loss of control
Permits partial derecognition
Factoring transaction: GAAP
Loss of control: primary criterion
does not permit partial derecognition
Estimated uncollectible accounts: IFRS
the entry to record estimated uncollected accounts is the same as GAAP.
Fair value option
The fair value option requires that all types of financial instruments be recorded at fair value.
Defintion for plant assets under both IFRS and GAAP
Interest costs under IFRS and GAAP
interest costs during construction are capitalized
IFRS requires ___________
Component depreciation - specifies that any significant parts of a depreciable asset that have different estimated useful lives should be separately depreciated
*Allowed under GAAP but seldom used
IFRS uses the term ______________, rather than salvage value, to refer to an owner's estimate of an asset's value at the end of its useful life for that owner
Revaluation of plant assets - IFRS
allows companies to revalue plant assets to fair value at the reporting date
If used, must be applied to all assets in a class of assets
Assets experiecing rapid price changes must be revalued on an annual basis
GAAP and IFRS - development expense and cost
development expense - costs in the research phase (both IFRS and GAAP)
development cost - cost in the development phase are capitalized as development cost once technolgical feasibility is achieved (IFRS ONLY)
Who permits revaluation of property, plant, and equipment and intangible assets (except for goodwill)
When increasing a revaluation
credit revaluation surplus
Research and development costs under GAAP
Under IFRS, value-in-use is defined as:
Future cash flows discounted to present value
Although IFRS implies that receivables with different characteristics should be reported separately, _____________________________
there is no standard that mandates this segregation
IFRS requires a _______________ to test whether the value of loans and receivables are impaired.
First, a company should look at specific loans and receivables to determine whether they are impaired.
Then, the loans and receivables as a group should be evaluated for impairment. GAAP does not prescribe a similar two-tiered approach.
Interest costs under IFRS and GAAP
Component depreciation under GAAP
allowed but seldom used
How is revaluation surplus listed?
as other comprehensive income
Journal entry revaluing under IFRS
Accmulated depreciation 200,000
Plant assets 150,000
revaluation surplus 50,000
R&D Journal Entry IFRS
Research expense XXX
Development expense XXX
Development cost XXX
IFRS permits revaluation of ____________
(except for good will)
GAAP does not revalue intangible assets
IFRS permits revaluation of _________________________
property, plant, and equipment and intangible assets (except for goodwill).
International Company has land that cost $450,000 but now has a fair value of $600,000. International Company decides to use the revaluation method specified in IFRS to account for the land. Which of the following statements is correct?
International Company would credit Revaluation Surplus by $150,000.
Liability definition: IFRS
present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Liabilities may be legally enforceable via a contract or law but need not be; that is, they can arise due to normal business practices or customs.
Current liabilities are presented in _________________
order of liquidity
Under IFRS, liabilities are classified as current if
they are expected to be paid within 12 months
Under both GAAP and IFRS, preferred stock that is required to be redeemed at a specific point in time in the future must be reported as ______________________
debt, rather than being presented as either equity or in a “mezzanine” area between debt and equity.
IFRS uses the term contingent liability
to refer only to possible obligations that are not recognized in the financial statements but may be disclosed if certain criteria are met
IFRS - provisions
Provisions = liabilities of uncertain timing or amount
Where is a contingent liability disclosed?
in the notes if criteria are met
Under IFRS, if preference shares (preferred stock) have a requirement to be redeemed at a specific point in time in the future, they are treated:
as a liability
The joint projects of the FASB and IASB could potentially:
change the definition of liabilities.
change the definition of equity.
change the definition of assets.
All of the above.
extended number of days before considering loans to be nonperforming
Extended number of days before writing off loans as uncollectible
transferred loans to a subsidiary who doesn't face the same capital requirements as the parent; less regulated
Switched from a national to a less rigoroulsy regulated state bank charter
When a company establishes a "reserve" on its finacial statements against loans, do conumers still have an obligation to pay the loan off? Have the terms of agreement changed?
The consumers still have a legal obligation to pay the loan off
Nothing has changed regarding the terms of the agreement between the consumers and the bank
How does decreasing amount of uncollectible receivables impact both the balance sheet and the income statement?
A decrease in uncollectible receivables will decrease the amount of allowance for doubtful accounts needed which will decrease bad debt expense.
Less expense results in a higher net income for the subsequent period => income statement
Lower allowance for doubtful accounts => balance sheet
Management's incentive to reduce number of loans as uncollectible?
Lesser write offs drives more desirable bottom lines
Management is often under pressure to hit earnings targets and executive compensation often is tied directly to earnings of financial peroformance goals
Transparency - Current Event
Recording a transaction in a way that most clearly reports its underlying economics to financial statement users
Transparency does not hide or obscure any aspect of the underlying economic events it's reporting
Wells fargo and Astoria were not promoting transparency because these changes decrease the allowance for doubtful accounts in financial times where they should be increasing with net receivables decreasing
*They are allowable under GAAP