Flashcards in IFRS Deck (45):
Which organization's standards are the most authoritative in the hierarchy of international accounting?
The International Accounting Standards Board (IASB)
Where is the first place management should look for guidance on international recognition and accounting policies?
The International Financial Reporting Standards (IFRS) issued by the IASB
Which framework helps to develop standards for international accounting?
The IASB Framework
* The framework is NOT a standard itself
* The framework does not supersede any standard's authority
What is the objective of the IFRS framework?
To provide users with information on international accounting.
Which assumptions are followed within the IRFS framework?
The entity is a going concern (IFRS cannot be used if NOT a going concern)
Entity uses the ACCRUAL basis of accounting.
What are the qualitative characteristics of accounting information wtihin IFRS?
Understandability - Easy to use and understand
Relevance - helps user make decisions, predictive value, confirmatory role, materiality
Reliability - Faithful representation, substance over form, neutrality, prudence, completeness
Comparability - Comparative information from prior year is required
Which aspects of RELEVANCE in IFRS differ from GAAP?
Under IFRS, a confirmatory role is played by information (as opposed to feedback value in GAAP)
Materiality falls under relevance for IFRS, versus being iprimary constrainti in GAAP
How does RELIABILITY differ under IFRS from GAAP?
Both have neutrality and faithful representation or representational faithfulness.
GAAP also has verifiability;
as opposed to 'substance over form'
and prudence within IFRS.
Note: PRUDENCE or exercising caution replaces 'conservatism' in GAAP.
How does comparability differ under GAAP versus IFRS?
Comparative information from prior year is required under IFRS.
GAAP requires that if multiple years are presented, they are consistently prepared, however it doesn't require prior year comparative statements.
What are the constraints within IFRS?
Cost vs. Benefit
Fair Presentation of the company - IFRS can be overridden if it misrepresents the true financial condition of the company, but it must be disclosed.
Which items are considered reporting 'elements' under IFRS?
What are the criteria for recognition on IFRS financial statements?
Probable future economic benefit
Can be measured reliably
If the value or outcome cannot be measured reliably, IFRS requires the use of the Cost Recovery Method.
When transitioning to IFRS, what type of financial statement must be produced for the first reporting period?
A full comparative statement using IFRS.
If IFRS was implemented in June 2010 for use in the December 31, 2010, financial statements, what is the Date of Transition?
January 1, 2009, because a full year of comparative statements is required fromt he previous year
For Property, Plant and Equipment, which election is the most efficient method for converting assets to IFRS?
The Fair Value election
Where on the financial statements are adjustments for adopting to IFRS made?
In the entity's retained earnings or equity
How is going concern different under IFRS than from GAAP?
Going concern is an ASSUMPTION under IFRS
How are extraordinary items treated under IFRS?
IFRS doesn't allow extraordinary items.
How is the completed contract method used under IFRS?
Completed contract method is not allowed under IFRS.
How is LIFO treated under IFRS?
IFRS does not allow LIFO.
Which financial statements are required under IFRS?
Statement of Comprehensive Income
Statement of Changes in Equity
How is the term 'income' used in IFRS?
'Income' is used instead of revenue and encompasses BOTH revenue and gains.
How is the term 'profit' used in IFRS?
In IFRS, the term 'profit' is used instead of Net Income.
How does IFRS treat gains?
They are treated the same as revenue and are not separated on the financial statements.
How does IFRS treat losses?
In IFRS, losses are treated the same as expenses, but they ARE separated on the financial statements.
How does refinancing of current liabilities to long-term liabilities under IFRS differ from GAAP?
Under IFRS, current liabilities can only be refinanced into a non-current liability if the refinance agreement is EXECUTED prior to the balance sheet date.
GAAP requires only intent to refinance- not actual execution.
How do contingent liabilities differ between GAAP and IFRS?
Under GAAP, there are three classifications of contingent liabilities -
Under IFRS, contingencies are 'uncertain future events' and are classified as a provision if probable and measurable, even if uncertain in timing or amount.
How are bonds recorded under IFRS?
Bonds may be recorded on the Statement of Financial Position using one of two methods
Fair Value through profit or loss
*Liability revalued at the end of each period
*Gain or Loss recognized in period
*Using Effective Interest Method
How are deferred taxes treated under IFRS?
They use the 'liability method' - all deferred tax liabilities must be reported, but only 'probable' deferred tax assets can be reported.
They are non-current on the statement of financial position.
When can deferred tax assets and liabilities be netted under IFRS?
ONLY if they are related to the same country/taxing authority
For example, China Deferred Tax Assets can’t offset Japan Deferred Tax Liabilities
Which tax rates are used for calculating deferred tax assets/liabilities under IFRS?
The enacted rate or substantially enacted tax rate.
(GAAP is the enacted tax rate only)
Which items are recorded on the Income Statement in IFRS?
Non-controlling interest in Profit/Loss
Net profit/loss attributable from equity
How are property, plant and equipment (PP&E) recorded and valued under IFRS?
Recorded at cost
Valued using either:
Cost model - asset carried at cost less accumulated depreciation and impairment loss
Revaluation model - asset adjusted to fair value less accumulated depreciation
What are the requirements for using the revaluation model for PP&E under IFRS?
Asset must be able to be reliably measured
Must be applied to whole class of assets- not just one asset
No guidance on how often assets should be revalued under IFRS
How is investment property reported under IFRS?
Initially recorded at cost
Revalued using either Fair Value model or Cost model
How is profit or loss recorded in the current period for investment property under the Fair Value model of IFRS?
Recorded on the Income Statement
Investment P/L = IS
PP&E P/L = OCI
Under IFRS, how is investment property reported under the Cost Model?
Carried at Cost minus Accumulated Depreciation
Fair Value must still be disclosed in the notes to the financial statements
How are leases reported under IFRS?
Operating Leases can be recorded as Investment Property if measured at Fair Value
All other investment property must use Fair Value Model if one asset uses it
How are intangible assets valued under IFRS?
Using either the Cost Model (cost less Accumulated Depreciation and Impairment Loss)
the Revaluation Model (Fair Value less Accumulated Depreciation)
How is internally generated goodwill reported under IFRS?
It is not recognized.
How is amortization of intangibles handled under IFRS?
If asset has a finite life- it is amortized over useful life.
If asset has indefinite life, it is not amortized, but is tested for impairment at the reporting date.
When must a lease be recorded as a Finance Lease under IFRS?
If the substantial risks of ownership have passed to the Lessee, then the Lease must be accounted for as a Finance Lease
How are defined benefit plans recorded under IFRS?
Project-unit-credit method calculates the PV of the defined benefit obligation
How are interest expense and/or finance costs classified on an IFRS statement of cash flows?
They can be classified as either Operating or Financing
Once a classification is chosen, all future costs must be classified there