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					International Accounting
 and Financial Reporting
       Winter 2009

    William F. O’Brien, MBA, CPA
    Session VI

IFRS versus U.S. GAAP-II
  Regional Differences-I
         Session VI Objectives

       IFRS versus U.S. GAAP-II
       Regional Differences-I
           Peoples Republic of China
           Germany




INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009   3
   Major IFRS Differences-
             II
       Provisions & Contingencies
       Employee Benefits
       Share-based Payments
       Income Taxes
       Construction Contracts
       Revenue
       Financial Instruments

INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009   4
    Provisions & Contingencies
       IFRS distinguish between a provision and a
        contingency
           Provisions are recognized; contingencies are
            not
       Recognized value is PV of the best estimate
        under IFRS
       Recognized value is not discounted and the
        low end of the possible range under U.S.
        GAAP

INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009        5
               Employee Benefits
       Past service costs is expensed immediately under
        IFRS
       Costs are amortized over remaining expected life
        under U.S. GAAP
       Differences in the amounts recognized on the balance
        sheet
       Differences in the recognition of gains and losses on
        settlements
       No guidance under IFRS for post-retirement medical
        benefits
INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009             6
        Share-based Payments
       IFRS recognizes all share-based payments,
        not just stock options
       Stock option accounting is essentially the same
        under IFRS and U.S. GAAP




INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009   7
                     Income Taxes
       IFRS requires the use of “substantially” enacted
        tax rates; U.S. GAAP uses only enacted tax rates
       Probability of deferred tax assets is not defined
        under IFRS; under U.S. GAAP realization is
        defined
       Differences exist in the determination of deferred
        taxes
       All deferred tax assets and liabilities are non-
        current

INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009          8
         Construction Contracts
       IFRS uses the percentage of completion and
        cost recovery methods
       U.S. GAAP uses the percentage of completion
        and the completed contract methods




INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009   9
                             Revenue
       A single standard, IAS 18, covers most
        revenues under IFRS
       Over 200 authoritative pronouncements cover
        revenue recognition under U.S. GAAP
       A converged revenue recognition standard is a
        high priority for the IASB and FASB
        Convergence Project


INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009   10
          Financial Instruments
       IFRS requires that a convertible debt
        instrument be split into liability and equity
        components
       U.S. GAAP treats this item as a liability
       Note that the EU has endorsed “EU IFRS” in
        this area




INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009     11
          Regional Differences-I
 Region         Background                     Profession                         Regulation                        GAAP

           State run market economy    Historically not well             Dual system of UAS-           See text for discussion of
           Capital markets growing     regarded, economic reform          based, internal, and IFRS-     differences from IFRS
           since mid-90s                needs led to CICPA in 1988         based, external
           4
             th ranking global GDP      CICPA, under MOF,                 MoF handles standards

                                        regulates both accts. &            CSRC handles disclosure
                                        auditors since 1998                China Actg. Stds. Cmte
  PRC                                   Many firms “hooked-up”            (CASC) will develop IFRS-
                                        w/govt.                            based standards
                                        Concept of guanxi conflicts       Fraud continues to be a
                                        with ethics                        rampant problem
                                        Civil litigation is in the form

                                        of CSRC discipline

           Primary source of funding   Auditing dominates the            Financial reporting is        See text for discussion of
           is lending                   German accounting                  dominated by law               differences from IFRS and
           German accounting           profession                         Statutory financial           U.S. GAAP
           thought is influential,      Institute of Auditors             statements are required
           particularly in Japan        handles accounting &               Conservatism is the
                                        auditing standards                 predominant principle
Germany                                 Second and third tier               th
                                                                           4 , 7
                                                                                 th & 8th EU directives
                                        accounting professionals as        enacted into law
                                        well                               GASC sets actg. Stds




INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009                                                                                     12
             Key Points-Session VI
       Many countries have adapted “local” IFRS
       China take-aways
            Accounting and auditing have taken different paths
            Stock market influenced by government
            Lower social recognition attributed to accountants
            Current economic changes have driven the “modernization” of accounting standards and
             practices
            China joined IASC in 1997 and is committed to establishing IFRS-based standards
       Germany take-aways
            Financial reporting has creditor orientation
            Tax laws & regulations are the main sources of accounting requirements
            Strong influence by EU directives
            German stock market has less influence on financial reporting than in U.S. or U.K.
            Accounting profession’s influence on accounting standards has been minor
            Recent willingness to align German accounting standard setting with international best
             practice


INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2009                                                   13

				
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