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									     IFRS Case
British Airways, Plc. (BA), a U.K. company, prepares its financial statements
according to International Financial Reporting Standards. BA’s annual report
for the year ended March 31, 2009, which includes financial statements and
disclosure notes can be found at This case addresses a
variety of characteristics of financial statements prepared using IFRS often
comparing and contrasting those attributes of statements prepared under U.S.
GAAP. When answering questions, focus on BA’s “Group” financial
information (which is equivalent to “Consolidated” under U.S. GAAP).

Note: I will not be in class Thursday. Everyone should submit individual
      solutions (I will collect them for a grade.). However, feel free to
      collaborate with you colleagues in class on Thursday and share
      ideas and opinions. If you are unable to attend class, prepare your
      solutions and bring them on Tuesday. Be sure to notice that you
      will need access to BA’s financial statements online. So, you can
      bring a computer to class or print relevant parts of the statements
      and bring those.

1.    Note 30 lists “provisions for liabilities and charges.” Is the threshold for
     recognizing a liability associated with these items any different under
     IFRS than it is under U.S. GAAP? Explain. By how much has the total
     amount of the BA Group’s “provisions for liabilities and charges”
     increased or decreased during fiscal 2009?
2.    Sealy Corporation reported the following line items in its statement of
     cash flows for the nine months ended August 30, 2009:

         Amortization of discount on secured notes                    351,000
         Amortization of debt issuance costs and other:             2,925,000

         In British Airways’ financial statements, Note 28: “Long-term
     borrowings” describes the company’s long-term debt. Neither of the two
     items above is reported in the financial statements of British Airways, and
     neither is likely to appear there in the future. Why?
3.   Examine the long-term borrowings in BA’s balance sheet and the related
     note. What, if any, convertible securities does the company have
     outstanding? Suppose BA issued £300 million fixed rate 8.75 per cent
     Eurobonds, due 2031, at 101 in 2011 and that the bonds are convertible
     into shares of BA ordinary shares. Suppose, too, that the company
     simultaneously issued at 99, bonds similar in all respects except they are
     not convertible. Prepare the journal entry BA would use to record the
     issue of the convertible bonds. Prepare the journal entry BA would use to
     record the issue of the convertible bonds if BA used U.S.GAAP.
4.   BA does not elect the fair value option (FVO) to report its financial
     liabilities. Examine Note 32: “Financial Instruments.” If the company
     had elected the FVO for all of its fixed rate borrowings, what would be the
     balance at March 31, 2009 in the Fair value adjustment account?
5.   Is IFRS or U.S.GAAP more restrictive for determining when firms are
     allowed to elect the fair value option for financial assets and liabilities?

6.   Look at BA’s Note 28: Long-term borrowings and Note 29: Operating
     lease commitments. Does BA use operating leases or finance leases more
     often to obtain use of its aircraft? Do lessees report operating and finance
     lease commitments the same way? Explain.

7.   Where in its March 31, 2009 balance sheet does BA report deferred taxes?
     How does this approach differ from the way deferred taxes are reported
     using U.S. GAAP?

8.   Here’s an excerpt from one of BA’s notes to its financial statements:
      Taxation (in part)
      Current tax assets and liabilities are measured at the amount expected to be
      recovered from or paid to the taxation authorities, based on tax rates and laws
      that are enacted or substantively enacted at the balance sheet date.

     Is this policy consistent with U.S. GAAP? Explain.

9.   Here’s an excerpt from one of BA’s notes to its financial statements:
      Taxation (in part)
      Deferred income tax assets are recognised only to the extent that it is probable
      that taxable profit will be available against which the deductible temporary
      differences, carried forward tax credits or tax losses can be utilised.

     Is this policy consistent with U.S. GAAP? Explain.

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