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Sec Liability to Equity Conversion Cpa Report

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					               IFRS
      IMPLEMENTATION GUIDE

        Managing the Coming Transition to
   International Financial Reporting Standards




FOR MORE INFORMATION CONTACT:

JEFFREY T. DEANE, CPA, PARTNER
MALIN, BERGQUIST & COMPANY, LLP
JDEANE@MALINBERGQUIST.COM
TOLL FREE: 866.739.1560
                   Countdown to 2014: Managing the Coming Transition to IFRS


The proposed mandate by the Securities and                    •   Training for personnel
Exchange Commission (SEC) for U.S.-registered                 •   Internal controls
companies to move from U.S. generally accepted                •   Internal audit plans
accounting principles (GAAP) to International                 •   System for capturing and reporting data
Financial Reporting Standards (IFRS) has already              •   Management reporting
begun. The SEC issued its roadmap which targets               •   Audit support – accounting records must support
2014 for mandatory adoption of IFRS in the United                 application of IFRS
States.                                                       •   Communication with capital markets
                                                              •   Financial statement presentation
The impact of the change to IFRS on a company’s
budget, reporting, internal processes and accounting          How much will this cost? While each conversion
policies will be significant. As a result, it is crucial to   varies based on company size and other issues, the
start planning for this complex process as early as           SEC estimates that U.S. businesses should expect first-
possible. Working closely with your team, Malin               year costs to range between 0.125 percent and 0.13
Bergquist can advise your organization on every facet         percent of revenue. For a company generating $250
of managing this change, helping ensure a smooth,             million in annual revenues, for example, the high
seamless transition to IFRS.                                  estimate would be about $325,000. Year two costs, the
                                                              SEC suggests, could drop by 75 percent.
How did IFRS evolve? IFRS represents a global
movement toward a single, unified set of principles-          From a consulting standpoint, and as Sarbanes-Oxley
based accounting standards recognized worldwide.              experience has proven, Malin Bergquist is a more cost-
Today, approximately 120 countries require IFRS               effective solution than the national firms, and with a
reporting by registered companies. In the long term,          much higher level of partner involvement and
the change to IFRS is expected to result in increased         personal attention. We place extraordinary value on
transparency and consistency for financial reporting.         our professional relationships.
In the short term, the change will mean additional
training, a heavy focus on the use of judgment, and           Special considerations in IFRS-1: IFRS-1, First-time
expanded disclosure requirements.                             Adoption of International Financial Reporting Standards, is
                                                              intended to provide relief to companies that adopt
What will the transition to IFRS require? Moving              IFRS. This relief comes in the form of specific
to IFRS will impact a wide range of areas for your            exemptions that can be elected by the company.
organization including:                                       Careful consideration of the options available in IFRS-
                                                              1 is required.
•   Technical accounting changes
•   Accounting policy procedures and manuals
                                     Timeline for Adopting IFRS
                               Based Upon the SEC’s Proposed Roadmap




                                                       Dual Reporting
                                                        U.S. GAAP
              U.S.                                        & IFRS                                  IFRS


                                                                                                 2015 &
       2010            2011              2012             2013               2014
                                                                                                 Beyond




                          January 1, 2012                                       December 31, 2014
                           Transition Date                                      First Reporting Date
                        Opening Balance Sheet




What lessons have we learned from foreign-based                  •      Ongoing, targeted communication with
enterprises that have already adopted IFRS?                             shareholders, financial institutions and Wall Street
                                                                        is essential, including early announcements of
•   They have underestimated the effort required to                     IFRS transition issues to manage market
    transition to IFRS. The transition involves                         expectations.
    significant changes to data collection and other             •      Audit committees need to be aware of the
    internal processes, not just a back-end accounting                  implementation process:
    change to be performed at year-end.                                     −    Who is leading and accountable for the
•   Support from senior management is crucial                                    implementation?
    throughout all stages of the project, including                         −    What is the company’s timetable?
    educating key executives and board members.                  •      Implementation challenges can arise from:
•   An investment is required to educate staff,                             −    A lack of preliminary planning and delay in
    perform IT upgrades and conduct contract                                     starting the transition.
    negotiations (i.e., financial covenants on debt,                        −    Poor project management and a lack of a
    bonuses and other compensation packages).                                    formal process for issue identification and
                                                                                 resolution.
                                                                   Inventory
                 U.S. GAAP                                              IFRS                                        IFRS for SMEs
Lower of cost or market (current replacement       Lower of cost or net realizable value (including   Same as Full IFRS
cost)                                              costs to sell the product)

Reversal of inventory write-down is prohibited     Reversal of write-down required, if certain        Same as Full IFRS
                                                   criteria met

LIFO is permitted                                  LIFO is prohibited                                 Same as Full IFRS


                                                            Long-Lived Assets
                 U.S. GAAP                                              IFRS                                        IFRS for SMEs
Historical cost – Revaluation not permitted        Historical cost – Revaluation option available     Historical cost – Revaluation not permitted

Depreciation - No requirement to utilize a         Components approach required (i.e. similar to      Same as Full IFRS
components approach                                cost segregation study)

Capitalize interest costs on long-term projects    Capitalize interest costs on long-term projects    Expense interest costs - Not allowed to
                                                                                                      capitalize borrowing costs



                                                        Deferred Income Taxes
                 U.S. GAAP                                              IFRS                                        IFRS for SMEs
Classified based on the related underlying         Always presented as non-current.                   Same as Full IFRS
asset or liability or on expected reversal of
item

Record at gross carrying amount with               Record deferred tax asset at net anticipated       Record at gross carrying amount with
corresponding valuation allowance                  benefit                                            corresponding valuation allowance
Use enacted tax rate                               Enacted or “substantively enacted” tax rates       Same as Full IFRS
                                                   (i.e. not yet signed into law)
Uncertain tax positions are based on               Accounting for tax consequences reflects           Recognize the effect of the possible outcomes
sustainability of tax positions. Highest amount    management’s expectations                          of a review by tax authorities. Use probability-
where cumulative probability > 50%                                                                    weighted average.


                                                Intangible Assets Including Goodwill
                 U.S. GAAP                                              IFRS                                        IFRS for SMEs
Historical cost – Revaluation not permitted        Historical cost or revaluation model available     Historical cost – Revaluation not permitted

Finite life - Amortize and test for impairment     Finite life - Amortize and test for impairment     Required to amortize all intangibles (even
only when indication of impairment exists          only when indication of impairment exists.         goodwill) and test for impairment whenever
                                                                                                      there is an indication that the asset may be
Infinite life - Test for impairment annually       Infinite life - Test for impairment annually.
                                                                                                      impaired
Cannot reverse impairment                          Impairment can be reversed (except for
                                                   goodwill).                                         Impairment can be reversed (except goodwill)

Capitalize development costs - Expense             Capitalize development costs - Expense             Must expense both research and
research                                           research                                           development costs


                                                                      Leases
                 U.S. GAAP                                              IFRS                                        IFRS for SMEs
Capital and Operating                              Finance and Operating                              Same as Full IFRS

Rules Based                                        Principles Based                                   Same as Full IFRS
“Bright Lines”                                     “Judgmental”
     Bargain Purchase/Transfer of Title
                                                    Substantially all benefit and risk has
     75% of Economic Life
                                                   transferred to lessee
     90% FMV Test
Operating leases – Straight-line recognition of    Straight-line required                             Straight-line not required if increase in
expense required                                                                                      payments are in line with general inflation
                                                         Revenue Recognition
                 U.S. GAAP                                             IFRS                                       IFRS for SMEs
     Persuasive evidence of a contract/           Collectability                                    Same as Full IFRS
         arrangement                                   Price fixed or determinable
     Collectability
                                                       Delivery occurred or services rendered
     Price fixed or determinable
     Delivery occurred or services rendered

Construction contracts - Either POC or            Either POC or Zero Profit Methods                 Same as Full IFRS – Less guidance
Completed Contract Methods

Specific accounting guidance for software         No specific industry accounting guidance for      Same as Full IFRS
(SOP 97-2), upfront fees (SAB 104) and            software and multiple deliverables. Only
multiple deliverables (EITF 00-21)                general guidance in IAS 18



                                                                   Impairment
                 U.S. GAAP                                             IFRS                                       IFRS for SMEs
For intangible assets being amortized -           Impairment exists when carrying value             Same as Full IFRS
Impairment exists when carrying value             exceeds “recoverable amount” RA = Greater
exceeds net recoverable value                     of:
“NRV” (undiscounted cash flows)
                                                       FV less cost to sell
                                                       Value in use (discounted cash flow)

Two step approach:                                One step approach                                 Same as Full IFRS – Except testing only
     If carrying value > NRV                      Impairment = CA - RA                              required when an indication of impairment is
                                                                                                    present (not annually)
     Then measure at FV
     Impairment = CV – FV

Reversal of impairment is prohibited              Reversal of impairment is required for all        Same as Full IFRS
                                                  assets (except goodwill)


                                                                    Provisions
                 U.S. GAAP                                             IFRS                                      IFRS for SMEs
Accrue most probable outcome                      Accrue best estimate                              Same as Full IFRS

If no outcome more likely than other – Accrue     If no outcome more likely than other – Accrue     Same as Full IFRS
minimum within the range                          mid-point within the range

Only discount if cash flows are fixed and         Discount if time value of money is material       Same as Full IFRS
determinable or when obligation is a fair value
obligation

Restructuring – Generally when liability is       Restructuring – Detailed plan announced or        Same as Full IFRS
incurred (i.e. a detailed plan is not enough)     implementation has begun (legal or
                                                  constructive obligation)



                                                        Business Combinations
                 U.S. GAAP                                             IFRS                                      IFRS for SMEs
Negative goodwill allowed                         Negative goodwill allowed                         Same as Full IFRS

Allocate portion of total goodwill to minority    Allocate portion of total goodwill to minority    Same as Full IFRS
interest                                          interest

Acquisition-related costs are expensed in the     Transaction costs are excluded from the           Transaction costs are included in the
period incurred                                   acquisition cost                                  acquisition cost

Contingent consideration is part of the           Contingent consideration is part of acquisition   Contingent consideration is part of acquisition
acquisition cost measured at fair value on        cost regardless of the probability of payment     cost only if payment is probable
date of acquisition

Presentation of minority interest in equity       Presentation of minority interest in equity       Same as Full IFRS
How Malin Bergquist can help you. At the initial stage               limited to: accounting for evaluation and exploration
of the process, Malin Bergquist will analyze your                    assets; inventories; asset componentization; impairment;
organization through a dry-run conversion process using a            deferred taxes; business combinations (including
proven IFRS diagnostic tool that identifies IFRS to U.S.             accounting for goodwill and intangible assets); foreign
GAAP differences. The diagnostic provides a structure for            exchange; provisions and contingent liabilities; property,
managing either selected stages of the transition process or         plant, and equipment; consolidations; financial instrument
the entire process, depending on your specific                       recognition, measurement and impairment; and financial
circumstances.                                                       instrument presentation and disclosure.


Given the complexity of the transition to IFRS, it is critical       Malin Bergquist’s team will work closely with your project
you embark on this process as early as possible and that             team throughout the conversion process. Based on our
you have access to sound guidance customized to your                 experience, it is best practice to agree upon a budget,
organization’s specific needs.                                       timeline and expectation of deliverables before each phase
                                                                     of the project and provide the company’s project team with
Malin Bergquist can assist your organization in helping              progress updates on a bi-weekly basis throughout each
ensure a smooth transition in key areas. The following chart         phase.
illustrates our best practice IFRS methodology.
                                                                     For more information on managing the transition to IFRS,
Malin Bergquist’s IFRS expertise enables us to effectively
                                                                     contact Jeffrey T. Deane, CPA at 1.866.739.1561, or
assist you with industry specific issues and issues that are
                                                                     ifrs@malinbergquist.com.
common across all industries. These include but are not



                                                           High level impact assessment and diagnostic report
          1   Preliminary Impact                           Identify main U.S. GAAP and IFRS differences
              Assessment                                   Advise on conversion strategy including implementation plan
                                                           Develop a conversion timetable



                                                           Review detailed financial information
          2   Detailed                                     Highlight and quantify GAAP differences
                                                           Define accounting policy changes, draft pro-forma financial
              Analysis                                         statements and provide IFRS 1 options
                                                           Map conversion to IFRS and create an audit trail
                                                           Act as liaison between audit committee and auditors
                                                           Provide management with a conversion report




          3   Implementation                               Conversion of opening balance sheet, interim financial
                                                              statements and year-end statements




              Post
          4                                                Review of final IFRS financial statements
              Implementation
              Review
                               Malin Bergquist’s IFRS Leadership Team
                      Jeffrey T. Deane is a Malin Bergquist      author of a global IFRS publication for PKF NAN known
                      partner who heads the IFRS team of the     as “In the Loop”. In addition, Sean has delivered many
                      firm’s International Businesses Group.     presentations and training to organizations around the
                      Jeff and his team serve some 40            globe on reporting under IFRS, U.S. GAAP, IFRS for
                      companies with international operations.   SMEs and the global convergence of financial reporting.
                      He is a nationally recognized expert and
                      pioneer in the convergence of GAAP                           Stephen Heilman is a Malin Bergquist
                      with international financial reporting                       partner and key member of the firm’s
                      standards (IFRS). In 2004, he helped the                     IFRS team. For more than a quarter
                      Pittsburgh-based subsidiary of a                             century, he has served foreign-owned
German-owned manufacturer convert to IFRS, including                               companies, primarily from Germany.
traveling to Germany to brief the key finance team about
the more complex issues. Today he continues to counsel                             Steve is a co-author of "IFRS to Drive
clients in this critical issue.                                                    Business Development: Opportunities
                                                                                   for Small and Midsize Firms," published
He has authored IFRS articles in the Journal of Accountancy,                       in the Journal of Accountancy. He
Pittsburgh Post-Gazette and Erie's Business Magazine, has been   frequently makes presentations on IFRS and on German
quoted in IFRS stories in IFRS.com and the Pittsburgh            HGB and German GAAP standards to banks, law firms
Business Times, and has made IFRS presentations to a             and universities.
number of professional service firms and universities.
                                                                 He is assisting colleague Jeffrey Deane and the American
Malin Bergquist co-founded the German-American                   Institute of Certified Public Accountants in preparing
Business Circle to create an economic development                questions for future Uniform CPA Examinations.
infrastructure to attract and retain German companies in
Pittsburgh. He serves on the board of directors of the           To deepen relationships with international clients, and
British American Business Council/Pittsburgh and assists         guide them in understanding U.S. policy and procedure,
the Allegheny Conference on Community Development                Steve often travels to Europe to brief executives with
and Pittsburgh Regional Alliance in courting foreign-owned       clients’ parent corporations. Throughout his accounting
companies to the region.                                         career, Steve has assisted clients in understanding and
                                                                 implementing new accounting pronouncements, as well as
                    Sean T. Lager is a key player with           guiding them through complex transactions such as
                    Malin Bergquist’s IFRS team as a             mergers, spin-offs, joint ventures, bond financing,
                    member of the FD Alliance and partner        consolidations and international operations.
                    of the Frazier & Deeter CPA firm. Sean
                    provides assurance and advisory services                            Malin Bergquist Sponsors
                    to large and middle market companies.                               Pittsburgh G-20 Partnership -
                                                                                        Malin Bergquist was the only public
                    His financial reporting experience                                  accounting firm to sponsor the
                    includes global and domestic companies                              Pittsburgh G-20 Partnership during
                    reporting under U.S. GAAP as well as                                the 2009 Summit. The Summit
IFRS.                                                            convened finance ministers and central bank governors
                                                                 from important industrial and emerging-market countries
He has significant experience in real estate, service            from all regions of the world.
organizations, power and energy, hospitality, and
manufacturing and distribution. In addition to assurance         The firm helped
services, Sean provides a variety of accounting consultative     Pittsburgh leverage its
services ranging from companies adopting IFRS, U.S.              rare opportunity on the
GAAP to IFRS conversions and business combination                global stage by launching
accounting.                                                      a G-20 website in German and English, answering the
                                                                 question "Why Pittsburgh?" The site features the impact
Sean has been published in well known trade magazines            that German companies have had on the regional economy.
and domestic and global accounting publications. He is the
                                            About Malin Bergquist:
For more than 30 years, Malin Bergquist has helped               Technical Know-How – What sets Malin Bergquist’s
foreign-owned businesses pursue their strategic U.S. goals,      group apart is its significant partner involvement, continuity
and currently serves 40 international companies. Inbound         of staff and a one-stop approach for tax filings and
clients typically are based in Europe, and have acquired,        financial reporting, regardless of the number of countries
developed or opened subsidiaries in Western Pennsylvania.        involved. Our expertise includes consolidations, inventory
We also help outbound U.S. clients seeking a “soft landing”      systems and developing/monitoring financial and non-
in countries such as China, Brazil, Mexico and Canada.           financial benchmarks. This requires an extensive
                                                                 understanding of financial reporting and generally accepted
We have access to other leading national IFRS experts            accounting principles in each country.
through our affiliation with the FD Alliance and
CPAmerica International.
                                                                                            ALLIANCE


                      Malin Bergquist’s IFRS Team in Print and on the Air:
"G-20 Begins to Pay Dividends for             "German G20 Website Created by              "SEC Moves U.S. a Step Closer to
Pittsburgh Companies" -                       Pittsburgh Accountants" -                   International Accounting
Pittsburgh Business Times                     WDUQ-FM                                     Standards" - Pittsburgh Business
                                                                                          Times
“Our Region’s Business” - WPXI-               "Deane Helps American Institute
TV                                            of CPAs to Write IFRS Questions             "IFRS: Roadmap Toward Global
                                              for CPA Exams"                              Accounting Standards" - Malin
"International Accounting                                                                 Bergquist White Paper
Standards Broadened to Impact                 "Case Study: Midsize Firms
Small and Medium-Size                         Working with IFRS" - IFRS.com               "International Expertise" - KQV-
Businesses" – Erie Business                                                               AM
Magazine                                      "Ready for Global Financial
                                              Standards?" Pittsburgh Post-                "Taxing Task for Manifest
"Accountants Hope G-20 Will                   Gazette                                     Destiny" - Pittsburgh Business
Address International Standards" -                                                        Times
Pittsburgh Business Times                     "How to Structure Your Business
                                              in the U.S. for the Best Tax                "Growing Foreign-Owned
"Foreign Firms Call Pittsburgh                Treatment" - Malin Bergquist                Companies Boosting Regional
Home" - Pittsburgh Post-Gazette               White Paper                                 Economy" - Pittsburgh Post-
                                                                                          Gazette
"Pittsburgh Companies Seek to                 "IFRS to Drive Business
Capitalize on G-20" - Associated              Development: Opportunities for              "Accountants Tour Germany Not
Press                                         Small and Midsize Firms" - Journal          for Fun, But for Business" -
                                              of Accountancy                              Pittsburgh Post-Gazette
"Business Owners Guide to the G-
20" - Pittsburgh Business Times               International Manufacturers Need
                                              to Mind the GAAP" - Erie
                                              Business Magazine


         Pittsburgh                        Atlanta                           Chicago                        Phoenix
      Malin Bergquist                  Frazier & Deeter             Mueller & Company               Wallace, Plese + Dreher
  www.malinbergquist.com             www.frazierdeeter.com           www.muellercpa.com                www.wpd-cpa.com

				
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Description: Sec Liability to Equity Conversion Cpa Report document sample