advanced accounting 6e by jeter chaney chapter 11

Advanced
Accounting
Jeter ● Chaney

International Financial
Reporting Standards

1

Prepared by Sheila Ammons, Austin Community College


Learning Objectives
• Describe how the changing world environment is leading to an
increased focus on international financial reporting standards (IFRS).
• Explain some of the remaining differences between IFRS and U.S.
GAAP.
• List some of the milestones that must be achieved before the SEC
will require adoption of IFRS.
• Describe the SEC’s work plan for incorporating IFRS into the
financial reporting system for U.S. issuers.
• Describe the four remaining joint convergence topics between the
IFRS and FASB.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Learning Objectives
• List the steps that a non-U.S. company must follow to
list its shares on a U.S. stock market.
• Explain the role of form 20-F filed with the Securities

and Exchange Commission.
• Indicate the role of American Depository Receipts in
the issuing of securities of non-U.S. companies in the
United States.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Accountability and Funding of the IASC Foundation
• The IASB is established to develop global standards for financial reporting.
– Oversight is by the IASC Foundation:
• stand-alone, not-for profit organization
• responsible for the activities of the IASB
• governed by 22 trustees whose backgrounds are geographically diverse.
– Initially, IASB operations were financed through voluntary contributions by
approximately 200 organizations.
• A majority of the IASB’s finances are now based on national financing regimes,
proportionate to a country’s relative GNP.
• Further progress on financing is essential to safeguard the IFRS Foundation’s
position as the world’s independent accounting standard setter.
LO 1 Increased focus on International Accounting Standards.
Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
• September 2002, FASB and the IASB issued the
Norwalk Agreement including a “memorandum of

understanding.”
• April and October 2005; November 2009, FASB and
the IASB reaffirmed their commitment to the
convergence of U.S. GAAP and IFRS.
– The Boards indicated nine major joint projects that
over time should improve and converge their
respective conceptual frameworks.
LO 1 Increased focus on international accounting standards.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
• November 14, 2008, SEC released a roadmap for the
adoption of IFRS by U.S. issuers.
• February 24, 2010, SEC issued a release, Commission
Statement in Support of Convergence and Global
Accounting Standards. The SEC stated its continued belief
that a single set of high-quality globally accepted accounting
standards would benefit U.S. investors.
• May 26, 2011, SEC released a staff paper discussing
possible work plans for incorporating IFRS into the financial
reporting system.
LO 1 Increased focus on international accounting standards.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To

Convergence
• The basis for considering the use of IFRS by U.S. issuers includes
the following milestones.
1) Improvements in accounting standards
2) Accountability and funding of the IASC Foundation
3) Improvement in the ability to use interactive data for IFRS
reporting
4) Education and training relating to IFRS.
These four milestones relate to issues that need to be addressed
before adoption of IFRS by U.S. entities can occur.

LO 3 SEC milestones to be achieved for adoption of IFRS.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Work Plan for Incorporating IFRS
• The work plan for incorporating IFRS into the financial reporting system
includes:
1) Full adoption of IFRS on a specified date, without any endorsement
mechanism.
2) Full adoption of IFRS following staged transition over several years.
3) An option for U.S. issuers to apply IFRS.
4) Retaining U.S. GAAP with continued convergence efforts, with or without
a specific mechanism in place to promote alignment with IFRS.
5) Retaining a U.S. standard-setter (condorsement).

LO 4 SEC work plan for incorporating IFRS

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Ability to Use Interactive Data For IFRS Reporting
• In 2009, the SEC issued rule “Interactive Data to Improve
Financial Reporting”.
– Requires domestic and foreign companies using US
GAAP (and eventually those using IFRS) to provide their
financial statements in XBRL (eXtensible Business
Reporting Language).
• This format provides an exhibit to the current reports
and registration statements and provides “detailed
tagging” of the footnotes and schedules.
LO 3 SEC milestones to be achieved for adoption of IFRS.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Ability to Use Interactive Data For IFRS Reporting
• In April 2011, the SEC acknowledged that it would be
impossible for foreign private issuers using IFRS and
filing with the SEC to file in XBRL because the SEC
had not approved the IFRS XBRL taxonomy.
– Since March 2011, the SEC has yet to approve the
IFRS Foundation’s taxonomy that would allow IFRS
users to file in XBRL.

LO 3 SEC milestones to be achieved for adoption of IFRS.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Possible Adoption Approaches
1. Full Adoption of IFRS – countries recognize IFRS as issued by
the IASB as GAAP.
2. Adopt IFRS after Some Incorporation Process – allows each
country to address country-specific issues. This results in the
following:
– Convergence approach: jurisdictions maintain their local
standards but work to converge with IFRS over time.
– Endorsement approach: jurisdictions incorporate individual
IFRS into local standards.
LO 4 SEC work plan for incorporating IFRS

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
Possible Adoption Approaches
3) “Condorsement” of IFRS – focus of the SEC’s work plan, predicated
on several principles:
– U.S. GAAP would be retained, but the FASB would incorporate
IFRS into U.S. GAAP over a defined period, with a focus on

minimizing transition costs.
– The FASB would incorporate newly issued IFRS into U.S. GAAP
pursuant to some established endorsement protocol.
• There may be a need for U.S. interpretations of IFRS on issues
that are significant in the U.S. but not in the remainder of the
world.
LO 4 SEC work plan for incorporating IFRS

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


Historical Perspective: The Road To
Convergence
The Role of the SEC and the FASB

• The SEC would retain the ultimate authority to establish financial reporting
requirements in instances in which interpretative guidance is required or
appropriate for U.S. constituents.
– The SEC could issue guidance following similar processes to those employed
currently such as issuing Staff Accounting Bulletins.
– The SEC would monitor international standard-setting developments.
• Currently IFRS do not have any requirements for oil and gas companies and
the SEC could decide to retain reporting requirements upon incorporation of
IFRS.

LO 4 SEC’ work plan for incorporating IFRS

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.

Similarities and Differences
Similarities and Differences Between U.S. GAAP and IFRS
• In general,
U.S. GAAP are considered to be more rules-based, while
IFRS is considered to be more principles-based, although
• this dichotomy is an over-simplification as most U.S. rules are
rooted in principles
• and the IASB is embracing more interpretative details of its
principles over time.

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS
• U.S. GAAP Hierarchy—Effective September 2009
– Authoritative: Included in the FASB Accounting
Standards Codification.
– Non-Authoritative: Not included in the FASB
Accounting Standards Codification.
– Exceptions: SEC registrants must also follow SEC
rules and regulations issued under the authority of
federal securities laws.

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.

GAAP Hierarchy-U.S. Versus
IFRS
IFRS Hierarchy (issued by the IASB)
• IFRS/IAS statements (8 IFRS and 41 IAS standards) and
IFRIC/SIC Interpretations (32 SIC and 14 IFRIC). SIC stands for
the Standards Interpretations Committee.
• Apply a method that is relevant, reliable, represents faithfully the
financial position, the performance, and cash flows of the firm;
reflect the economic substance of the firm.
• Look to recent pronouncements of other standard setters which
use a similar conceptual framework (i.e., U.S. GAAP).
• The conceptual framework.
LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS
Similarities and Differences between FASB and IASB

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus

IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.


GAAP Hierarchy-U.S. Versus
IFRS

LO 2 Differences between IFRS and U.S. GAAP.

Copyright © 2015. John Wiley & Sons, Inc. All rights reserved.