Accounting 522
Syllabus for Fall of 2012
1. General Information
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Instructor: Victoria Krivogorsky, Ph.D.
Office Hours: W 15:00-15:50;
Email: sdsu.acctg522@gmail.com
Office: SS 2435
2. Course Description
This course covers the issues related to the accounting convergence, IASB-FASB joint projects and current changes in International Financial Reporting
Standards. As such it analyzes the conceptual framework, identifies the major differences between US GAAP and IFRS, and examines accounting methods
used by IAS/IFRS. The overall goal of this course is to bridge the information gap produced by convergence of accounting standards and help students to gain
practical insights for carrying out and promoting their future professional activities.
Audience: This course is designed for graduate and undergraduate students with an advanced knowledge of accounting.
2. Required Text
Required material will be posted on BB.
3. References
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Any Intermediate Accounting text book.
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US GAAP from FASB Website

IFRS from IASB Website
4. Topics and Assignments
TOPICS
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Conceptual framework (IFRS/IAS)
Financial Statements (IAS1, IFRS1)
Assets {Revaluation model, FMV, impairment, initial measurement and measurement subsequent to the initial recognition (IAS16, IAS 36)}
Financial Instruments (Recognition, Measurements, Presentation and Disclosure (IAS 32, IFRS7, IAS39)}
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 L-T Liability (IAS 1, IAS 23, IAS 32, IAS 39)
 Equity (Key features of corporate structure, Corporate Governance, Contributed equity- issuance and subsequent movements, Reserves, Dividends, (IAS 1,
IAS 8, IAS10, IAS16))
 Revenue {The distinction between income and revenue, measurement at fair value, the recognition criteria (IAS18)}
 Business Combinations {Accounting in the records of acquirer: assets and liabilities assumed and considerations transferred, bargain purchase, etc.
Accounting in the records of an acquiree. Subsequent adjustments. Associates.
 Consolidations (controlled and wholly owned entities)
 Control as a criterion of consolidation, identification of acquirer, entries at the acquisition date and subsequent to the acquisition date
SCHEDULE
The information on the Black Board is organized in folders, so you may easily find the relevant material by downloading the information from the relevant
folder. Before each class meeting you need to download and bring to class the following information from the Black Board:
Power Points presentation
Lecture notes
Examples and solutions to the examples
International spotlight
HW
Cases (all cases are also included below for those students who do not have an access to BB yet)
The HW should be done individually, typed and signed. It will be collected at the beginning of the class. It is a student responsibility to turn-in HW. NO LATE
HW WILL BE ACCEPTED.
In-Class work will be collected at the end of each class period unless it is announced in class otherwise. No extra time will be given for the in-class work. Inclass work should be signed by EACH team member individually. If one person signs for somebody else both students receive zero for the in-class work. Inclass assignments signed by one person (for all team members) will not be graded at all and every team member gets zero.
After HW and in-class work are collected, the solutions will be posted on BB.
You should read the summaries for each topic before coming to class.
You need to have the supplementary material with you at all times.
(T stands for Topic)
Date
Week Topic
01/18
1
Introduction and T1- IFRS Adoption
01/25
2
T2- IFRS Conceptual framework (IFRS/IAS)
2
02/01
3
T3- Presentation of Financial Statements (IAS1, IFRS1)
02/08
4
02/15
5
T4- PPE {Revaluation model and depreciation by components- componentization, reverse impairment} (IAS16,
IAS 36)
T5- Intangible Assets (Goodwill), Impairment
02/22
6
T6 - Financial Instruments (IAS 32, IFRS7, IAS39)
03/02
(Friday)
7
EXAM 1 (no class on February 29, 2012)
03/07
8
T7- Equity (IAS 1, IAS 8, IAS10, IAS16)
03/14
9
T8- Revenue (IAS18)
03/21
10
T8- Revenue (IAS18)
03/28
11
Spring Recess (no class on this day)
04/06
12
EXAM 2 (no class on April 4, 2012)
04/11
13
T9 - Business Combinations (IFRS 3)
04/18
14
T9 - T10 - Business Combinations (IFRS 3) and Consolidations.
04/25
15
T9 - T10 - Business Combinations (IFRS 3) and Consolidations.
04/27
15
Presentation at 4:00 pm in SSW1500
05/02
16
No class (in exchange for presentation time)
05/09
17
Free study day according to corrected SDSU Academic Calendar for Spring 2012. (no class on this day)
05/12
18
EXAM 3
Assignments
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Exams and Homework Problems are to be completed individually, while In-Class Discussion Problems are to be completed by your group. In-class
assignments must be finished before the class period is over and signed individually be each group member. The absence of the individual signature will
result in a grade of zero for the in-class assignment. The in-class assignments will be collected at the end of the class period.
Homework must be done individually, typed and turned-in at the beginning of each class period. The homework is collected at the beginning of each class
period. It is students’ responsibility to remember to turn-in the homework.
The timing of coursework and course related documents are contained in the schedule, which must be considered as a part of the syllabus. The schedule
is included in the syllabus and posted on Blackboard as a separate document.
CASES
WEEK 2 (T2)
The Definition Deliberation
Part 1
Background
Following is the definition of an asset from three sources:
► SFAC No. 6, paragraph 25: “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or
events.”
► IASB The Conceptual Framework for Financial Reporting, Chapter 4, paragraph 4.4(a): “An asset is a resource controlled by the entity as a result of past
events and from which future economic benefits are expected to flow to the entity.”
► The Boards’ working definition as of October 2008 from the Joint Project on Conceptual Framework, Phase B – Elements and Recognition: “An asset of an
entity is a present economic resource to which the entity has a right or other access that others do not have.”
Required
► Read each definition and compare and contrast the FASB and IASB versions and then compare to the Boards’ definition.
► What is the best definition and why?
► Review the following items and evaluate if they should be recorded as an asset under the Boards’ definition defined above. Focus on “… present
economic resource” and “… right or other access” in your analysis. Complete the table provided.
Item
“… present
“… right or
Asset
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economic
resource”
(Y/N)
other
access”
(Y/N)
(Y/N)
Cash
Accounts receivable
Uncollectible accounts receivable
Raw materials for inventory
Accounts receivable arising from
future sales
Proven oil reserves
Goodwill
Part 2
Background
Following is the definition of a liability from three sources:
► SFAC No. 6, paragraph 35: “Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer
assets or provide services to other entities in the future as a result of past transactions or events.”
► IASB The Conceptual Framework for Financial Reporting, Chapter 4, paragraph 4.4(b): “A liability is a present obligation of the entity arising from past
events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.”
► The Boards’ working definition as of October 2008 from the Joint Project on Conceptual Framework, Phase B – Elements and Recognition: “A liability of
an entity is a present economic obligation for which the entity is the obligor.”
Required
► Read each definition and compare and contrast the FASB and IASB versions and then compare to the Boards’ definition.
► What is the best definition and why?
► Review the following items and evaluate if they should be recorded as a liability under the Boards’ definition above. Focus on “… present economic
obligation” and “… entity is obligor” in your analysis. Complete the table provided.
Item
Accounts payable
Bank loan outstanding
Future inventory purchases
Discretionary employee bonuses
Existing property lease
Product warranty obligation
“… present
economic
obligation”
(Y/N)
“… entity is
obligor”
(Y/N)
Liability
(Y/N)
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Lawsuit settlement (no lawsuit has been filed and
no manifestation of intent has been expressed)
WEEK 3 (T3)
Financial statements
The Case of the Missing Definitions
Note: In the following exercise, you are required to review pre-codification standards. Pre-codified standards are accessible on the FASB website at
www.fasb.org or, in the event that your school participates in the American Accounting Association’s Academic Accounting Access program, they may be
found there as well.
Background
You just obtained an internship at Sherlock Detective Agency for the summer. You, along with your fellow intern, Dr. “Wannabe” Watson (a promising
accounting PhD student) are given an assignment to assess key financial measures for reporting financial information on the statement of income based on
requirements for US GAAP, the SEC and IFRS. You are told there might be some definitions missing for these key financial measures. Watson, the skeptic that
he is, does not believe this could be possible because these key financial measures are so critical to the capital markets. You want to prove him wrong using
your skills in deductive reasoning. Your boss, Sherlock, has given you the following premises and conclusions for your review. Additionally, he has provided
you his file of background information.
Premise 1: US GAAP does not define “operating profit.”
Premise 2: The SEC defines certain key measures that are to be reported on the face of the statement of income but these measures do not include operating
profit.
Premise 3: The SEC refers to US GAAP measures within its reporting requirements.
Premise 4: IFRS does not define operating profit or require it to be reported.
Conclusion 1: While operating profit is not defined using US GAAP, it is reported as “operating income” less “operating expenses” through common practice
and is understood to be US GAAP by the SEC.
Conclusion 2: While operating profit is not defined and required to be reported using IFRS, similar to US GAAP, it is understood and reported through
common practice.
After opening the case file, you find the following:
► An information sheet with statements and sources partially completed as shown below.
► Direction to do an internet search for the definition of operating profit/income.
► Directions to gather the most recent US GAAP statements of income for the following US companies that file with the SEC (Form 10-K):
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► Amazon.com – www.amazon.com
► Coca-Cola – www.cocacola.com
► Hewlett-Packard – hp.com
► Directions to gather the most recent statements of income for the following foreign companies:
► SAP – www.sap.com
► France Telecom – www.francetelecom.com
► Nokia – www.nokia.com
► H&M – www.hm.com
► Lufthansa AG – www.lufthansa-financials.de
► Nestle – www.nestle.com
► EADS (owner of Airbus) – www.reports.eads.com
WEEK 4 (T4)
Old Line Manufacturing
Background
Fixed assets are the primary asset of Old Line Manufacturing Company (Old Line). As of December 2010, Old Line is having liquidity problems. Old Line’s
borrowing base is limited to 60% of its net fixed assets. The CFO has been entertaining the idea of changing from US GAAP to IFRS. The bank has agreed to
loan up to 60% of the net fixed assets regardless of whether Old Line uses US GAAP or IFRS for accounting purposes.
Land A
Land is carried at its historical cost of $4.0 million, while its fair value is $5.0 million.
Building B
Building B, with a 30-year life, was acquired 10 years ago at a cost of $60.0 million. The fair value of the building is estimated to be $40.0 million at the end of
2010.
Equipment C
On January 1, 2006, equipment C was acquired at a cost of $10.0 million. It had a 10-year service life with no estimated scrap value. At the end of 2010, there
have been technological innovations that may have impaired this equipment, which now has an estimated fair value of $1.0 million. The future undiscounted
cash flows from this equipment are estimated to be $5.0 million, while the discounted net present value of the expected cash flows is estimated to be $3.0
million.
Equipment D
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This equipment was acquired in 2007 at a cost of $10.0 million. It had a six-year service life with a $1.0 million estimated scrap value. At the end of 2008, the
equipment was believed to be impaired and it was written down $2.0 million. At the end of 2010, it no longer appears any impairment reserve is necessary.
Equipment E
This piece of equipment was acquired in 2010 at a cost of $12.0 million. The service life is expected to be eight years and no net salvage value is expected. A
major component of this equipment is the motor, which costs $4.0 million and must be replaced every four years.
Equipment F
Construction of this equipment started on January 1, 2010 and was completed on January 1, 2011. Old Line borrowed $20.0 million denominated in US dollars
on January 1, 2010 to finance construction of this equipment. The interest rate on this loan was 10%. Old Line made payments of $10.0 million on January 1,
2010 and $10.0 million on July 1, 2010 related to the construction of this equipment. Excess funds during this period were invested at a return of 6%. Old Line
also incurred a $1.0 million exchange rate loss on other borrowings during 2010.
Required
► Analyze the accounting for each fixed asset class using US GAAP and IFRS. Assume the Company uses straight-line depreciation for all its fixed assets
and takes a full year of depreciation in the year of the addition.
► Based on your analysis, determine how to best maximize the amount of net fixed assets.
► Prepare a formal report addressed to the CFO of Old Line formally articulating your analysis and recommendations to Old Line.
WEEK 5 (T5)
Capitalization of R&D: What Do You See?
Background
US GAAP does not allow capitalization of development costs, with certain exceptions:
►
►
►
►
►
ASC 985-20
Internal-use software
Website development
Certain other industry-specific standards
Developed technology in a business combination
IAS 38 allows capitalization of these development costs and a broad range of other types of development costs not otherwise allowed to be capitalized using
ASC 730-10.
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Using both ASC 985-20 and IAS 38, development costs cannot be capitalized until certain criteria have been met in the research and development (R&D)
process. Both standards’ criteria are similar, but there are some differences (paragraph ASC 985-20-25-2 and paragraph 57 of IAS 38). Also, both standards
provide criteria that can be very subjective since products and technologies from company to company may vary significantly.
It can be argued that the issuance of ASC 985-20 and IAS 38 could provide incentives for companies in the software industry (using US GAAP or IFRS) and in
the technology and pharmaceutical industries (using IFRS) to capitalize a substantial portion of R&D costs.
Required
► Obtain the filings for at least three of the following companies that use US GAAP and three of the following companies that use IFRS:
US GAAP – Form 10-K
-
Microsoft Corporation (www.microsoft.com/msft)
Adobe Systems Incorporated (www.adobe.com/aboutadobe/invrelations)
Oracle Corporation (www.oracle.com/corporate/investor_relations)
EMC Corporation (www.emc.com/ir)
Cisco Systems, Inc. (http://investor.cisco.com)
Intuit Inc. (www.intuit.com/about_intuit/investors)
IFRS – Form 20-F
- Novartis AG (www.novartis.com/investors)
- Nokia (http://investors.nokia.com)
- SAP AG (www.sap.com/about/investor)
- Siemens (http://w1.siemens/investor/en/)
- Sanofi-Aventis (http://en.sanofi-aventis.com/investors)
- France Telecom (www.orange.com/en_EN/finance)
► Review the financial statements and footnotes related to the application of ASC 985-20 and IAS 38.
► You may also want to review the following:
-
IFRS Q&A on IAS 38.57, Ernst & Young (July 2006) (see attached).
-
Capitalization of Software Development Costs: A Survey of Accounting Practice in the Software Industry, Mulford, Charles W., Roberts, Jack, Georgia
Tech Financial Analysis Lab, (May 2006): www.mgt.gatech.edu/finlab.
► What incentives do managers have for capitalizing versus not capitalizing software development costs?
► Based on your review, does it appear that management is capitalizing a significant portion of R&D costs? Why or why not?
► What do the accounting policies disclosures seem to show, as a practical matter, as to how companies determine the point at which costs may be capitalized?
► Given the criteria in ASC 985-20-25-2 and paragraph 57 of IAS 38:
-
Could there be a difference in the amount of software development costs capitalized using US GAAP and IFRS? Why or why not?
-
Do you think software development costs capitalized using US GAAP would be more or less using IFRS? Why or why not?
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Attachment
IFRS Q&A on IAS 38.57, Ernst & Young
IAS 38.57-2 - Accounting for development costs by entities in the Pharmaceutical industry (July 2006)
Issue
When should Pharmaceutical companies begin capitalizing development costs relating to new drugs?
Fact Pattern
Pharmaceutical companies incur significant Research and Development (“R&D”) costs to develop new ethical (prescription) drugs with high technical knowhow. Experience shows that there is real uncertainty relating to the outcome of the product, mainly due to the product level of efficacy, the related potential
safety issues and the regulatory approval process.
► The different clinical studies performed from phase II to III (see Appendix for definition of phases of pharmaceutical product development) are performed
over an extended period, often as long as 8 to 10 years, and at the early phase II stage the probability of success of an identified active compound is very
low.
► The pharmaceutical companies prepare a very detailed file for each new drug approval request. This file is examined by the relevant regulatory authorities,
who determine whether to grant the new drug approval, depending on the file’s quality and the advantage of the product compared to other existing
products.
► Generally the vast majority of costs relating to the development of products are incurred prior to filing. Often the costs after the date of approval are not
significant compared to the total development costs.
This raises the question as to when capitalization of development costs should begin: before the filing date, at the filing date or at the date of the approval.
Conclusion
In the pharmaceutical sector, the capitalization of development cost for new drugs would in most cases begin at the date on which the product receives
regulatory approval as in most cases, that is when the criteria for recognition of intangible assets are met. It is unlikely that the criteria for recognition of
intangible assets will have been met before the request for new drug approval is filed.
Reasons for Conclusion
According to IAS 38, Intangible Assets, to assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the
generation of the asset into:
► Research phase: expenditure on that phase should be expensed.
► Development phase: expenditure should be capitalized if and only if the entity can demonstrate the existence of all six circumstances specified in paragraph
57 of IAS 38 (see below).
According to paragraph 53 of IAS 38, if the entity cannot distinguish the research phase from the development phase of an internal project to create an
intangible asset, the expenditure on that project should be treated as if it were incurred in the research phase only.
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WEEK 6 EXAM
WEEK 7(T7)
Jillian Limited: The Debt Equity Dilemma
Background
Jillian Limited (JL) issued a financial instrument with the following terms:
► A face value of $100
► Not secured by any assets of the entity (unsecured)
► Redeemable in cash at the option of the issuer
► Pays 5% of face value annually
► The 5% doubles in five years (to 10%) if the shares are not redeemed. In 10 years, the annual payments double again if not redeemed by that time.
Other information to consider:
► Current interest rates are 4%. Rates are expected to remain stable or decline in the short to midterm.
► JL currently has a loan outstanding with the bank. Under the terms of the loan agreements, the debt to equity ratio may not exceed 2:1. Currently, before
accounting for the new instruments, the debt to equity ratio is at 2:1.
► JL is a public company (SEC registrant) and is considering listing on the London Stock Exchange, which would require reporting under IFRS.
Required
► Discuss how JL should account for the financial instrument on the balance sheet (debt or equity) given that JL might be reporting under both US GAAP
(SFAS No. 150 (ASC 480-10)) and IFRS (IAS 39). Discuss any ramifications of this classification.
WEEK 8 (T8)
Fly the Revenue Skies
Background
Many entities use a customer loyalty program (CLP) to build brand loyalty, retain their valuable customers and increase sales volumes. A CLP is generally
designed to reward customers for past purchases and to provide them with incentive to make further purchases. Typically, customers purchase goods or
services and earn award credits (e.g., points or air miles) that can be used to obtain free or discounted goods and services.
A typical but more complex CLP is an airline frequent flyer program (FFP) that accumulates miles based on flights taken, which may be redeemed for free
flights or other goods sold by the airline or a third party. The airline might also sell FFP award credits to a partner, e.g., a credit card company, for the partner
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to issue the credits to its customers who are also members of the FFP. These amounts can be extremely significant. They were recently valued in the hundreds
of billions of dollars according to the Economist.
In the absence of specific guidance in IFRS on accounting for the obligation relating to the redemption of the award credits, differing practices have developed.
Either:
► The cost of supplying the goods or services in the future is recognized as an expense at the time of selling the goods, giving rise to a liability. This views
the FFP as a marketing tool and, therefore, fulfillment of the obligation attached to the award credits is a marketing cost. Differing practices emerged as to
how cost is determined – full cost or incremental cost.
► The award credit is treated as a separate component of the sales transaction that requires delivery in the future, and an element of the consideration is
recognized as deferred revenue. This deferred revenue treatment views the issue of award credits as an exchange of economic benefits that is in the nature
of a sale.
Under both of these approaches, there have been differing practices applied to factor expected award redemption rates into the measurement of the liability.
The IFRIC considered this issue and in June 2007, the IASB issued Interpretation 13, Customer Loyalty Programmes (IFRIC 13), applicable for entities with
annual periods beginning on or after July 1, 2008, with early adoption permitted. IFRIC 13 reflects the conclusion that award credits granted to customers are a
separate component of the initial sales transaction; therefore, consideration should be allocated between the services and the award. This consideration is
measured by reference to fair value, which is the amount for which the award credits could be sold separately.
IFRIC 13 includes guidance on how to measure the award credit component of the sale, the timing and amount of the related revenue that is recognized in profit
or loss and how this revenue is to be presented (gross or net of the costs incurred in fulfilling the obligation). IFRIC 13 also includes guidance on the need to
recognize an additional liability should the unavoidable costs of meeting the obligation to supply the awards be expected to exceed the consideration received
for them. Lastly, IFRIC 13 includes guidance on measuring fair value. If the fair value is not directly observable, it must be estimated.
For entities that have previously applied a cost approach and, in particular, an incremental cost approach, and for entities that applied a deferred revenue
approach but did not account for changes in expected award redemption rates in the manner prescribed by IFRIC 13, the Interpretation may result in a
significant change in the point in time at which revenue is recognized.
The conclusions reached by the IFRIC are not the same as those applied under US GAAP. The Emerging Issues Task Force (EITF) discussed accounting for
point and loyalty programs, but did not reach a conclusion. Consequently, two different practices have emerged in the US, similar to the incremental cost and
deferred revenue approaches noted above. IFRIC 13 also differs from US GAAP in how the expected redemption rate is taken into account.
Requirements
► Obtain and review the following guidance:
–
IAS 18, Revenue, paragraph 13, and IFRIC 13, Customer Loyalty Programmes
–
Sacho Z. IFRIC 13: How ready are you?. Accountancy [serial on the Internet]. (2008, Feb), [cited May 25, 2009]; 141(1374): 80-81.
► Obtain and review the accounting policy disclosures related to the FFP for each of the following airlines in their annual reports:
–
Delta (2010 and 2011): www.delta.com/about_delta/investor_relations/index.jsp
–
UAL (2010 and 2011): www.united.com/investorrelations
–
American (2010 and 2011):www.aa.com/aa/i18nForward.do?p=/aboutUs/main.jsp
–
Continental (2010 and 2011): www.continental.com/web/en-US/content/company/investor/default.aspx
–
British Airways (2010 and 2011): www.bashares.com/phoenix.zhtml?c=69499&p=irol-index
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–
Quantas Group (2010 and 2011): www.qantas.com.au/info/about/investors/index
► Form a group (three to five members) and discuss the following:
–
Determine the revenue recognition policy used by each airline: incremental cost or deferred revenue.
–
Do you believe it is good to have two different methods or should all airlines have to report the same way? Do you think this impacts comparability?
–
Did any airline have a recent change in policy, and if so, why? What was the financial statement impact from this change in accounting policy?
–
Do you believe that fair value of award points would be directly observable in this industry? If not, what things might need to be considered to
estimate the fair value of award points and redemption?
Paragraph 57 of IAS 38 states:
“An intangible asset arising from development (or from the development phase of an internal project) shall be recognized if, and only if, an entity can
demonstrate all of the following:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for
the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.”
For the pharmaceutical industry, criterion a) tends to be the most difficult to achieve, because the status ‘available for use’ is highly dependent upon the
regulatory approval process. Due to the uncertainties associated with clinical studies during the development phase and the rather low rate of success, the
technical feasibility of completing the product generally cannot be demonstrated before the request for new drug approval is approved; pharmaceutical
companies frequently have to abandon development projects, sometimes at a quite late stage of development. However, in certain cases (e.g., for generic drugs)
the criteria for recognition of intangible assets might be met earlier.
Some recent decisions made by the U.S. Food and Drug Administration (“FDA") refusing to grant new drug approvals indicate that filing alone may not be
sufficient to demonstrate the technical feasibility of completing the product so that it will be available for sale: the regulatory authority may reject the project or
ask for additional clinical studies which might take several additional years. Further, the approval obtained in one particular country might not provide a
sufficient basis for capitalizing the development costs incurred to obtain new drug approval in other countries. Whether capitalization of costs can be done
based on filing in a different country or area should be evaluated on a case by case basis. In some countries (e.g., Japan), clinical studies must be re-performed
in accordance with local guidance which may differ from that of other countries.
Each filing should be analyzed in detail and a specific conclusion should be reached as to the starting point for capitalization of the development costs.
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Once the technical feasibility of completing the product so that it will be available for use or sale is demonstrated and all other criteria for recognition of
intangible assets have been met, capitalization of R&D costs should begin.
Appendix
The new drug development process:
Phase I trials are the first human tests conducted in a very small group of healthy volunteers to assess the safety and the potential dosing range of the drug.
Once the initial safety of the therapy has been established in Phase I trials, in Phase II trials the drug is administered to a still relatively small population of sick
patients to look for initial signs of effectiveness in treating the targeted disease, while Phase I assessments continue in a larger group of volunteers and patients.
The development process for a new drug commonly fails during Phase II trials due to the discovery of poor efficacy or toxic effects.
In the Phase III trials the drug is tested on much larger patient populations to prove efficacy in a more rigorous and statistically significant way. These trials are
generally global in nature and are designed to generate all of the data necessary for inclusion in the regulatory submission documents. Often these studies will
involve a comparison of the new drug with existing competitive products and with placebos.
Dated Approved by IFRS Policy Committee: July 12, 2006
WEEK 9 EXAM
WEEK 10(T9)
JK Software
Background
JK Software (JKS), a public company with quarterly reporting, signed a contract with JR Gardens on November 1, 2009. The contract sets forth the
arrangements wherein JKS sells JR Gardens software and provides post-contract support (PCS). The agreement stipulates that the software will be delivered on
December 15, 2009, and the PCS will commence on January 1, 2010, and continue through December 31, 2010. The software will be fully functional at
delivery. The sales price that is stated in the agreement for this combined product is $500,000 and is to be paid upon delivery of the software.
JKS has never sold software without also providing PCS. Likewise, they do not provide PCS without having also sold the client the software. In addition, they
have no plans of separating these services in the future. Other vendors have sold similar software for the following amounts:
Vendor
Software
PSC
AB
$ 400,000
$ 250,000
CD
$ 500,000
$ 50,000
EF
$ 400,000
$ 200,000
GH
$ 300,000
$ 300,000
The costs related to both the software and the PCS arrangement are significant and easily measurable.
Required
► Obtain and review IAS 18, Revenue, and SOP 97-2 (ASC 985-605), Software Revenue Recognition
► Review and discuss what the general rules are for this transaction.
► When, and how much, revenue is recognized by JK Software under both US GAAP and IFRS? Please provide all necessary journal entries.
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► Which approach (US GAAP versus IFRS) do you think is the best? Why?
–
Subsequent measurement of preacquisition contingent liabilities
Note: In the following exercise, you are required to review the Basis for Conclusions (BCs) for the standard(s) that provides the accounting guidance for this
topic. As the BCs are generally not included in the codification and thus are not authoritative, it will most likely be necessary for you to research them through
review of the pre-codified standards. Appropriate references have been provided to allow you to do so. Pre-codified standards are accessible on the FASB
website at www.fasb.org or, in the event that your school participates in the American Accounting Association's Academic Accounting Access program, they
may be found there as well.
Scene 1:
When one company acquires another, it is often the case that the acquiree will have certain existing situations which may ultimately require a future payout.
Typically, these sorts of contingent liabilities are covered under ASC 450, Contingencies (US GAAP), and IAS 37, Provisions, Contingent Liabilities and
Contingent Assets (IFRS). However, in the case of merger and acquisition transactions, the initial recognition of these liabilities is generally governed by ASC
805, Business Combinations (US GAAP) and IFRS 3(R), Business Combinations (IFRS). Once these liabilities are recognized (or not), the acquirer requires
guidance on subsequent measurement.
Read ASC 805-20-35-3 and IFRS 3(R), paragraph 56.
► What are the current rules, under both US GAAP and IFRS, for measurement of these contingencies in periods subsequent to the acquisition?
Scene 2:
Read FSP SFAS No. 141(R)-1, paragraphs B13 through B20, and IFRS 3(R), paragraphs BC232 through BC245.
► What alternatives did the FASB consider in addition to the one they ultimately chose? Why did they not choose these approaches?
► What alternative did the IASB consider in addition to the one they ultimately chose? Why did they not choose these approaches?
Scene 3:
► Which of all of the approaches considered do you prefer? Provide an explanation for your answer.
WEEK 11(T10)
Proportionate Versus Fair Value
Background
In 2010, Company A is formed with $630,000 in capital from the sale of 21,000 shares of stock at $30 a share. Company A, which has no other operations,
immediately acquires 60% of the voting stock of Company S for $630,000. Company S is a business whose fair value of identifiable net assets on the date of
Company A’s acquisition is $700,000. This amount includes a $30,000 premium that was paid to gain control of Company S. The fair value of the 40% noncontrolling interest (NCI) is $400,000.
Company A subsequently sold another 3,000 shares of its stock at $50 per share. Company A used the $150,000 proceeds to acquire 10% of the outstanding
voting stock of Company S held by the NCI. Assume, for purposes of this example, that the carrying amount of the NCI under the proportionate method and the
fair-value method is unchanged from the value at the original investment date by Company A.
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Company A subsequently sells 60% of the voting interest in Company S for $900,000. The fair value of Company A’s retained interest of 10% in the voting
stock in Company S is $120,000. The carrying amount of the identifiable net assets of Company S, exclusive of goodwill, is $770,000 (assume the increase in
value was already recorded by Company A by recording a debit to investment and a credit to income, both for $70,000). Assume for purposes of this example
that the carrying amount of the NCI under the proportionate method and the fair value method are unchanged from the value at the date of the additional 10%
interest purchased by Company A.
Required
► Show the calculations and journal entries to record Company A’s initial investment in Company S under the proportionate method and the fair-value
method.
► Show the calculations and journal entries to record Company A’s additional investment in Company S under the proportionate method and the fair-value
method.
► Show the calculations and journal entries to record Company A’s sale of its 60% investment in Company S under the proportionate method and the fair-
value method.
► Additional requirements:
–
Depending on the method utilized, how would the financial statements be impacted?
–
Do you believe the differences between US GAAP and IFRS are significant? Provide support for your answer.
–
Which method provides a better reflection of the underlying transactions? Provide support for your answer.
E-mail Policy
I apologize if the e-mail process described below seems a bit onerous. It is not meant to discourage you from e-mailing. It is meant to replicate the type of
process you should use in the real business world. Whether you go into public or private accounting, the impression you make on your supervisor/boss will
have long lasting repercussions for you in terms of pay and promotions. The quickest way to give a poor impression is by asking questions whose answers
are readily available to you or by not showing a thorough effort to attempt to answer your own question first. In public accounting you are likely to be
assessed after each engagement on “ownership” of your problems. In private accounting, a yearly review will likely include “appropriate use of own and
supervisor’s time” as well as an “initiative” component. The process described below approximates (in an academic sense) what you should do in public
and private accounting and should lead to acceptable ratings on their assessment tools.
If you need to contact me through e-mail, please use the following guidelines.
1)
2)
3)
4)
You should send e-mails to: sdsu.acctg522@gmail.com
The subject line should contain: ACCT522 (for both me and the TAs)
I will not reply without your full name and subject information.
Please, do not e-mail me or the TA with questions unless you have first verified that the information is not in the syllabus, have not been emailed to
you already and in addition posted on the BB, and you have checked with your study group. In other words, if you have questions about what
assignment is due, when the exam is, etc., please make sure that information is not publicly available already.
5) The expected turnaround time for e-mails sent between 9 am to 6 pm, M – F is within 24 hours.
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5. Changes to the Course Schedule and Content
You are responsible for checking your email and BlackBoard site for any changes to the course schedule and/or content. If you are not present in class
when an announcement is made of changes to the schedule or content, you are still responsible for any updated changes. Changes can occur at any time
during the semester at the discretion of the instructor. Please, note that the schedule for this class is included in the body of this document and is presented
separately on Blackboard.
6. Classroom Format
During class the atmosphere in the classroom will be active and informal. This usually involves a short lecture or update by the instructor, interspersed
with group activities. Group discussion problems will be given out in class. Any supplementary readings and notifications will be via BlackBoard or email.
Students will be informed of any changes in the scheduling and timing of assignments using email. A copy of your completed homework will be gathered
from your group at the beginning of class on its due date. Group members should bring copies of the completed homework to class for use in class
discussions.
7. Expectations
The classroom learning environment is a combination of activities including lecture, discussions, and group work. Outside of class there will be individual
work requiring reading and analysis and group solution of homework problems. While I will help you maintain progress toward a successful completion
of required work, you have the responsibility to complete all assigned material and provide competent and thorough responses for all work submitted
8. Evaluation
This course has been designed for you to succeed. I expect you to participate in all aspects of this course. I will encourage you and give you help and
guidance when you ask for it or when I observe that you are struggling with the material. Points earned from any group work will be given to each group
member. If you attend all classes, read all assigned documents, and prepare for exams and group assignments, you should successfully complete this
course
Points can be earned from the following:
o
Exams: 100 points each (3 exams)
o
Completed Homework turned in on time: 5 points for all homework due for that class meeting (X assignments)
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o
In-Class Group Problems – 5 points each (variable number of problems)
Grades will be determined from a distribution of total points earned by each student in all sections of Accounting 522. Once a distribution of scores is
determined, I will assign cut-off scores for each grade (A, A-, B+, etc), determine the number of students for each grade, and then compute a grade point
average for the class. In other words, I will be grading on a curve, with the expectation that most, or all of you, should earn at least a C grade. Lack of
studying and/or poor performance on assignments and exams, however, can lead to a grade lower than a C.
9. Course Competencies
Our curriculum has been designed to reflect the realities of contemporary accounting and today’s business environment. This course is a reflection of that
effort by interweaving into the content an understanding of the ethical, environmental, international, regulatory, social, and political issues that impact and
define accounting. Additionally, the delivery of the course content is designed to develop and enhance your competency in exercising professional
judgment. This competency, along with an adequate foundation of knowledge, are the essential ingredients for successful entry and engagement in today’s
business and accounting environment. Hopefully, this course will encourage you to adopt an attitude of life-long learning, and as a result, allow you to
cope and adapt to the complex business issues that await you. (please, see the CBA oral communication rubric and CBA written communication rubric on
Black Board site for detailed information)
10. Students Learning Outcomes
At the end of this course students should be able to:
1.
Analyze the nature, function, and limits of financial reporting in a global environment.
2.
Analyze international accounting standards, and other information for business transactions.
3.
Apply professional judgment to determine the appropriate accounting measurement, recognition, and disclosure for business transactions in a global
environment.
11. Academic Honesty
The SDSU Standards for Student Conduct ( http://www.sa.sdsu.edu/srr/conduct1.html) states that unacceptable student behavior includes “cheating,
plagiarism, or other forms of academic dishonesty that are intended to gain unfair academic advantage.” Unprofessional conduct adversely impacts your
fellow students, the accounting faculty, the School of Accountancy, SDSU, and the accounting profession. The School of Accountancy takes academic
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honesty very seriously and vigorously enforces university policy related to any such infractions. As such, any student suspected of academic dishonesty
will be reported to the SDSU Center for Student Rights and Responsibilities; if found responsible for academic dishonesty, the student will receive an F in
ACCTG 522.
All work submitted for individual assignments must be your original work. You may not collaborate with other students or other persons and may not
copy the work of other persons. You are responsible if your work matches the work of other students or published or unpublished works of other
persons. Evidence of plagiarism or collaboration will result in serious penalties including grade reductions and university disciplinary sanctions.
All work submitted for assignments designated by the instructor in writing as group assignments must be the original work of the whole
group. Neither the group, nor individual members of the group is permitted to collaborate with or copy the work of other students or groups or persons
outside of the group. In addition, because the work submitted must be the work of the whole group, any group members who did not substantively
participate in the completion of the work shall not be permitted to put their names on the work. ("Substantive" in this context means analyzing the
problem, writing a solution to all parts of the assignment, attending group meetings, and participating actively in group discussions in which the whole
group develops the group solution. It does not mean copying, typing, editing, discussing and other superficial activities.)
You are responsible if your work matches the work of other students or groups or published or unpublished works of other persons. So do not allow
any other student or group to see your work or otherwise learn about its contents. Evidence of plagiarism or collaboration will result in serious penalties
including grade reductions and university disciplinary sanctions.
During exams no scratch paper, notes, books, or talking or other form of communication are permitted. You may not show your work to another
student or allow another student to look at your work. You may use a calculator that has the following functions and no others: addition, subtraction,
multiplication, and division (if any math is involved on an exam or quiz.) You may not use calculators that have text memory or alphabetic keys and you
may not use a cell phone, PDA, computer or other device except for the simple calculator described above. Upon instructor’s request, you must show your
calculator to the instructor at the beginning of each quiz. Failure to follow these rules will result in serious penalties including grade reductions and
university disciplinary sanctions.
The minimum penalty for failure to follow any of the rules in this honesty policy will be assigning a score of zero to the assignment or exam involved
and subtracting 50 points from your total points accumulated on all other exams and assignments. A single instance of failing to follow any of these rules
can result in receiving an F in the course and suspension from the university.
12. Information Sources
The following databases are available online directly or via the “Databases” button on BlackBoard
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Accounting Standards Codification A free database during the verification period. This database, when approved will be the sole source for
authoritative US GAAP. Anything outside this database will be nonauthoritative.
IFRS Resources A good source for the latest documents which affect the movement of the U.S. toward the adoption of IFRS. Site is sponsored and
maintained by the AICPA
XBRL Resources A good source for information about all aspects of XBRL
Bigcharts
A good source for historical stock prices. Must enter stock trading symbol.
Google Scholar
Research of various databases via Google. A very good place to start for most any business topics.
LexisNexis Academic: Accounting This database is accessed via the SDSU Library InfoDome and requires your RED ID. It contains a lot of
AICPA material that can be searched by keywords.
CPA Links This is a gateway through the AICPA to important accounting-related sites on the Internet.
Mergent Online This database provides financial data and analysis on all companies reporting to the SEC. It is accessed through the SDSU Library
InfoDome and requires your RED ID.
Oanda A very good site for obtaining historical currency exchange rates. For our applications you will be finding the Interbank Exchange rates (the
default rate). When you look for the number of US dollars to one foreign dollar, you are looking for a direct rate (versus an indirect rate). The format
on Oranda converting one currency to another means that one unit of currency on the left-hand side equals X units of currency on the right-hand side.
In other words, a $/₩ exchange rate, meaning the number of dollars to equal one WON, would be set up on Oranda with South Korean Won on the left
and U.S. Dollars on the right.
SEC Edgar Database An extensive database containing financial information of all publicly traded US companies.
Yahoo Finance A good source for financial information. Information is accessed by Company trading symbol. A symbol lookup is available. All sorts
of financial information can be accessed, including historical stock prices.
Factiva This database is accessed via the SDSU Library InfoDome and requires your RED ID. A very large database from Dow Jones Reuters
Business Interactive that provides access to major news sources. Articles can be copied and downloaded.
U.S. Code Collection Use Title 26 and section number to access the Internal Revenue Code
New York CPA Journal An accounting practitioner journal containing many articles and bulletins related to current issues in accounting.
Journal of Accountancy An accounting practitioner journal containing many articles and bulletins related to current issues in accounting.
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