IFRS
As of April 2011
Presented by
Teri Willoughby Deters
IFRS
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Who Impacted?
Differences between IFRS & US GAAP
IFRS for SMEs
Transition
Other considerations
Who Impacted?
IFRS – Who Impacted?
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Who needs to be thinking about IFRS
• Public companies
• Non-public with international
subsidiaries
IFRS – Who Impacted?
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Securities Exchange Commission
(“SEC”) believes a single set of highquality globally accepted accounting
standards will benefit U.S. investors
and the goal is consistent with their
mission to protect the investors.
SEC currently analyzing and decision
to be announced by end of 2011
IFRS – Who Impacted?
Country
Year
Accounting Standard to Apply
Canada
2011
International Accounting Standards
OR
Accounting Standards for Private
Enterprises
United
Kingdom
and Ireland
2014
International Accounting Standards
as adopted by EU, OR
Financial Reporting Standards for
Medium-sized Entities
2011-2014
India equivalent IFRS (recently
issued)
India
(depending on
net worth)
IFRS – Who Impacted?
Country
Year
Accounting Standard to Apply
China
Continuous China equivalent IFRS
Singapore
Continuous Singapore equivalent IFRS, OR
Mexico
Continuous Mexico equivalent IFRS
Singapore Financial Reporting
Standards for Small Entities
Differences between
IFRS & US GAAP
Differences between IFRS & US GAAP
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Areas for consideration in adopting
IFRS
• Tangible and intangible assets
• Liabilities
• Pension
• Financial instruments
• Income taxes
• Consolidation
Differences between IFRS & US GAAP
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Tangible and intangible assets under IFRS
• Prohibits costing of inventory using the LIFO
method
• Allows for revaluation
• Requires de-recognition of components of
assets
• Level in which impairments performed at the
cash-generating unit and involves only 1 step
• Allows for reversal of impairment losses
Differences between IFRS & US GAAP
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Liabilities under IFRS
• Contingencies recognized when an obligation
“more likely than not” exists
• When a range of possible outcomes exists, the
mid point of the range would be recognized
• Asset retirement obligations recorded at the
present value of the best estimate
• Provision should be recognized at the present
value of the expected expenditure
Differences between IFRS & US GAAP
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Pensions under IFRS (under
evaluation)
• Allows for recognition of actuarial gains
and losses in equity, without subsequent
recycling to net income
• Vested past service costs recognized
immediately in net income
• Curtailment gain recognized when
commitment to reduce employees is
demonstrated
Differences between IFRS & US GAAP
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Pensions under IFRS (under
evaluation)
• Classification of pension expense in
operating and non-operating income
(i.e., interest)
• Plan assets recognized at fair value;
calculated value is not allowable
• Recognition of an overall plan asset
subject to a ceiling test
IFRS
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Financial instruments under IFRS (under
evaluation)
• Instruments measured at fair value, including
equity instruments that do not have quoted
market price
• Reclassification between categories available
• Previous losses on debt instruments may be
reversed
• High threshold for de-recognition of financial
assets under securitization agreements
Differences between IFRS & US GAAP
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Financial Instruments and Equity
• Those items classified as mezzanine would be
classified as a financial liability
• Financial instruments issued between related
parties should be recognized at time of
issuance at fair value with an offsetting
earnings impact
• Effective yield method based upon expected
cash flows—not contractual cash flows
• Transaction costs should be reported net of the
financial liabilities, instead of a non-current
asset
Differences between IFRS & US GAAP
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Hedge accounting (under evaluation)
• Generally different definitions used and
differences in application of the methodologies
• Application of hedge accounting, specific to
foreign currency risk with a firm commitment
to enter a business combination, is permissible
• A parent company may apply hedge
accounting on foreign currency exposure of a
subsidiary, regardless of the parent company’s
functional currency
• Shortcut method that assumes no
ineffectiveness is not available under IFRS
Differences between IFRS & US GAAP
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Income taxes
• Current and deferred taxes recognized using
the enacted or substantively enacted tax rate
• Timing of recognition of deferred tax assets
• Recognition of deferred tax assets on the
following:
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Items relating to equity
Items not part of a business combination
Translation of non-monetary assets measured using
historical rates
Inter-company transfers
Differences between IFRS & US GAAP
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Income taxes
• A separate tax valuation allowance is
not maintained
• Uncertain tax positions recognized using
probability-weighted average method
• Entire balance classified as non-current
Differences between IFRS & US GAAP
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Functional currency
• Same premise—primary economic
environment. Be sure analysis is
consistent at the subsidiary and
consolidated level.
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Consolidations (under evaluation)
• Requires consolidation of all subsidiaries
• Point at which control is assessed
• Option for proportional consolidation of
jointly controlled entities
IFRS for SMEs
IFRS for SMEs
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Entities that qualify to use IFRS for
SMEs:
• Entities that do not have public
accountability, and
• Publish general purpose financial
statements for external users.
IFRS for SMEs
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Section 1 of IFRS for SMEs:
• “A subsidiary whose parent uses full
IFRSs, or that is part of a consolidated
group that uses full IFRSs, is not
prohibited from using IFRS for SMEs in
its own financial statements if that
subsidiary by itself does not have public
accountability.”
IFRS for SMEs
IFRS
IFRS for SMEs
Investments in Affiliates (IAS 28.13)
Use of equity method required, when
applicable
Investment in affiliates (Section 14.4)
Accounting policy election: cost, equity
or fair value
Joint ventures (IAS 31.30 and 31.38)
Proportionate consolidation or equity
method may be used
Joint venture (Section 15.9)
Same as investment in affiliates.
Proportionate consolidation not available
Intangibles (IAS 38.88)
Useful lives may be finite or indefinite
Intangibles (Section 18.19)
All intangible assets shall be considered
to have a finite useful life
Goodwill (IFRS 3.B63(a))
Measured at acquisition date less
accumulated impairment losses (under
IAS 36)
Goodwill (Section 19.23)
Measure at cost less accumulated
amortization and accumulated
impairment losses
Borrowing costs (IAS 23.8)
Borrowing costs shall be capitalized
when directly attributable to the
acquired asset
Borrowing costs (Section 25.2)
Borrowing costs are expensed as
incurred
IFRS for SMEs
• Completed contract method for revenue
recognition is prohibited.
• Hedge accounting is limited under IFRS
for SMEs. Only permitted for the
following hedge risks:
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Interest rate risk of a debt instrument
Foreign exchange interest rate risk in a firm
commitment or highly probable forecasted
transaction
Foreign exchange risk in a net investment
Price risk of a commodity
IFRS for SMEs
IFRS
IFRS for SMEs
Consolidated financial statements
Consolidated financial statements
(IAS 27.9 and 27.10)
(Section 9.3)
*Most likely will not meet exemption as the
ultimate or intermediate parent’s financial
statements are NOT publicly available
*May not meet the exemption if the
intermediate parent does not produce
consolidated general purpose financial
statements that comply with full IFRS
Receivables
Receivables
(IFRS 7.37)
Aging of receivables
Investment in Associates
No similar disclosure requirements
(IAS 28.37(b))
Investment in Associates
Disclose summarized financial data,
including assets liabilities, revenues and
profit (loss)
14.15)
Income taxes
Income taxes
(IAS 12.81)
(Section 14.12 and
No similar disclosure requirements
(Section 29.32)
Numerical tax rate reconciliation
Explanation of changes in applicable tax
rate
Capital management and risk
management (IAS 1.134 and IFRS 7.31)
Capital management and risk
management
No similar disclosure requirements
Transition
Transition
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Regardless of adopting IFRS or IFRS
for SMEs, the respective transition
standard shall be applied:
• IFRS 1, or
• Section 35 of IFRS for SMEs
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Comparable financial statements will
need to be provided
Accounting policies shall be reestablished and consistently applied
Transition
Activity
Policy Elections Available at Adoption
Business
Combinations
Elect to apply standards to acquisitions that occurred prior to
adoption OR apply to acquisitions from the transition date
going forward
Property
Property, plant and equipment may be recorded at either:
 Fair value
 Historical costs less accumulated depreciation (after assets
lives have been analyzed under newly-elected GAAP)
Investments
Investments may be recorded at either:
 Cost (under cost or equity method, as appropriate)
 Deemed costs: fair value or previous GAAP carrying
amount
in subsidiaries, jointly
controlled entities and
associates
Employee future
benefits
Cumulative translation
difference
All cumulative actuarial gains and losses and past services
costs may be recognized in opening retained earnings
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If reporting entity maintains CTA at the local level, this
amount may be recorded to retained earnings
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Transition
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Re-assess designation of financial assets
and liabilities
Retrospective application at time of
adoption:
• De-recognition of financial assets and
liabilities: prospective application for
transactions occurring on or after date of
transition
• Hedging: elimination all deferred gains
(losses)
• Non-controlling interest: prospective
application for changes in ownership
Other Considerations
Other Considerations
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Implementation team needs
System capabilities for financial
reporting purposes
• U.S. GAAP
• Parallel reporting
• Future statutory reporting
• Tax
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Communication with Tax and
Treasury teams
Q&A