An IFRS Project for the
Advanced Accounting Class
Mary Michel
Manhattan College
San Francisco, CA
August 4, 2010
Michel ELS AAA 2010
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CONTENTS
I.
II.
III.
IV.
V.
Reasons for this project
Getting Started
Project Questions
AICPA Core Competencies
Implementation Issues/Next Steps
Michel ELS AAA
2010
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I. Reasons for this project
1.
The project reinforces prior IFRS learning while
extending it to Advanced Accounting topics
(equity method, fx translation, joint ventures,
consolidation requirements, accounting policies for
the consolidated group, noncontrolling interest,
interim statements). This is useful for
institutions like ours that integrate IFRS
throughout the curriculum rather than having a
separate international course.
2.
The project familiarizes students with the eIFRS
database and reinforces use of the Accounting
Standards Codification database to explore one
major accounting difference in detail.
Michel ELS AAA
2010
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I. Reasons for this project
3. Students increase information literacy
by using business references databases
and reliable web sources to find a
current article about IFRS issues facing
their chosen company.
4. Students have a written project to add to
their portfolio and to practice writing
skills.
5. As implemented, the project requires
students to think about IFRS throughout
the semester rather than in one chapter.
Michel ELS AAA
2010
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II. Getting Started
1. I start this project at the beginning of the
semester. It is adapted from two
assignments in Hoyle, Schaefer and
Doupnik’s Advanced Accounting 9th Edition
text, Chapter 11, “Worldwide Accounting
Diversity and International Accounting
Standards.” This is the first chapter I cover
in class.
•
Michel ELS AAA
2010
Afterwards, I cover Chapter 9 (FX
Transactions/Hedging) and Chapter 10 (FX
Translation, except consolidation worksheet) and
point out IFRS differences for these topics.
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II. Getting Started
2. I also choose a big four accounting firm’s
discussion of IFRS and US GAAP similarities
and differences, which can be more timely
than the text. For Spring 2010 I used
PricewaterhouseCoopers September 2009
version.
•
Plus this gives students no excuse to start if
they had not yet purchased the text (my
personal pet peeve)!!! I also give an extra
credit quiz on its contents to force them to
read it.
Michel ELS AAA
2010
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II. Getting Started
3. I ask them to form groups of three (or help
them to do so).
4. Students choose a foreign registrant listed
on a U.S. stock exchange that files its
financial statements in IFRS. In the
computer lab, students explore the BNY
Mellon Depository Receipts website:
http://www.bnymellonadr.com/dr_directory.js
p?paramUserType=broker It is not required
that the student uses a foreign registrant in the
US, but extra credit is available if they choose
one listed before 2006.
Michel ELS AAA
2010
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II. Getting Started
5. Students save a copy of form 20-F or foreign
company annual report prepared using IFRS
as issued by the IASB. Students are often
surprised that some foreign registrants do not
use IFRS. Students also get the 10-K for an
industry competitor in the US using GAAP
Michel ELS AAA
2010
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III.
Project QuestionsIncome Statement Differences
• Find three major differences on the Income Statement
between the competitor firms using IFRS and GAAP. Note if
they are recognition, measurement or presentation
differences as defined in Hoyle Chapter 11. At least one of
these must be a recognition or measurement difference.
Examples:
– Recognition differences: Research and Development
expenses between GlaxoSmithKline and Merck (Caffrey,
Fahy and Singh Project).
– Presentation differences: Income Statement expenses
listed by nature for BP and function for ExxonMobil
(Campisi, Huffman and Kump Project).
Michel ELS AAA
2010
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III. Project QuestionsBalance Sheet Differences
• Find three major differences on the Income
Statement between the competitor firms using
IFRS and GAAP. Note if they are recognition,
measurement or presentation differences as
defined in Hoyle Chapter 11. At least one of these
must be a recognition or measurement difference.
Example:
– Measurement differences: Hershey values the majority
of its inventory using the LIFO method. IFRS does not
permit LIFO and Cadbury uses Average Cost. (DeLuca,
Hoxhaj and Kononuchenko Project).
Michel ELS AAA
2010
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III. Project QuestionsFootnote Disclosure Differences
• Describe at least two differences in disclosure
provided in the footnotes of the competitors
under IFRS and US GAAP. Example:
– The Property, Plant and Equipment footnote is much
more detailed for Syngenta in IFRS than for Monsanto
using US GAAP. For each PP&E component, it
reconciles the differences beginning and ending net
book values including additions, disposals, currency
translation effects, depreciation and impairments.
Monsanto lists the PP&E components only (Audus,
Bujari and Sanz project).
Michel ELS AAA
2010
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III.
Project QuestionsResearch IFRS and GAAP Difference
• For one of the major accounting differences, do
further research into the applicable standards for
IFRS and for U.S. GAAP. Quote portions from each
standard and then explain the standards in your own
words. Where are the U.S. GAAP and IFRS standards
specifically similar and different? Cite which
paragraphs of the standards were used. Access the
Accounting Standards Codification for US GAAP
(AAA school access available) and eIFRS (through
student IAAER membership). Example:
– Earnings per Share: Under IFRS, Diageo computes
dilutive potential common shares independently for
each interim period presented (discrete method). Under
US GAAP, MolsonCoors computes dilutive potential
common shares on a year-to-date weighted average for
each interim period presented (integral method).
Michel ELS AAA
2010
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III.
Project Questions-IFRS and
GAAP Profitability Ratios
• Compare the company’s profitability under IFRS and
U.S. GAAP for at least two years. At minimum,
calculate a measure of return on equity under each
(Net Income/Shareholders’ Equity). Explain whether
you think the difference in profitability between the
two firms is driven primarily by economic or
accounting differences? Example:
– Return on Equity for China Southern is affected by
revaluation of PP&E. Revaluations decreases the
numerator (excess depreciation) and increases the
denominator.
– Many students felt that profitability difference was
economic. Apple’s customer loyalty and distinct
products distinguished it from Nokia.
Michel ELS AAA
2010
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III. Project Questions- Recent
Article on IFRS Issues Affecting Co.
• Find a recent article from a reliable source on IFRS issues
facing your foreign company. You may also look at these
Financial Review (analogous to the MDA) for Critical
Accounting Policies or in its accounting policy footnote to
decide which issue's) to research. Show it to me
beforehand to make sure it is reasonably long and relevant.
One way is to search the library’s online databases Save a
copy of the full text article to give to me, and summarize it
in your own words. Example:
– “BP Swings to $4.3 billion profit”. The Financial. 2
February 2010.
<http://www.finchannel.com/news_flash/Oil_&_Auto/573
10_BP_swings_to_$4.3_billion_profit/ >. 10 May 2010.
This article discusses recording BP’s inventory held for
trading at fair value under IFRS.
Michel ELS AAA
2010
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III.
Project Questions- Extra Credit
2006 IFRS Reconciliation
Using the foreign registrant’s 20-F
for the 2006 fiscal year, analyze the
difference in profitability between its
IFRS and its US GAAP results in the
reconciliation.
Michel ELS AAA
2010
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IV. AICPA Core Competencies
FUNCTIONAL
CATEGORY
Decision Modeling
Leverage Technology
Measurement
Reporting
Research
Michel ELS AAA
2010
SKILL USED IN IFRS PROJECT
FOR ADVANCED ACCOUTING
Research relevant financial accounting
literature for IFRS and US GAAP using
electronic databases
Analyze and interpret the effect of
IFRS and US GAAP standards on
financial statements and ratios
Communicate information about the
effects of using different financial
accounting standards.
Research relevant financial accounting
literature for IFRS and US GAAP using
electronic databases
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IV. AICPA Core Competencies
BROAD BUSINESS
PERSPECTIVE
CATEGORY
Industry/Sector Perspective
SKILL USED IN IFRS PROJECT
FOR ADVANCED ACCOUTING
Analyze and interpret business
information for two competing firms
within one industry applying different
GAAP
International/Global
Understand the increasing need for and
Perspective
use of IFRS for firms raising capital
Legal/Regulatory Perspective Gain an understanding about changing
accounting standards in US GAAP and
IFRS and their increasing convergence
Leverage Technology
Marketing/Client Perspective
Resource Management
Identify sources of capital and analyze
the impact of participation in global
markets
Strategic/Critical Thinking
Analyze and interpret business
information
Michel ELS AAA
2010
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IV. AICPA Core Competencies
PERSONAL CATEGORY
Communication
Interaction
Leadership
Leverage Technology
Problem Solving/Decision
Making
Professional Demeanor
Project Management
Michel ELS AAA
2010
SKILL USED IN IFRS PROJECT
FOR ADVANCED ACCOUTING
Communicate financial and
nonfinancial information obtained from
financial reports, news media and the
web.
Groups must interact, delegate tasks
and coordinate and review final project.
Influence, inspire and motivate the
group
Use technology to both acquire
information and communicate it clearly
and effectively
Render judgment based on available
business information
Commit to stable work performance
while acquiring new knowledge
Coordinate multitask project and
coursework
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V.
Implementation Issues/
Next Steps
• Project done in my classes last two years.
• Project requires lots of interaction between
professor/TA and students.
• Project takes a long time to grade, so I require
students to submit parts of it during the semester to
permit revision
• Require students to discuss at least one IFRS
difference directly related to Advanced Accounting
topics
• Ensure students are more consistent in their use of
references next semester
Michel ELS AAA
2010
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Contact Information
Mary Michel, Ph.D.
Gabriel Hauge Faculty Fellow
Assistant Professor
Manhattan College
4513 Manhattan College Parkway
Riverdale, NY 10471
Office:
718 862-7462
Fax:
718 862-8032
Cell:
201 707-6137
Michel ELS AAA
2010
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