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Beta Alpha Psi KPMG- Dan Chandler International Financial Reporting Beta Alpha Psi KPMG‐ Dan Chandler International Financial Reporting Standards October 8, 2009 IFRS‐ An Overview • high quality comprehensive globally accepted set of accounting standards • in many instances, same as GAAP Goal of IASB • uniform rules that work to increase financial reporting transparency • worldwide convergence to one global set of standards • facilitate lower cost of capital Implementation Globally • Back in 2005, few countries under IFRS, more and more countries are adopting it today • Some countries like Japan/Korea, have a version of IFRS that they use, but not fully IFRS • Didn’t make sense for international companies to keep two sets of books – one for IFRS, one for national standards • US still no convergence plans • Wave II of adoption is coming – more and more countries are choosing to use IFRS SEC Potential Roadmap • Potential decision by 2011 with possible IFRS adoption beginning with years ending on or after December 15th AICPA Permission – gave permission for members to give an IFRS opinion • Both full IFRS or IFRS for SMESS covered by actions of the AICPA council Approaches to Adopting IFRS • Optional‐ private companies can adopt • Convergence‐FASB updating their standards, 167 standards, more recent ones are part of the convergence project Norwalk Agreement Updated Memorandum of Understanding: Plans for Completion by 2011 • Date‐Certain‐ When the SEC says that IFRS has to be followed by companies Differences • detail • industry‐specific • concepts – fair value, impairment • scope • legacy differences due to effective date and transition Beware converged standards‐ there’s always a difference Constituents should • make a plan about how to make changes • determine how much help is going to be needed • make impact/readiness assessments Preface to IFRS • Aim is to Set out objectives, and operating procedures of the IASB • Explain the scope, authority, and timing of the application of IFRS • Bold and plain type paragraphs have equal authority • IFRSs are for general purpose financial reporting by profit‐oriented entities IFRS Framework • Consistent‐ defined concepts consistent through pronouncements • assist preparers and users in preparing the IFRS financial statements and with issues not covered by the standards • The framework deals with fundamental matters • Compliance with IFRS • When a country adopts, must make a statement saying that they adopt IFRS o Compliance with all standards and interpretations o disclosure application of standards or interpretations before effective date o inappropriate accounting treatments not rectified by disclosure Terminologies of Standards have changed Inventory – how will accounting for inventory change? • Both GAAPs have the same definition of inventory o asset held for sale in ordinary course of business • Cost formula will change‐ under US GAAP you can use LIFO, FIFO, may use more than one cost formula for similar inventories with similar nature and use‐ reversal of inventory writedowns prohibited • Under IFRS, LIFO prohibit, same cost formula must be used for similar inventories with similar nature/use, reversal o inventory writedown required on reassessment • Measurement‐ o Under US GAAP, lower of cost or market o Under IFRS, lower of cost or net realizable value o Original Cost survives as cost basis with IFRS Property, Plant & Equipment • Definition under the two is the same – PPE is tangible assets used for production of goods and services • Key Difference‐ componentization o Component part can be physical or non physical o Required under IFRS – Parts of the car that have a cost that is significant in relation to the total cost of the item shall be depreciated separately o IE. A car may have different depreciation numbers for engine, trailer, etc. o Another example: Say you have an aircraft that costs $150 million, useful life is 10 years, inspection every 3 years * • PPE is carried at historical cost or revalued amount under IFRS as opposed to historical cost less accumulated depreciation • Components approach required for IFRS • Under IFRS, Interest costs on qualifying assets may either be expensed or capitalized • Under IFRS, no inclusion of ARO in cost of asset when used for production of inventories • Under IFRS , estimates of useful lives are reviewed at least annually Intangible Assets • Development costs must be capitalized and amortized if criteria are met under IFRS, revaluation allowed • Under GAAP, expense research and development costs as incurred, revaluation not allowed Questions? • Education within the firm about IFRS? KPMG has an extensive training program that has experts in the area that they train in, several partners that are championing IFRS. Best way to learn is through experience, many resources within the firm to help guide you about how to do things. Firms put out trainings for university professors and clients to education everyone about IFRS. • Component approach‐ what is significant and what is not? IFRS is pretty vague about that. Is the item a significant part of the equipment? Does it have a separate useful life from the whole machine? Much of it will be disclosed in the footnotes of financial statements with regard to how the items will be disclosed • More work as opposed to US GAAP? Challenge has been the switch over to more principle‐based way of thinking; really have to step back where it isn’t clear. Hasn’t been too difficult with current IFRS client. • Is 2014 deadline feasible? Feasible, clients are doing what they think should • To what extent will the US be able to interpret IFRS to how they want it to be? Who is putting pressure on the United States to switch? Rules need to be adopted exactly to the IFRS rules to ensure the consistency around the world. Other world leaders are putting pressure, the IASB is as well. The United States is coming around – companies overseas are putting pressure on the US to adopt since it is beneficial to the users of the financial statements. Meeting adjourned at 6:25 P.M. Minutes submitted by Nicole Robinson .
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