JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCH Vol. 7, No. 1 2008 pp. 97–104 Book Reviews Robert K. Larson, Editor Editor’s Note: Books for review should be sent to Robert K. Larson, University of Downloaded from http://meridian.allenpress.com/jiar/article-pdf/7/1/97/2785497/jiar_2008_7_1_97.pdf by guest on 27 September 2021 Dayton, School of Business Administration, 300 College Park, Dayton, Ohio 45469-2242. While unsolicited reviews will not be considered for publication, in- dividuals may volunteer to be reviewers by emailing Dr. Larson at [email protected]. KEITH ALFREDSON, KEN LEO, RUTH PICKER, PAUL PACTER, JENNIE RADFORD, AND VICTORIA WISE, Applying International Financial Reporting Standards,En- hanced Edition (Milton, Queensland, Australia: John Wiley & Sons Australia, 2007, xx, 1235 pp). According to its preface, Applying International Financial Reporting Standards [IFRSs] was written specifi- cally to meet the needs of accounting students and practitioners in understanding the ‘‘complexities of IFRSs and applying the stable platform of standards.’’ Specifically, it is intended to meet the needs of these readers in Australia and New Zealand. At the time of the publication of this text, some aspects of IFRS as promulgated by the International Accounting Standards Board (IASB) had been modified in these jurisdictions. This focus may cause the text to be less useful in other jurisdictions. The writing style and level of exercises and problems at the end of chapters make it appropriate for an introductory course in accounting rather than an upper level course. The six authors comprise a mix of practitioners and academics. Keith Alfredson and Ken Leo are former members of the Australian Accounting Standards Board. Paul Pacter was a member of the staff of the IASB and the U.S. Financial Accounting Standards Board (FASB). Partners from Ernst & Young and Deloitte & Touche also collaborated on the text. The book is organized into four parts. The first chapter in Part 1, Framework, is a relatively brief overview of the history of the IASB, its structure, and due process. Chapter 2 discusses the Conceptual Framework: the purpose, qualitative characteristics, and elements and measurement bases of financial statements. It also includes short discussion questions that would be useful in an introductory accounting class. Part 2, Elements, has 13 chapters that present the requirements of most of the accounting topics covered by IFRS. Chapter 3 discusses the issues relating to the accounting and presentation of shareholders’ equity, capital, and reserves. It also covers accounting for share issues as well as movements among and decreases in share capital accounts. Chapter 4 presents the criteria for revenue recognition and measurement (IAS 18). It provides very brief conceptual discussions of issues such as trade discounts, volume rebates, value-added taxes (VAT), sales taxes, exchanges of goods and services, barter transactions for advertising (SIC 31), and publication subscriptions. The chapter also includes several short vignettes illustrating real-world concerns with revenue recognition, specifically channel stuffing and internet-advertising fraud. End-of-chapter problems are mostly conceptual in nature rather than requiring students to account for specific transactions and events. The issues and requirements of IAS 11, Construction Contracts, (including interest capitalization) are not covered. IAS 11’s only mention is in a listing of IFRSs that address revenue recognition issues. Chapter 5 covers provisions, contingent liabilities, and contingent assets (IAS 37). This chapter provides a very useful decision tree for deciding whether an entity would be required to recognize a liability, disclose a contingent liability, or do nothing. This chapter provides clear examples of how to account for a provision with the requisite journal entries. It also discusses the key issues addressed in IAS 37, including an extensive discussion of the issues surrounding and the accounting for a restructuring. How to account for a restructuring is one of the most controversial issues addressed by IAS 37. The end-of-chapter exercises and problems are sparse, and many of them are conceptual rather than quantitative in nature. 97 98 Book Reviews Chapter 6 covers financial instruments: recognition, measurement, presentation, and disclosure (IAS 32, 39) (The text was written before IFRS 7, Financial Instruments: Disclosure, was issued). It provides a high-level overview of issues involved in accounting for financial instruments and hedge accounting. Most of the discussion focuses on the definitions of a hedging instrument, hedged item, and the conditions for hedging. In eight pages, the authors provide an excellent distillation of this complex topic that would be useful as an introduction or overview of financial instruments accounting. They also provide two simple examples: how to account for a fair value hedge using a forward contract, and how to account for a foreign-currency cash flow hedge. Chapter 7 addresses share-based payments (IFRS 2), including recognition and the accounting for equity-settled, cash-settled transactions, and transactions with alternative settlements. Unfortunately, there are not enough exercises and prob- lems at the end of these chapters for students to test their understanding of the material covered. Chapter 8 covers accounting for income taxes, including the basic concept of temporary differences between carrying values and tax bases, calculation of deferred taxes, changes in tax rates, and amended prior years tax Downloaded from http://meridian.allenpress.com/jiar/article-pdf/7/1/97/2785497/jiar_2008_7_1_97.pdf by guest on 27 September 2021 figures. It includes an excellent flowchart of the decisions necessary in determining when to recognize deferred taxes and when income tax effects are recorded in income and equity. It briefly addresses tax issues arising in a business combination. This chapter has useful end-of-chapter exercises for students that require computation of current tax and deferred tax amounts as well as adjusting journal entries. Chapters 9 through 11 address accounting for various assets. Chapter 9 covers straightforward issues of accounting for inventory, including cost flow assumptions and valuation at net realizable value. Chapter 10, Prop- erty, Plant and Equipment, covers initial recognition and subsequent measurement under both the cost and reval- uation models available under IAS 16 and provides some guidance for how a company might choose between these two models. It also discusses de-recognition. Accounting for intangible assets (IAS 38) is covered in Chapter 11, including the process of identifying an intangible, determining when an intangible can be recognized, subse- quent measurement under the cost and revaluation models, as well as the treatment of intangibles with indefinite estimated useful lives. Although the number of end-of-chapter exercises and problems could be increased, there are several excellent ones that will test a student’s understanding of the different accounting treatments. Accounting for business combinations (IFRS 3) is discussed in Chapter 12, including the nature of a business combination and the accounting by both the acquirer and acquiree. It also discusses the IASB convergence project with the FASB (‘‘Business Combinations II’’) to improve the overall accounting for these transactions. Chapter 13 covers asset impairment (IAS 36), including the concept of cash generating units, testing goodwill for impairment, and the circumstances under which an impairment loss can be reversed. Chapter 14 covers accounting for leases (IAS 17) by both lessees and lessors, finance leases, and operating leases. It also briefly discusses sale and leaseback transactions. In four chapters, Part 3, Disclosure, covers the requirements for presentation in the balance sheet and income statement, accounting policy selection and disclosure, changes in accounting policies, estimates and error correction. The cash flow statement is discussed in detail and a comprehensive example is provided. The text was written before issue of IFRS 8, Operating Segments, so there is a chapter on the requirements of its predecessor, IAS 14. Part 4, Economic Entities, comprises eight chapters on accounting for investments. Six chapters are devoted to the consolidation process and presentation of consolidated financial statements, including a review of the recent IASB proposed amendments to IAS 27. While it is good to have such a comprehensive discussion of these topics, it would probably be more useful in a more advanced course rather than an introductory course on IFRS. The final two chapters in Part 4 cover accounting for associates (equity method) and jointly controlled assets, operations, and ventures, respectively. The exercises and problems at the end of these chapters provide students with quanti- tative information and require them to make recognition and measurement decisions and to prepare journal entries. This is one of the first IFRS books specifically designed for an educational, rather than a practitioner, setting. Although other books may be more comprehensive and address issues that are more complex, it is a welcome addition to the available books specifically addressing IFRS. The treatment of the topics may be too condensed for students, whether graduate or undergraduate. There are fewer exercises, questions, and problems, either in quantity or quality, than would be found in a comparable text on U.S. Generally