• Select any two of the International Accounting Standards presented this week and discuss how your MNC hands the two standards you selected. Post your response in this week?s forum so that everyone can benefit from your posting and also provide their comments

There are six major reasons for accounting diversity throughout the world:

• Legal systems
• Taxation
• Sources of financing
• Inflation
• Political and economic ties
• Culture

Two additional factors to consider

• Level of economic development
• Education

Select which factor has exerted the greatest influence on the development of accounting (in general you are not focusing on a specific country) in your opinion and why. Again post your homework in this week?s forum. Once everyone has submitted their response, I will post a summary of your opinions and also include my own along with previous author?s opinions.

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My MNC is home depot

WEEK 3 International Financial Reporting Standards (IFRS) Since all of you have already taken Intermediate Accounting and are aware of US GAAP, the focus this week will be on the International Accounting Standards (IAS) with some comparison comments to US GAAP. Also included this week is a Grant Thornton report, Comparison between U.S. GAAP and IFRS. IAS1 PRESENTATION OF FINANCIAL STATEMENTS This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.* *Source: http://annualreporting.info/ifrs_standard_title/ias1presentationoffinancialstatements/ IAS2 INVENTORIES Guidance is more extensive than US GAAP and includes Cost of inventories o Purchase, conversion and other costs Excluding abnormal costs of wasted materials, labor or other production costs; storage costs, administrative overhead and selling costs. Cost formulas to be used when expenses o LIFO is not allowed; only FIFO or weighted-average Measurement of inventories on financials o Inventory on balance sheet is either at lower of cost or net realizable value (NRV) NRV is estimated selling price less estimates costs of completion and costs necessary to make the sale. IAS7 STATEMENT OF CASH FLOWS The statement contains details on the requirements. Reference link below for details. http://www.iasplus.com/en/standards/ias/ias7 IAS8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES & ERRORS Provide guidance for The selection of accounting policies, Accounting for changes, Dealing with changes in accounting estimates and Correction of errors IAS10 EVENTS AFTER THE REPORTING PERIOD Explains when an entity should adjust its financials for event occurring after the balance sheet date and the disclosures needed. IAS11 CONSTRUCTION CONTRACTS Identifies two types of construction contracts: fixed-price and cost-plus. Revenues and expenses should be recognized using the percentage-of-completion method when the outcome of the contract can be estimated reliability. IAS12 INCOME TAXES Standard uses an asset-and-liability approach that requires recognition of deferred tax assets and liabilities for temporary differences and for operating losses and tax credit carry-forwards. A deferred tax asset is recognized only if it is probably that a tax benefit will be realized. IAS14 SEGMENT REPORTING Replaced by IFRS 8, Operating Segments - see below for details. IAS16 PROPERTY, PLANT & EQUIPMENT (PPE) The following guidance is provided for: 1. Initial costs of PPE 2. Subsequent costs 3. Measurement at initial recognition and afterward 4. Depreciation a. Allows for component depreciation (US GAAP does not) 5. Retirement and disposal IAS16 allows PPE to be carried at cost less accumulated depreciation and impairment losses or at a revalued amount less any subsequent accumulated depreciation and impairment losses. NOTE: US GAAP does not permit use of the revaluation model. IAS17 LEASES There is a distinction between finance (capitalized) leases and operating leases. IAS17 also provides guidance for sale-leaseback transactions. Finance lease - transfers substantially all the risks and rewards incidental to ownership to the lessee. Examples are provided by IAS17. Any lease not classified as above is considered an operating lease and payments are expensed by lessee and recognized as income by the lessor Sales-leaseback - sale of an asset by initial owner of asset who then leases it back. If the event is a finance lease, the initial owner must defer any gain on the sale and amortize it to income over the lease term. If an operating lease, difference between fair value and carrying value is recognized immediately as income. IAS 17 Leases Update February 25, 2016 FASB released ASU 2016-02 Leases This brings the project to overhaul lease accounting. New guidance - effective for public business entities in fiscal years beginning after 12/15/2018 - effective date for most other entities (private) deferred for one year - 2020 - early adoption permitted for all entities Important points: Lessees will be required to recognize most leases \"on balance sheet.\" The new guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as \"capital\" and \"operating\" leases for lessees. Lessors will focus on whether control of the underlying asset has transferred to the lessee to assess lease classification. A new definition of a \"lease\" could cause some contracts formerly accounted for under ASC 840 to fall outside the scope of ASC 842, and vice versa. A modified retrospective transition will be required, although there are significant elective transition reliefs available for both lessors and lessees. Source: http://www.grantthornton.com Bottom line: Nearly all of the lessees' leases will be on the balance sheet, unless the lease terms are 12 months or less. Lessors will also see changes that will align with this revised lessee model and also to comply with FASB's new revenue recognition guidance. NOTE: IAS 17 will be superseded by IFRS16 Leases as of 1 January 2019. January 1 effective date with the annual report date of 12/31/2019. Early adoption only if IFRS 15 (Revenue Recognition) is also adopted. The following link is a IFRS 16 Leases Project Summary and Feedback Statement from IFRS.org. It is a 20-page report that provides a summary of the standard and an overview of what will change; also included are pages of feedback received and IASB's response. http://www.ifrs.org/Current-Projects/IASB-Projects/Leases/Documents/IFRS_16_project-summary.pdf SPECIAL NOTE: Please also take the time to open the KPMG file (located in the Week 3 discussion) which has a myriad of links specific to the lease standard. Leases, for the most part, will now be on the Balance Sheet, which changes the reported assets and liabilities....in some cases, significantly. Although the Standard implementation isn't until 2019, it's never to earlier to start familiarizing yourself with its components. IAS18 REVENUE Requires that revenue be measured at the fair value of the consideration received or receivable. This standard will be superseded by IFRS 15 Revenue from Contracts with Customers effective January 2018. IAS19 EMPLOYEE BENEFITS Standard that covers all forms of employee compensation and benefits other than share-based compensation; i.e., stock options, which are covered in IFRS 2 (see below). Four type of employee benefits: 1. Short-term benefits (i.e., compensated absences and profit-sharing and bonus plans) a. Recognize an expense and a liability at the time that the employee provides services; amount recognized is undiscounted. 2. Post-employment benefits (i.e., pensions, medical benefits and other post-employment benefits) a. Distinguishes between a defined contribution plan and defined benefit plan i. Defined contribution plan is simple...the employees accrues an expense and a liability at the time the employees renders services for the amount employers is obligated to contribute. The liability is reduced when the contributions are made. ii. Defined benefit plans is considerably more complicated. 3. Other long-term employee benefits (i.e., deferred compensation and disability benefits) a. A liability should be recognized for the benefit equal to the difference between the present value of the defined benefit obligation and the fair value of plan assets (if any). 4. Termination benefits (i.e., severance pay and early retirement benefits) a. Benefits recognized as an expense and a liability when an employer is demonstrably committed to either terminating the employment of an employee or a group of employees or providing termination benefits as a result of an offer made to encourage voluntary termination. IAS23 BORROWING COSTS Capital costs to the extent that they are attributable to the acquisition, construction or production of a qualifying assets; other costs are expensed in the period incurred. IAS32 FINANCIAL INSTRUMENTS: PRESENTATION Defines a financial instrument as any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. IAS34 INTERIM FINANCIAL REPORTING Standard defines minimum content to be included in interim statements and for the most part requires interim period to be treat as discrete reporting periods; i.e. unlike US GAAP, an annual bonus would be recognized in the interim period that it was given and not spread over four quarters. IAS36 IMPAIRMENT OF ASSETS Requires testing of PPE; intangibles, including goodwill; and long-term investments. An entity must assess annually whether there are any indicators that an asset is impaired; that is, when an asset's carrying value exceeds its recoverable amount. Recoverable amount is the great of net selling price and value in use o Net selling price is the price of an asset in an active market less disposal costs o Value is use is determined as the present value of future net cash flows expected to arise from continued use of the assets over its remaining useful life and upon disposal. Measurement of impairment loss is the amount by which carrying value exceeds recoverable amount and it is recognized in income. At each balance sheet date a review should be undertaken to determine if an impairment loss should be reversed. Reversals are recognized in income immediately. NOTE: US GAAP does not allow reversals. IAS37 PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS Guidance for reporting liabilities and assets of uncertain timing, amount or existence. Also contains specific rules related to arduous* contracts and restructuring costs. *contract in which the unavoidable costs of meeting the obligation of the contract exceed the economic benefits expected to be received. Provisions are defined as liabilities of uncertain timing or amounts. Restructuring is a program that is planned and controlled by management and that materially changes either the scope of a business undertaken by an entity or the manner in which the business is conducted; i.e., sale of a line of business, closure of a location, changes in management structure. Contingent asset is a probably asset that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of a future event. These assets should not be recognized but disclosed when the inflow of economic benefits is probable. IAS38 INTANGIBLE ASSETS Definition: nonmonetary asset without physical substance held for use in the production of goods or services, rental to others or administrative purposes. IAS38 provides guidance as follows: Purchased intangible assets o Initially measured at cost o Useful life is assessed as finite or indefinite Intangibles acquired in a business combination o Patents, trademarks and customer lists acquired are recognized at their fair value o Development costs are capitalized o Goodwill is included with IFRS 3, Business Combinations and not included here. See below under IFRS3 for information on goodwill. Internally generated intangibles o The expenditure(s) giving rise to the potential intangible needs to be classified as either research or development expenditures. If the distinction cannot be established, then all are classified as research expenditures and expensed as incurred...no intangible asset would be recognized. Judgment becomes key since you are determining where research ends and development begins. IAS38 provides extensive lists as a reference. IAS39 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT Establishes categories into which all financial assets (four) and liabilities (two) must be classified. The classification determines how it will be measured. Replaced by IFRS 9 Financial Instruments IAS40 INVESTMENT PROPERTY Land and/or buildings held to earn rentals, capital appreciation or both. Options: Use of fair value model or cost model NOTES: US GAAP requires use of cost model. For additional information on any of the above IAS, open the Week 2 Part II Lecture Notes...there is a link that will provide more detail on each IAS. IFRS 2 SHARE-BASED PAYMENT Sets out measurement principles and specific requirements for three types of payments: 1. Equity-settled share-based payment transactions 2. Cash-settled share-based payment transactions 3. Choice-of-settlement share-based transactions Requires entity to recognize all share-based payment transactions in its financial statements; no exceptions. Standard applies a fair-value approach. IFRS 3 BUSINESS COMBINATIONS Includes initial measurement of goodwill as follows: The difference between o Consideration transferred by the acquiring firm plus any amount recognized as noncontrolling interest o The fair value of net assets acquired. If the first one exceeds the second, goodwill is recognized as an asset. If reversed, then it is a \"bargain purchase\" and the difference becomes negative goodwill and is recognized as a gain in net income by the acquiring firm. IFRS 8 OPERATING SEGMENTS Extensive disclosures are required for each separately reportable operating segment. Operating segments are components of a business: 1. That generate revenues and expenses 2. Whose operating results are regularly reviewed by the COO, and 3. For which separate financial information is available. Additional guidelines are provided in IFRS8. REFERENCE SOURCES: The International Financial Reporting Standards Database and Textbook (online) and International Accounting, 3rd edition, Doupnik & Perera IFRS 9 FINANCIAL INSTRUMENTS (Replacement of IAS39) The International Accounting Standards Board (IASB) completed the final element of its comprehensive response to the financial crisis with the publication of IFRS 9 Financial Instruments in July 2014. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking 'expected loss' impairment model and a substantially-reformed approach to hedge accounting. The IASB has previously published versions of IFRS 9 that introduced new classification and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). The July 2014 publication represents the final version of the Standard, replaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Source: http://www.ifrs.org/current-projects/iasb-projects/financial-instruments-areplacement-of-ias-39-financial-instruments-recognitio/Pages/financial-instrumentsreplacement-of-ias-39.aspx QUALIFYING NOTE: Many of these standards are still being developed and improved upon; you may find in your research differences from these lecture notes. If you do, please bring it to my attention. HOMEWORK: There are two assignments this week... Select any two of the International Accounting Standards presented this week and discuss how your MNC hands the two standards you selected. Post your response in this week's forum so that everyone can benefit from your posting and also provide their comments There are six major reasons for accounting diversity throughout the world: 1. Legal systems 2. Taxation 3. Sources of financing 4. Inflation 5. Political and economic ties 6. Culture Two additional factors to consider 7. Level of economic development 8. Education Select which factor has exerted the greatest influence on the development of accounting (in general you are not focusing on a specific country) in your opinion and why. Again post your homework in this week's forum. Once everyone has submitted their response, I will post a summary of your opinions and also include my own along with previous author's opinions