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(1)®. ATC International became a part of Becker Professional Education in 2011. ATC International has 20 years of experience providing lectures and learning tools for ACCA Professional Qualifications. Together, Becker Professional Education and ATC International offer DipIFR candidates high quality study materials to maximize their chances of success.. 2013 EDITION | Study System. ACCA. DIPLOMA IN INTERNATIONAL FINANCIAL REPORTING.

(2) In 2011 Becker Professional Education, a global leader in professional education, acquired ATC International. ATC International has been developing study materials for ACCA Professional Qualifications for 20 years, and thousands of candidates have succeeded in their professional examinations using ATC International’s materials and through its Platinum and Gold ALP training centres in Central and Eastern Europe and Central Asia.* Becker Professional Education – ATC International has been awarded ACCA Approved Learning Partner - content Gold Status for the Diploma in International Financial Reporting (DipIFR) and the ACCA qualification. Nearly half a million professionals have advanced their careers through Becker Professional Education's courses. Throughout its more than 50 year history, Becker has earned a strong track record of student success through world-class teaching, curriculum and learning tools. Together with ATC International, we provide a single destination for individuals and companies in need of global accounting certifications and continuing professional education. *Platinum – Moscow, Russia and Kiev, Ukraine. Gold – Almaty, Kazakhstan. BECKER PROFESSIONAL EDUCATION’S DIPIFR STUDY MATERIALS All of Becker’s materials are authored by experienced IFRS specialists and are used in the delivery of classroom courses. Study System*: Provides comprehensive coverage of the core syllabus areas and is designed to be used both as a reference text and as part of integrated study to provide you with the knowledge, skill and confidence to succeed in your DipIFR examinations. It also includes a bank of practice questions relating to each topic covered. Revision Question Bank*: Exam style and standard questions with model answers to give guidance in final preparation. * ACCA Gold Approved Learning Partner – content. ®.

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(4) ACCA Professional Diploma in International Financial Reporting. For Examinations from June 2013. ®. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (i).

(5) Typesetting by Jana Korcakova Printed in Romania by Rom Team Solutions, Srl. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (ii).

(6) ACCA Professional Diploma in International Financial Reporting. Technical Editor Phil Bradbury. Accountancy Tuition Centre (International Holdings) Limited 16 Elmtree Road Teddington TW11 8ST Telephone: +44 (0)208 943 1596 E-mail: [email protected] Internet: http://www.atc-global.com. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (iii).

(7) No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, editor or publisher. This training material has been published and prepared by Accountancy Tuition Centre (International Holdings) Limited: 16 Elmtree Road Teddington TW11 8ST United Kingdom. Copyright ©2013 DeVry/Becker Educational Development Corp. All rights reserved. No part of this training material may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system. Request for permission or further information should be addressed to the Permissions Department, DeVry/Becker Educational Development Corp.. . ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (iv).

(8) CONTENTS. Session. Page. Introduction. (vii). Syllabus. (viii). Study guide. (xii). Examinable documents. (xvii). Introduction 1. Introduction to International Financial Reporting Standards. 0101. 2. Conceptual Framework for Financial Reporting. 0201. 3. IAS 1 Presentation of Financial Statements. 0301. 4. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 0401. 5. IAS 18 Revenue. 0501. 6. IAS 11 Construction Contracts. 0601. 7. IAS 2 Inventories. 0701. 8. IAS 16 Property, Plant and Equipment. 0801. 9. IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. 0901. 10. IAS 23 Borrowing Costs. 1001. 11. IAS 17 Leases. 1101. 12. IAS 38 Intangible Assets. 1201. 13. IAS 40 Investment Properties. 1301. 14. IAS 41 Agriculture. 1401. 15. IAS 36 Impairment of Assets. 1501. 16. IFRS 6 Exploration for and Evaluation of Mineral Resources. 1601. Income. Assets. . ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (v).

(9) CONTENTS. Session. Page. Liabilities 17. IAS 37 Provisions, Contingent Liabilities and Contingent Assets. 1701. 18. IAS 19 Employee Benefits. 1801. 19. IFRS 2 Share-based Payment. 1901. 20. IAS 12 Income Taxes. 2001. 21. Financial Instruments. 2101. Group accounts 22. Regulatory framework. 2201. 23. Consolidated statement of financial position. 2301. 24. Further adjustments. 2401. 25. Consolidated statement of comprehensive income. 2501. 26. Associates and joint arrangements. 2601. 27. IAS 21 The Effects of Changes in Foreign Exchange Rates. 2701. Disclosure and analysis 28. IAS 33 Earnings per Share. 2801. 29. IFRS 8 Operating Segments. 2901. 30. IFRS 5 Non-Current Assets Held for Sale. 3001. 31. IAS 10 Events After the Reporting Period. 3101. 32. IAS 24 Related Party Disclosure. 3201. 33. IAS 34 Interim Financial Reporting. 3301. 34. IFRS 1 First-time Adoption of International Financial Reporting Standards. 3401. 35. IFRS for Small and Medium-sized Entities. 3501. Index. 3601. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (vi).

(10) SYLLABUS. Introduction This Study System is specifically written for the ACCA’s Diploma in International Financial Reporting (DipIFR). This Diploma is designed to develop knowledge of IFRSs – providing an understanding of the concepts and principles which underpin them, and their application in the international marketplace. Together with the Question Bank, this volume provides comprehensive coverage of the syllabus and is designed to be used both as a reference text and as an integral part of your studies to provide you with the knowledge, skill and confidence to succeed in your Diploma examination. About the author: Phil Bradbury is ATC International’s lead tutor in international financial reporting and has more than 10 years’ experience in delivering ACCA exambased training.. How to use this Study System You should first read through the syllabus, study guide and approach to examining the syllabus provided in this session to familiarise you with the content of this paper. The sessions which follow include:. . An overview diagram at the beginning of each session. This provides a visual summary of the topics covered in each Session and how they are related. . The body of knowledge which underpins the syllabus. Features of the text include: Definitions. Terms are defined as they are introduced.. Illustrations. These are to be read as part of the text. Any solutions to numerical illustrations follow on immediately.. Worked examples. Solutions are provided with additional explanations.. Activities. These should be attempted using the proforma solution provided (where applicable).. Commentaries. These provide additional information.. Key points summary. Attention is drawn to fundamental rules and underlying concepts and principles is a summary at the end of each session.. . Focus. These are the learning outcomes relevant to the session, as published in ACCA’s Study Guide.. . Example solutions are presented at the end of each session.. A bank of practice questions is contained in the Study Question Bank provided. These are linked to the topics of each session and should be attempted after studying each session.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (vii).

(11) SYLLABUS. Syllabus Aim To provide qualified accountants or graduates, possessing relevant country specific qualifications or work experience with an up to date and relevant conversion course, providing a practical and detailed knowledge of the key international financial reporting standards and how they are interpreted and applied.. Objectives On completion of this syllabus candidates should be able to: . Understand and explain the structure of the international conceptual framework of accounting;. . Apply relevant financial reporting standards to key elements of financial reports;. . Identify and apply disclosure requirements for companies relating to the presentation of financial reports and notes;. . Prepare group financial statements (excluding group cash flow statements) including subsidiaries, associates, and joint ventures.. Position within the overall portfolio of ACCA's qualification framework The Diploma in International Financial Reporting Standards (DipIFR) builds on the technical and/or practical knowledge acquired from recognised country specific accountancy qualifications or relevant work experience. The syllabus introduces the candidate to the wider international framework of accounting and the system of standard setting. This conversion course concentrates on the application of conceptual and technical financial accounting knowledge that candidates have already obtained to the specific requirements of financial reporting under international professional regulation and standards. The DipIFR also provides essential international financial reporting knowledge and principles that will prepare candidates for the increasingly global market place and keep them abreast of international developments and how they might apply to companies and businesses. The prerequisite knowledge for DipIFR can either come: . from a country specific professional qualification;. . from possessing a relevant degree (giving exemptions from F1, F2, F3 and F4 of the ACCA qualification) and two years accounting experience; or. . by having three years full-time relevant accounting experience, supported by an employer’s covering letter.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (viii).

(12) SYLLABUS. Syllabus content A. International sources of authority 1). B. Elements of financial statements 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14). C. Revenue recognition Property, plant and equipment Impairment of assets Leases Intangible assets and goodwill Inventories and construction contracts Financial instruments Liabilities – provisions, contingent assets and liabilities Accounting for employment and post-employment benefits Taxation in financial statements The effect of changes in foreign currency and exchange rates Agriculture Share-based payment Exploration and evaluation expenditures.. Presentation and additional disclosures 1) 2) 3) 4) 5) 6) 7). D. The International Accounting Standards Board (IASB) and the regulatory framework. Presentation of the statement of financial position, income statement and statement of comprehensive income Earnings per share Events after the reporting date Accounting policies, changes in accounting estimates and errors Related party disclosures Operating segments. Reporting requirements of small and medium-sized entities (SMEs). Preparation of external financial reports for combined entities, associates and joint ventures 1) 2) 3) 4). Preparation of group consolidated external reports Business combinations – intra-group adjustments Business combinations – fair value adjustments Business combinations – associates and joint ventures. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (ix).

(13) SYLLABUS. Excluded topics The following topics are specifically excluded from the syllabus: . Partnership and branch financial statements. . Complex group structures, including sub-subsidiaries or mixed groups and foreign subsidiaries. . Piece-meal acquisitions, disposal of subsidiaries and group re-constructions. . Financial statements of banks and similar financial institutions. . Preparation of statements of cash flows (single company and consolidated). . Schemes of reorganisation/reconstruction. . Company/share valuation. . Accounting for insurance entities. . International financial reporting exposure drafts and discussion papers. . The international public sector perspective. . Multi-employer benefit schemes. . Information reflecting the effects of changing prices and financial reporting in hyperinflationary economies. . Share-based payment transactions with cash alternatives.. Key areas of the syllabus The key topic area headings are as follows: . International sources of authority. . Elements of financial statements. . Presentation of accounts and additional disclosures. . Preparation of external reports for combined entities, associates and joint ventures.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (x).

(14) SYLLABUS. Approach to examining the syllabus The examination is a three-hour paper. Most questions will contain a mix of computational and discursive elements. Some questions will adopt a scenario/case study approach. All questions are compulsory. The first questions will attract 40 marks. It will involve preparation of one of more of the consolidated financial statements that are examinable within the syllabus. This question will include several issues that will need to be addressed prior to performing the consolidation procedures. Some of these issues may only relate to the financial statements of the parent prior to consolidation. The other three questions will attract 20 marks each. These will often be related to a scenario in which questions arise regarding the appropriate accounting treatment and/or disclosure of a range of issues. In such questions candidates may be expected to comment on management’s chosen accounting treatment and determine a more appropriate one, based on circumstances described in the question. Occasionally one of the questions might focus more specifically on the requirements of one specific International Financial Reporting Standard. Some International Financial Reporting Standards are very detailed and complex. In the DipIFR exam candidates need to be aware of the principles and key elements of these Standards. Candidates will also be expected to have an appreciation of the background and need for international financial reporting standards and issues related to harmonisation of accounting in a global context. The overall pass mark for the DipIFR is 50%.. Examination structure. Marks. One consolidation question Three scenario questions (20 marks each). 40 60 _____. 100 _____. For all three hour examination papers, ACCA allows 15 minutes reading and planning time. This additional time is given at the beginning of each three-hour examination to allow candidates to read the questions and to begin planning their answers before they start writing in their answer books. This time should be used to ensure that all the information and exam requirements are properly read and understood. During reading and planning time candidates may only annotate their question paper. They may not write anything in their answer booklets until told to do so by the invigilator.. Additional information Knowledge of new examinable regulations issued by 30th September will be required in examination sessions being held in the following calendar year. Documents may be examinable even if the effective date is in the future. The documents listed as being examinable (see later) are the latest that were issued prior to 30th September 2012 and will be examinable in June and December 2013 examination sessions. The ACCA Study Guide which follows is referenced to the Sessions in this Study System and should be read in conjunction with the examinable documents.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (xi).

(15) STUDY GUIDE. Study Guide A. International sources of authority. 1). The International Accounting Standards Board (IASB) and the regulatory framework. . . . Discuss the need for international accounting standards and possible barriers to their development. 1. 1. Understand and interpret the Financial Reporting Framework. 2. Progress towards international harmonisation. . Account for the first-time adoption of IFRSs.. B. . Explain the structure and constitution of the IASB and the standard setting process. . 34. . Outline the principles of the timing of revenue recognition. 5. . Explain the concept of substance over form in relation to recognising sales revenue. 5. Describe the IASB’s approach to revenue recognition.. 2). Property, plant and equipment. . Define the initial cost of a non-current asset (including a self-constructed asset) and apply this to various examples of expenditure, distinguishing between capital and revenue items. Account for gains and losses on the disposal of re-valued assets. 8. . Calculate depreciation on:.  . . . 5. . . Describe, and be able to identify, subsequent expenditures that should be capitalised. 8. 9. Describe the criteria that need to be present before non-current assets are classified as held for sale, either individually or in a disposal group. 30. Account for non-current assets and disposal groups that are held for sale. 30. Discuss the way in which the treatment of investment properties differs from other properties Apply the requirements of international accounting standards to investment properties.. . Define the recoverable amount of an asset; define impairment losses. 13. 13. 15. Give examples of, and be able to identify, circumstances that may indicate that an impairment of an asset has occurred. 15. . Describe what is meant by a cashgenerating unit. 15. . State the basis on which impairment losses should be allocated, and allocate a given impairment loss to the assets of a cash-generating unit.. 8. 10. 8. Apply the provisions of accounting standards relating to government grants and government assistance. Impairment of assets. 5. Identify pre-conditions for the capitalisation of borrowing costs. revalued assets, and assets that have two or more major items or significant parts. 3). . . ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. . . Revenue recognition. . 8. 1. Elements of financial statements. Discuss the various points in the production and sales cycle where it may, depending on circumstances, be appropriate to recognise gains and losses – give examples of this. State and appraise the effects of the IASB’s rules for the revaluation of property, plant and equipment. . 1). . Ref:. Ref:. (xii). 15.

(16) STUDY GUIDE. Ref: 6). 4). Leases. . Define the essential characteristics of a lease. 11. Describe and apply the method of determining a lease type (i.e. an operating or finance lease). 11. . . . . . Explain the effect on the financial statements of a finance lease being incorrectly treated as an operating lease. 11. Account for operating leases in the financial statements of the lessor and the lessee. 11. Account for finance leases in the financial statements of the lessor and lessee. 11. Outline the principles of accounting standards for leases and the main disclosure requirements. Note: the net cash investment method will not be examined. Intangible assets and goodwill. . Discuss the nature and possible accounting treatments of both internally generated and purchased goodwill. 12. . Distinguish between goodwill and other intangible assets. 12. . Define the criteria for the initial recognition and measurement of intangible assets. 12. Explain the subsequent accounting treatment, including the principle of impairment tests in relation to purchased goodwill. 12 & 15. . . . . . Identify the circumstances in which negative goodwill arises, and its subsequent accounting treatment Describe and apply the requirements of international accounting standards to internally generated assets other than goodwill (e.g. research and development) Describe the method of accounting specified by the IASB for the exploration for and evaluation of mineral resources.. . Measure and value inventories. . Define a construction contract and describe why recognising profit before completion is generally considered to be desirable; discuss if this may be profit smoothing. . Calculate and disclose the amounts to be shown in the financial statements for construction contracts.. 6. 7). Financial instruments. . Account for debt instruments, equity instruments and the allocation of finance costs. 21. . Account for fixed interest rate and convertible bonds. 21. . Discuss the definition and classification of a financial instrument. 21. . Discuss the measurement issues relating to financial instruments. 21. . Explain the measurement requirements for financial instruments including the use of current values, hedging and the treatment of gains and losses. 21. . Describe the nature of the presentation and disclosure requirements relating to financial instruments Discuss the key areas where consensus is required on the accounting treatment of financial instruments.. 8). Liabilities – provisions, contingent assets and liabilities. . Explain why an accounting standard on provisions is necessary – give examples of previous abuses in this area. . Define provisions, legal and constructive obligations, past events and the transfer of economic benefits. . . ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 6. 6. 12. 16. 7. Describe the ways in which contract revenue and contract cost may be recognised. . 24. Ref:. . 11. 5). Inventories and construction contracts. (xiii). State when provisions may and may not be made, and how they should be accounted for. 21. 21. 17. 17. 17.

(17) STUDY GUIDE. . Explain how provisions should be measured. . Define contingent assets and liabilities – give examples and describe their accounting treatment. . Identify and account for:.   . Onerous contracts Environmental and similar provisions. Discuss the validity of making provisions for future repairs or renewals.. Ref: 11) The effects of changes in foreign currency exchange rates 17  Discuss the recording of transactions and translation of monetary/nonmonetary items at the reporting date for 17 individual entities in accordance with relevant accounting standards . 17 17. 17. 9). Accounting for employment and post-employment benefit costs . . . Describe the nature of defined contribution, multi-employers and defined benefits schemes Explain the recognition and measurement of defined benefit schemes under current proposals Account for defined benefit schemes including the amounts shown in the financial statements (and notes to the accounts).. . . . Account for current tax liabilities and assets in accordance with international accounting standards Describe the general principles of government sales taxes (e.g. VAT or GST). Determine an entity’s functional currency.. 27. . Discuss the recognition and measurement criteria including the treatment of gains and losses, and the inability to measure fair value reliably. 18 . 14. 14. Identify and explain the treatment of government grants, and the presentation and disclosure of information relating to agriculture. 14. Report on the transformation of biological assets and agricultural produce at the point of harvest and account for agriculture related government grants.. 14. 13) Share-based payment 20. . Understand the term “share-based payment”. 19. . Discuss the key issue that measurement of the transaction should be based on fair value. 19. 5. 20. . Outline the principles of accounting for deferred tax. 20. . Identify and account for the IASB requirements relating to deferred tax assets and liabilities. 20. Calculate and record deferred tax amounts in the financial statements.. 20. . . . . ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 27. Recognise the scope of international accounting standards for agriculture. . Explain the effect of taxable temporary differences on accounting and taxable profits. . Distinguish between reporting and functional currencies. . 10) Taxation in financial statements . 27. 12) Agriculture. 18. 18. Ref:. (xiv). Explain the difference between cash settled share based payment transactions and equity settled share based payment transactions Identify the principles applied to measuring both cash and equity settled share-based payment transactions Compute the amounts that need to be recorded in the financial statements when an entity carries out a transaction where the payment is share based.. 19. 19. 19.

(18) STUDY GUIDE. 14) Exploration and evaluation expenditures . Outline the need for an accounting standard in this area and clarify its scope. . Give examples of elements of cost that might be included in the initial measurement of exploration and evaluation assets. . . C. 16. Calculate the EPS in the following circumstances:.  . Explain the relevance to existing shareholders of the diluted EPS, and describe the circumstances that will give rise to a future dilution of the EPS. . Compute the diluted EPS in the following circumstances:. Describe the structure and content of statements of financial position and statements of profit or loss and other comprehensive income including continuing operations Discuss the importance of identifying and reporting the results of discontinued operations Define and account for non-current assets held for sale and discontinued operations. . 3. 3. . Recognise the content and format of interim financial statements.. 33. 2). Earnings per share (EPS). . Recognise the importance of comparability in relation to the calculation of earnings per share and its importance as a stock market indicator Explain why the trend of EPS may be a more accurate indicator of performance than a company’s profit trend. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. Identify anti-dilutive circumstances.. 3). Events after the reporting date. . Distinguish between and account for adjusting and non-adjusting events after the reporting date.. 28. 28. 28. 31. 4). Accounting policies, changes in accounting estimates and errors. . Identify items requiring separate disclosure, including their accounting treatment and required disclosures. 4. . Recognise the circumstances where a change in accounting policy is justified. 4. . Define prior period adjustments and “errors” and account for the correction of errors and changes in accounting policies.. 4. 30. 30. 28. where convertible debt or preference shares are in issue where share options and warrants exist. . 3. Ref: 28. basic EPS where there has been a bonus issue of shares/stock split during the year, and where there has been a rights issues of shares during the year. . . Discuss “fair presentation” and the accounting concepts/principles. . . Presentation and additional disclosures. State the objectives of international accounting standards governing presentation of financial statements. . Define earnings. . Explain when and how exploration and evaluation assets should be tested for impairment.. . . . 16. 16. Presentation of the statement of financial position, income statement and statement of comprehensive income. . 16. Describe how exploration and evaluation assets should be classified and reclassified. 1). . Ref:. 5). Related party disclosures. . Define and apply the definition of related parties in accordance with international accounting standards. 32. Describe the potential to mislead users when related party transactions are accounted for. 32. Explain the disclosure requirements for related party transactions.. 32. 28. . 28. . (xv).

(19) STUDY GUIDE. 6). Operating segments. . Discuss the usefulness and problems associated with the provision of segment information. Ref: . 29. . Define an operating segment. 29. . Identify reportable segments (including applying the aggregation criteria and quantitative thresholds).. 29. 7) Reporting requirements of SMEs . Outline the principal considerations in developing a set of accounting standards for SMEs. 35. 2). Business combinations – intragroup adjustments. . Explain why intra-group transactions should be eliminated on consolidation. . Report the effects of intra-group trading and other transactions including:. . . Discuss solutions to the problem of differential financial reporting. 35. . Discuss the reasons why the IFRS for SME’s does not address certain topics. 35. . . D. Preparation of external reports for combined entities and joint ventures. . Explain the concept of a group and the purpose of preparing consolidated financial statements. 22. . Explain and apply the definition of subsidiary companies. 22. . Identify the circumstances and reasoning when subsidiaries should be excluded from consolidated financial statements. . . Prepare a consolidated statement of financial position for a simple group dealing with pre and post-acquisition profits, non-controlling interests and goodwill Explain the need for using coterminous year-ends and uniform accounting polices when preparing consolidated financial statements and describe how it is achieved in practice. Business combinations – fair value adjustments. . Explain why it is necessary for both the consideration paid for a subsidiary and the subsidiary’s identifiable assets and liabilities to be accounted for at their fair values when preparing consolidated financial statements. . Prepare consolidated financial statements dealing with fair value adjustments (including their effect on consolidated goodwill) in respect of:. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved..    . 22. 23. 22. unrealised profits in inventory and non-current assets intra-group loans and interest and other intra-group charges, and intra-group dividends.. 3). 21. Preparation of group consolidated external reports . Prepare a consolidated statement of profit or loss and other comprehensive income and statement of changes in equity for a simple group, including an example where an acquisition occurs during the year where there is a noncontrolling interest.. Business combinations – associates and joint ventures. . Define associates and joint ventures. (xvi). 25. 23 & 25. 23 25 23. 24. 24. Depreciating and non-depreciating non-current assets Inventory Monetary liabilities Assets and liabilities (including contingencies), not included in the subsidiary’s own statement of financial position. 4). . Ref:. Prepare consolidated financial statements to include a single subsidiary and an associated company or a joint venture.. 26. 26.

(20) EXAMINABLE DOCUMENTS. Examinable documents Session reference The Conceptual Framework for Financial Reporting. 2. International Financial Reporting Standards IAS 1. Presentation of Financial Statements. 3. IAS 2. Inventories. 7. IAS 8. Accounting Policies, Changes in Accounting Estimates and Errors. 4. IAS 10. Events After the Reporting Period. IAS 11. Construction Contracts. IAS 12. Income Taxes. IAS 16. Property, Plant and Equipment. IAS 17. Leases. IAS 18. Revenue. IAS 19. Employee Benefits. IAS 20. Accounting for Government Grants and Disclosure of Government Assistance. IAS 21. The Effects of Changes in Foreign Exchange Rates. 27. IAS 23. Borrowing Costs. 10. IAS 24. Related Party Disclosures. 32. IAS 27. Separate Financial Statements. 22. IAS 28. Investments in Associates and Joint Ventures. 26. IAS 32. Financial Instruments: Presentation. 21. IAS 33. Earnings per Share. 28. IAS 34. Interim Financial Reporting. 33. IAS 36. Impairment of Assets. 15. IAS 37. Provisions, Contingent Liabilities and Contingent Assets. 17. IAS 38. Intangible Assets. 12. IAS 39. Financial Instruments: Recognition and Measurement. 21. IAS 40. Investment Property. 13. IAS 41. Agriculture. 14. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 31 6 20 8 11 5 18. (xvii). 9.

(21) EXAMINABLE DOCUMENTS. International Financial Reporting Standards (continued). Session reference. IFRS 1. First-Time Adoption of International Financial Reporting Standards. 34. IFRS 2. Share-based Payment. 19. IFRS 3. Business Combinations. IFRS 5. Non-current Assets Held for Sale and Discontinued Operations. 30. IFRS 6. Exploration for and Evaluation of Mineral Resources. 16. IFRS 7. Financial Instruments: Disclosure. 21. IFRS 8. Operating Segments. 29. IFRS 9. Financial Instruments. 21. 22 – 25. IFRS 10 Consolidated Financial Statements. 22. IFRS 11 Joint Arrangements. 26. IFRS 12 Disclosure of Interests in Other Entities. 22 & 26. IFRS 13 Fair Value Measurement. 2. IFRS for SMEs IFRS for Small and Medium-sized Entities Commentary Financial assets and financial liabilities are accounted for in accordance with IFRS 9 to the extent that this standard was in issue as at 30 September 2011. For other elements deemed as examinable (according to the study guide) IAS 39 is relevant. A link to the examinable documents may be found at: http://www.accaglobal.com/en/student/qualification-resources/dip-ifr/syllabuspast/examinable-documents.html.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. (xviii). 35.

(22)  SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS . Overview Objective . To introduce sources of authority in international financial reporting.. INTRODUCTION    . What is GAAP? Sources of GAAP Role of statute and standards Role of the European Union. IASB     . Objectives of the IASB Governance structure IFRIC Standard setting Projects and work programme. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)     . GAAP hierarchy Scope Authority Role in international harmonisation Possible barriers to development. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0101.

(23) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 1. Introduction. 1.1. What is GAAP?. GAAP (Generally Accepted Accounting Principles) is a general term for a set of financial accounting standards and reporting guidelines used to prepare accounts in a given environment. Commentary UK GAAP, US GAAP are more specific statements. . The term may or may not have legal authority in a given country.. . It is a dynamic concept. It changes with time in accordance with changes in the business environment.. 1.2. Sources of GAAP. 1.2.1. Regulatory framework. The regulatory framework includes: . The body of rules and regulations, from whatever source, which an entity must follow when preparing accounts in a particular country for a particular purpose, for example:  . . statute (e.g. Companies Acts); accounting standards.. Statements issued by professional accounting bodies which lay down rules on accounting for different issues, for example:   . International Financial Reporting Standards (IFRSs); Financial Reporting Standards (UK FRSs); Financial Accounting Standards (USA FASs).. 1.2.2. Other sources. . Best practice, that is, methods of accounting developed by companies in the absence of rules in a specific area.. . Industry groups, such as:  . The Oil Industry Accounting Group (OIAC); British Bankers’ Association (BBA).. 1.3. Role of statute and standards. . Some countries have a very legalistic approach to drafting financial statements. The legal rules are detailed and specific and the system is often geared to the production of a profit figure for taxation purposes (e.g. in Russia and Ukraine).. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0102.

(24) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. . Some countries adopt an approach where statute provides a framework of regulation and standards then fill in the blanks. For example in the UK:  . . Statute Standards. Companies Act 2006; Financial Reporting Standards (FRSs); and Statements of Standard Accounting Practice (SSAPs); Urgent Issues Task Force consensus pronouncements (UITFs).. Some countries have relatively little in the way of statute and rely largely on standards (e.g. in the USA). Commentary Although there is no accounting statute as such in the USA a body of the federal government called the Securities and Exchange Commission (SEC) oversees the accounting regulations issued by the profession. The SEC can veto accounting treatments and demand that regulation be enacted in new areas.. 1.4. Role of the European Union. . The common industrial policy of the European Union (EU) calls for the creation of a unified business environment including harmonisation of financial reporting.. . This is pursued through the issue of directives to member states. These are instructions to enact legislation in specified areas. For example:. Directive Country. UK. Germany. France. 4th (on form and content of company accounts). 7th (on group accounts). 8th (on the regulation of auditors). Companies Act 1985. Companies Act 1989. Companies Act 1989. “Handelsgesetzbuch” (HGB) (The Third Book of The Commercial Code) “Code de commerce”. Acts. Acts. Commentary These UK Companies Acts were consolidated in the Companies Act 2006. . New member states of the EU (and aspiring applicants) include the provisions of the EU directives into their own legislation as a preparatory step for membership of the EU.. . The EU originally stated that IFRSs were compatible with EU directives. However, there is considerable divergence in GAAP between member states.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0103.

(25) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. . Further to the IOSCO endorsement (see later in this session), and as a result of EU directives, all listed EU companies were required to publish consolidated financial statements in compliance with IFRS with effect from 1 January 2005. Commentary The 2005 deadline was extended to 2007 for companies traded on the US Stock Exchange and prepared under US GAAP and for companies that had issued only debt, not equity, in regulated markets.. . Additionally member states are allowed to extend the application of IFRSs to:   . unlisted companies; individual accounts of publicly traded companies; other companies and limited liability partnerships.. Commentary In the UK unlisted companies have been permitted to use IFRS as an alternative to UK accounting standards since January 2005. . Before an IFRS is adopted by EU companies EFRAG (European Financial Reporting Advisory Group), a body reporting within the EU, must endorse the standard for use within the EU. This has led to two sets of IFRS; one issued by the IASB and the second issued by the IASB and endorsed by EFRAG. There can be an extensive time gap between issue by IASB and endorsement by EFRAG. Commentary IFRS 9 “Financial Instruments” was first issued in 2009; EFRAG will not endorse this standard until the work is completed by IASB. EU companies therefore cannot apply IFRS 9 in their financial statements.. 2. IASB. The International Accounting Standards Board (“IASB”) is an independent private sector body. It is the sole body having responsibility and authority to issue pronouncements on international accounting standards. All new standards are called “International Financial Reporting Standards” (IFRSs).. 2.1. Objectives. . These are set out in the IASB’s Mission Statement: . To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards (known as IFRSs) that require high quality, transparent and comparable information in financial statements; Commentary That is, to assist participants in the world’s capital markets and other users of financial statements in making economic decisions.. . To promote the use and rigorous application of those standards;. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0104.

(26) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. . To take account of the needs of a range of sizes and types of entities in diverse economic settings (e.g. emerging economies);. . To promote and facilitate adoption of International Financial Reporting Standards (IFRSs), through the convergence of national accounting standards and IFRSs.. Commentary Also in the UK, for example, where a new IFRS is issued with no UK equivalent, it is also exposed and issued as a UK standard (after inconsequential amendments to reflect UK terminology).. 2.2. Governance structure. . The IASB operates under the IFRS Foundation: Monitoring Board Approve and oversee trustees. IFRS Foundation (22 trustees). IFRS Advisory. IASB (16 members). Council. International Financial Reporting Standards Interpretations Committee (IFRS IC). Working groups for major agenda projects. 2.2.1. Monitoring Board. . This board oversees the IFRS Foundation trustees, participates in the trustee nomination process, and approves appointments to the trustees.. 2.2.2. IFRS Foundation. . Formerly called the International Accounting Standards Committee (IASC) Foundation, this independent, not-for-profit corporation was established under the laws of United States of America (Delaware State) in 2001.. . This body that oversees the International Accounting Standards Board (IASB).. . The IFRS Foundation’s trustees are 22 individuals from diverse geographical and functional backgrounds who appoint:   . the IFRS Advisory Council ; the Board Members (IASB); and the IFRS Interpretations Committee (IFRS IC).. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0105.

(27) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. . The trustees also:    . monitor the IASB’s effectiveness; secure funding; approve the IASB’s budgets; have responsibility for constitutional change.. 2.2.3. IASB. . 16 members (maximum three part-time) are appointed by the trustees for an initial term of three to five years. The main qualifications are professional competence and practical experience.. . The IASB has complete responsibilities for all technical matters including: . preparation and issue of IFRSs;. . preparation and issue of exposure drafts;. . setting up procedures to review comments received on documents published for comment;. . issuing bases for conclusions.. Commentary Each IASB member has one vote on technical and other matters. The approval of 10 members is required for documents to be issued for discussion, exposure or as the final standard.. 2.2.4. IFRS Council. . About 40 members:  . . appointed by the trustees for a renewable term of three year; having diverse geographic and functional backgrounds.. The Council provides a forum for participation by organisations and individuals with an interest in international accounting. Commentary Participating organisations include the Organisation for Economic Change and Development (OECD), the United States Financial Accounting Standards Board (FASB) and European Commission. The Council meets, in public, at least three times a year with the IASB.. . Objectives: . to advise the IASB on agenda decisions and priorities of work;. . to pass on views of the Council members on the major standard setting projects and the implications of proposed standards for users and preparers of financial statements;. . to give other advice to the trustees and the IASB.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0106.

(28) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 2.3. IFRS IC. 2.3.1. IFRS IC Interpretations. . The Committee’s predecessor (the Standing Interpretations Committee (SIC)), was founded in 1997 with the objective of developing conceptually sound and practicable interpretations of IFRSs to be applied on a global basis.. . Responsibilities include:  . interpreting the application of IFRSs; and providing timely guidance on financial reporting issues not specifically addressed in IFRSs.. . The Committee is made up of a team of accounting experts appointed by the trustees. Non-voting observers who have the right to attend and speak at IFRS IC meetings are also appointed by the trustees. Currently the official observers include the International Organization of Securities Commissions (IOSCO) and the European Commission.. 2.3.2. Approach. . IFRS IC uses the approach described in IAS 1 “Presentation of Financial Statements”: . making analogies with the requirements and guidance in IFRSs dealing with similar and related issues;. . applying the definitions, recognition and measurement criteria for assets, liabilities, income and expenses set out in “The Framework” (see next session); and. . taking into consideration the pronouncements of other standard setting bodies and accepted industry practices (only to the extent that these are consistent with IFRSs).. . IFRS IC works closely with comparable groups from national standard-setting bodies (NSS) to reach similar conclusions on issues where underlying standards are substantially the same.. . After approval by the Board the interpretations become part of the IASB’s authoritative literature. The pronouncements have the same status as an IFRS (see later).. 2.3.3. SICs in issue. . Of the 31 SICs issued only 11 remain. This number is reduced as existing standards are updated and new standards issued. Commentary With effect from June 2011 SICs are NOT EXAMINABLE.. 2.3.4 IFRS ICs in issue 20 IFRS ICs have so far been issued (as at 1 October 2012). These cover a wide range of issues, for example:      . IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”; IFRIC 4 “Determining Whether an Arrangement Contains a Lease”; IFRIC 10 “Interim Financial Reporting and Impairment”; IFRIC 13 “Customer Loyalty Programmes”; IFRIC 17 “Distributions of Non-cash Assets”; IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0107.

(29) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. Commentary Specific IFRICs are NOT EXAMINABLE.. 2.4. Standard setting. . IFRSs are developed through an international due process that involves:      . . accountants, financial analysts and other users of financial statements; the business community; stock exchanges; regulatory and legal authorities; academics; and other interested individuals and organisations throughout the world.. Due process normally involves the following steps (those in bold are required under the terms of the IFRS Foundation’s Constitution): Identification and review of associated issues and consideration of the application of the Framework to the issues.. Study of national accounting requirements and practice and an exchange of views with national standard-setters.. Consultation with IFRS Advisory Council about adding the topic to the IASB’s agenda.. Formation of an advisory (“working”) group to advise IASB.. Publishing a discussion document (“paper” i.e. DP) for public comment.. Publishing an exposure draft (ED) for public comment.. Consideration of all comments received within the comment period.. If considered desirable, holding a public hearing and conducting field-tests.. Approval of a standard by at least 10 votes of the IASB Commentary A basis for conclusions is usually included within an ED and the published standard. Any dissenting opinions (“alternative views”) of IASB board members must be included within an ED and the published standard.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0108.

(30) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 2.4.1. Discussion papers. . IASB may develop and publish discussion documents (usually called discussion papers) for public comment.. . A discussion paper:   . sets out the problem, the scope of the project and the financial reporting issues; discusses research findings and relevant literature; and presents alternative solutions to the issues under consideration and the arguments and implications relative to each.. . Following the receipt and review of comments, IASB develops and publishes an Exposure Draft, which is also for public comment.. 2.4.2. Exposure Draft. . An Exposure Draft invites comment on any aspect of specific questions and the proposed IFRS.. . It sets out the proposed standards and transitional provisions. Commentary The basis of the IASB’s conclusions, which summarises the Board’s considerations, is also published for comment.. 2.4.3. Voting. . The publication of a Standard, Exposure Draft, or final IFRS IC Interpretation requires approval by nine of the IASB’s 16 members.. . All other decisions, including the issue of a Discussion Paper require a simple majority of the IASB members present at a meeting (which must be attended by at least 60% of the members).. 2.4.4. Comment period. . Within the IASB’s Constitution this is for a “reasonable period”.. . Typically this is for 90 or 120 days. The minimum comment period for an exposure draft is 60 days. Commentary A “reasonable period” must allow, for example, for the translation of documents.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0109.

(31) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 2.5. Projects and work program. 2.5.1. 2005 stable platform. . The “stable platform” refers to standards which are mandatory for periods beginning on or after 1 January 2005. This was finalised in March 2004 following the publication of: . 13 revised standards;. . improved IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”;. . IFRS 1 “First-time Adoption of International Financial Reporting Standards”. . IFRS 2 “Share-based Payment”. . IFRS 3 “Business Combinations”. . IFRS 4 “Insurance Contracts” **. . IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”; and. . revised standards IAS 36 “Impairment of Assets” and IAS 38 “Intangible Assets” to accompany IFRS 3.. Commentary ** This “industry standard” is not examinable within the Diploma syllabus.. 2.5.2. More recent IFRSs. . Since 2005 the following IFRSs have been issued:       . IFRS 7 “Financial Instruments: Disclosure”; IFRS 8 “Operating Segments”; IFRS 9 “Financial Instruments” (replaces IAS 39); IFRS 10 “Consolidated Financial Statements”; IFRS 11 “Joint Arrangements” (replaces IAS 31); IFRS 12 “Disclosure of Interests in Other Entities”; IFRS 13 “Fair Value Measurement”.. . IFRS for Small and Medium-sized Entities (IFRS for SMEs) was published in July 2009 and became effective immediately.. 2.5.3. Work program. . The IASB’s current work program includes the following:   . Conceptual framework (in four phases); Revenue recognition; and Leases.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0110.

(32) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. Commentary The first phase in developing a common conceptual framework was completed in September 2010. . Current projects relating to the convergence of IFRSs with FASB still include:   . 2.5.5. financial instruments; leases; and revenue recognition.. Annual Improvements Project. The IASB’s annual improvements project provides the means to make non-urgent but necessary minor amendments to IFRSs. The fourth collection of minor amendments to standards issued in May 2012 relate to the following issues: . IFRS 1 First-time Adoption of IFRSs may be re-applied where an entity has previously applied IFRS 1 but then stopped applying IFRS;. . IFRS 1 also clarifies that borrowing costs capitalised under previous GAAP before the transition date may be carried forward without adjustment. Any borrowing costs relating to a qualifying asset incurred after the transition date must be accounted for in accordance with IAS 23 Borrowing Costs;. . IAS 1 Presentation of Financial Statements clarifies that: . additional disclosure is not necessary for periods before the minimum comparative requirements of IAS 1;. . if a retrospective change in accounting policy has a material effect on the statement of financial position at the beginning of the preceding period then that statement should also be presented. Other than the specified required disclosures, additional information relating to this statement is not required;. . IAS 16 Property, Plant and Equipment clarifies that spare parts and servicing equipment should be classified as property, plant and equipment if they meet the IAS 16 definition; if not they should be classified as inventory;. . IAS 32 Financial Instruments: Presentation states that income tax relating to distributions to equity holders and to related transaction costs are to be accounted for in accordance with IAS 12; and. . IAS 34 Interim Financial Reporting clarifies that total assets and liabilities for a reportable segment need only be disclosed in interim financial statements if the amounts are regularly provided to the chief operating decision maker and there has been a material change from that reported under the last annual financial statements.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0111.

(33) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 2.5.6. Public information. The aim of the IASB is to make its deliberations, activities and intentions as transparent and open as possible. . Extensive information on the IASB and its activities is available on the IASB’s website at www.IASB.org. Commentary This includes all discussion documents, exposure drafts, public comments, current activities and timetables of IASB and IFRS IC meetings.. . IASB and IFRS IC meetings are open to the public and may be received as a webcast through the IASB website.. . IASB Update and IFRS IC Update are issued after every IASB and IFRS IC meeting detailing the issues discussed and conclusions reached.. . A quarterly newsletter, “Insight”, provides regular project updates and timetable, news on IASB activities, IFRS Advisory Council meetings and articles on current issues.. . Issue from time to time, various publications to assist in the understanding of the work of the IASB and in IFRS. Commentary For example, “IFRS – A Briefing for Chief Executives 2012” provides summaries of all current IFRSs in “non-technical language”.. 3. International Financial Reporting Standards Commentary IFRSs are a major international GAAP. They are widely used and accepted as a basis for the preparation of financial statements across many jurisdictions.. 3.1. GAAP hierarchy. In descending order, the authority of IASB pronouncements is as follows:    . IFRS, including any appendices that form part of the Standard; Interpretations; Appendices to an IFRS that do not form part of the Standard; Implementation guidance issued by IASB.. Commentary All Standards and Interpretations issued under the previous constitution (i.e. IASs and SICs) continue to be applicable unless and until they are amended or withdrawn. The term “IFRSs” includes all standards and interpretations approved by the IASB and IASs and SICs issued by the IASC.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0112.

(34) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 3.2. Scope. . IFRSs apply to the published financial statements of all profit-oriented entities (i.e. those engaged in commercial, industrial and financial activities). Commentary Entities may be corporate or organised in other forms (e.g. mutual cooperatives or partnerships). IFRSs may also be appropriate to not-for profit activities, government business enterprises and other public sector entities.. . IFRSs apply to all “general purpose financial statements” (i.e. those aimed at the common information needs of a wide range of users). Commentary Both individual entity and consolidated financial statements.. . Any limitation on the applicability of a specific IFRS is made clear in the “scope” section to the standard.. . An IFRS applies from a date specified in the standard and is not retroactive unless indicated to the contrary. Commentary This is often the case.. . Standards are not intended to apply to immaterial items. Commentary The term “material” will be covered in the next session but for now you can take this to mean significant – therefore “immaterial” means insignificant.. 3.3. Authority. . Within a jurisdiction, regulations may govern the publication of general purpose financial statements (e.g. statutory reporting requirements and/or national accounting standards).. . IFRSs do not override local regulations governing the issue of financial statements in a particular country.. . Neither IASB nor the accountancy profession has the power to require compliance.. 3.4. Role in international harmonisation. . The IFRS Foundation has had considerable influence on the harmonisation of financial reporting :  . through adoption by multinationals and local regulators; through working with IOSCO (see below).. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0113.

(35) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 3.4.1. Adoption. . IFRSs are used:    . as national requirements or as the basis for national requirements; as an international benchmark for countries developing their own requirements; by regulatory authorities and companies; by large multinationals for the purpose of raising finance on international capital markets.. 3.4.2. IOSCO. . The members of International Organisation of Securities Commissions (IOSCO) are securities commissions and other stock exchange regulators. Harmonisation of financial reporting standards has been high on IOSCO’s agenda for many years.. . In 1993 IOSCO agreed a list of “core standards” needed for use in financial statements for listing purposes.. . In 2000 IOSCO endorsed the “IASC 2000 standards” (published by IASC) for use in the preparation of financial statements for cross-border offerings and listings. Commentary This endorsement meant that IOSCO recommended that its members allow entities quoted on the stock exchanges of the world to adopt IFRS for filing purposes. (It was not binding.). 3.4.3. Use around the world. . More than 120 countries are reported to be either permitting or requiring the use of IFRS, for example: . Bangladesh, Brazil, Czech Republic, Estonia, Ukraine, Kazakhstan – all listed companies, including domestic, must follow IFRS;. . The EU, European Economic Area member states – all domestic listed companies were required to adopt IFRS on or before 1 January 2005;. . Russian Federation, Belarus, United Arab Emirates – IFRS is required for banks.. . In Canada, IFRS is required from 1 January 2011 for all listed entities and permitted for private sector entities including not-for-profit organisations.. . IFRS financial statements are not currently permitted in, for example, China, Korea, Pakistan, Saudi Arabia, Malaysia and Indonesia. However, a convergence project is on-going with Indonesia (compliance is expected in 2012) and China has substantially converged national standards. Commentary The above examples are illustrative of the range and extent of us use of IFRS around the world. Clearly this is constantly changing. For example, the original schedule for mandatory adoption in Japan in 2015 or 2016 may be put back by up to three years rather than place an additional burden on entities affected by the 2011 tsunami.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0114.

(36) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. 3.4.4. Impact of endorsement on US listings. The US SEC is a prominent member of IOSCO. However, at the time of the endorsement it still required a full “20F reconciliation” of equity and profit to a US GAAP basis. Commentary As not to require a reconciliation was considered to be “unconstitutional”. . In February 2002, the SEC issued a Concept Release on IFRS seeking views on whether IFRS financial statements of foreign investors should be accepted without reconciliation to US GAAP.. . In October 2002 FASB and IASB made a joint announcement:    . to undertake a short-term project to remove certain individual differences; to remove other differences that will remain at 1 January 2005; to continue progress on current joint projects; and to encourage their respective interpretative bodies to coordinate their activities.. Commentary Referred to as the “Norwalk Agreement”. . In February 2006 FASB and IASB issues a Memorandum of Understanding identifying the short and long-term convergence projects. This was updated in 2008.. . In July 2007 the SEC published a Concept Release for public comment on whether to allow US issuers to prepare their financial statements using IFRSs as published in English by the IASB. US companies now have the option to prepare their financial statements in accordance with IFRS.. . In 2008 the American Institute of Certified Public Accountants (AICPA) recognised IASB as a standard-setter under its ethical rules. Also, the SEC proposed a “roadmap” that would see all US domestic companies being compliant with IFRS by 2014, thus eliminating US GAAP.. . Since March 2008 the need for the 20F reconciliation was removed for foreign private issuers filing IFRS compliant financial statements with the SEC. Commentary This permission does not extend to financial statements prepared in accordance with jurisdictional variations of IFRS as this contradicts the development and use of a single set of high-quality global accounting standards.. . In 2010, the SEC indicated that it would make a decision in 2011 about the use of global standards by US public companies following completion of the SEC’s IFRS work plan and the convergence projects agreed to by FASB and the IASB.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0115.

(37) SESSION 1 – INTERNATIONAL FINANCIAL REPORTING STANDARDS. . In 2011 FASB and the IASB completed five projects. Inter alia, this resulted in the issue of IFRS 10 “Consolidated Financial Statements”. However, this has given rise to new proposals to define investment entities as a separate type of entity that would be exempt from the accounting requirements of IFRS 10. Commentary The current chair of the SEC, Mary Schapiro, seems to be moving away from an adoption of IFRS within USA and so harmonisation is again looking further and further away.. 3.5. Possible barriers to development. 3.5.1. Common goals. . An understanding of the need for international accounting standards and the overriding objective of financial reporting must be shared between participants.. . The tax-driven nature of many national accounting regimes complicates alignment of financial reporting with tax reporting.. . Substantial sums are invested in unregulated information communication systems which supplement the regulated system (e.g. in maintaining investor relations). Different stakeholders and different countries do not share a common understanding of the “public interest” which underpins the need for a single set of high quality, understandable and enforceable global accounting standards.. 3.5.2. Key stakeholders. . Investors, accountants, standard setters and management do not have the same incentives for engaging in dialogue to change financial reporting as they know it.. . There may also be a lack of trust between these key stakeholder groups which prevents them from contributing to a meaningful process of change. Commentary Consider for example that NSS need to endorse IFRS to give them legal backing.. . The competence of key stakeholders (their level of technical knowledge and understanding of financial and non-financial information) may also present a barrier (e.g. due to limited experience with certain types of transactions).. 3.5.3. Ability to deal with complexity and change. . Certain transactions and the regulations surrounding them are creating additional complexities which demand too much change for existing systems to deal with. Commentary Standards on financial instruments, impairment of assets, deferred income tax and employee benefits are most frequently cited as too complicated.. ©2013 DeVry/Becker Educational Development Corp.  All rights reserved.. 0116.

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