Top PDF Convergence On A Global Accounting Standard For Leases Impacts Of The FASB/IASB Project On Lessee Financial Statements

Convergence On A Global Accounting Standard For Leases Impacts Of The FASB/IASB Project On Lessee Financial Statements

Convergence On A Global Accounting Standard For Leases Impacts Of The FASB/IASB Project On Lessee Financial Statements

For this analysis, we chose companies from the airline, retail food and drug, and general merchandisers industries, which are among the industries predicted to be most affected by the lease accounting changes (Johnson, 2009). We matched these firms based on industry and size using Fortune Global 500 rankings, with each pair consisting of a U.S. company that uses U.S. GAAP and a U.K. company that uses IFRS. The resulting U.S. and U.K. firms in each industry are, respectively: airlines - United Airlines and British Airways; retail food and drug - Kroger and Tesco; and general merchandisers - Kohl’s Corporation, and Marks and Spencer. Our constructive capitalization computations are based on a similar process developed by Imhoff, et al. (1991), using the following uniform assumptions: (a) 9% discount rate for the future minimum rentals, based on average estimated rates from capital lease disclosures; (b) average remaining life of 15 years for operating leases; (c) end-of-year cash flows; (d) net effect on the current period’s net income of zero; (e) unrecorded asset equals 70% of the unrecorded obligation; and (f) effective tax rates of 40% (U.S.) and 30% (U.K.).
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Controversies in IFRS in the Aftermath of the 2008 Financial Crisis

Controversies in IFRS in the Aftermath of the 2008 Financial Crisis

Second, the paper highlights some of the practical difficulties involved in the realization of global financial reporting standards. As stated by one interviewee: “[IFRS 9] is more than just an accounting standard” (Interviewee 20). Whilst the IASB and the FASB both received a similar mandate to develop a more forward-looking approach to impairment, it may be discerned that the tentative compromise reached by the two boards during the convergence initiative was considered largely unworkable by both sets of constituents. Thus, in addition to the purported reasonability of its depiction of the underlying economics of lending, the workability of the eventual IASB model is generally attributable to the capacity of its constituents to endure it and its alignment with a prudential initiative to (moderately) increase bank reserve balances. In contrast, the FASB adopted an alternative conceptual view coinciding with an objective to escalate the comparatively high level of reserves already present in the financial system in which its constituents are situated. Essentially, the convergence of expected credit loss impairment methodology would have required a translation of wills “in such a way that none of them can desire anything else any longer” (Callon and Latour, 1981, p. 296). Whilst a relatively widespread acceptance of IFRS 9 has been observed in the latter stages of its development, the convergence initiative exhibited a formidable divergence of wills necessitating significant additional investments with no assurance of reconciliation. Thus, we concur with Timmermans and Epstein (2010, p. 84) in that “standards and standardization undergird diverse social, cultural, political, and economic endeavors.” This suggests that there are limits to global standardization movements that rely predominantly on gratifying capital market requirements while failing to generate the requisite linkages with the heterogeneous environment. Moreover, the deployment of multiple standard-setting organizations upholding distinct project objectives generates considerable challenges because of the greater intricacies involved in stabilizing associations. In terms of the realization of global financial reporting standards, future research on individual convergence projects may attempt to explicate relative success or failure on the basis of how standard-setters link rational economic theories with other pertinent considerations across different jurisdictional environments.
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The IASB and FASB Convergence Process: Current Developments

The IASB and FASB Convergence Process: Current Developments

The Boards’ proposed model will have impacts on company’s financial statement. The lessees that currently classify leases as operating leases would certainly recognize more assets and liabilities on their balance sheets than is the under either U.S. GAAP or IFRS existing standards (Pounder, 2009). Therefore, the new leases model will result in material influences on financial statements metrics of the firms. For example, as debt will go up, the debt-to-equity ratio will increase, but equity is going to remain unchanged. That leads to immediate concerns about the amount of leverage companies will suddenly see arising into their balance sheets. Furthermore, according to the proposed model, there will no longer be rent expense for long-term leases. Instead, the "right-of-use" leased asset will be reported in the form of interest expense and amortization. This accounting model will result in improved earnings before interest, taxes, depreciation and amortization (EBITDA) for entities because rent expense is deducted in arriving at EBITDA while interest and depreciation are not (Hardy, 2010, p. 20). At the same time, the lessee’s net income is likely to decrease to the extent that interest, depreciation, and executory cost expenses in total exceed the present rent expense. This reduction in net income accompanied by an increase in leased assets on lessees’ balance sheets may leas to the reduction to return on assets (ROA) calculated by lessees. The effects of such a change in lease accounting would be significant for both managers and external auditors in terms of the need for substantial transition efforts. Thus, questions have been raised about the complication of the reporting process the financial statements disclosure requirements after the application of the new leases model and and whether the new lease model will result in substantive benefits the justify the significant increases in accounting costs. (Pounder, 2009)
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IASB & FASB Convergence Project: Revenue Recognition

IASB & FASB Convergence Project: Revenue Recognition

Since substantial progress has been made to date in the area of convergence on revenue recognition, to the point where final approval is all but assured, further recommendation for convergence will be predicated on the assumption that the proposed standard will be adopted. Recommendations will be made on how to make the new standard more useable to both IASB and FASB constituents and financial statement users. The newly proposed standard appears to improve on often-cited weaknesses of the standards of both bodies. First, IFRS lacks specific guidance at the transaction level, often leading to inconsistencies in application of accounting principle, therefore impairing comparability of financial statements. Second, the standards of U.S. GAAP are a disjointed group of superseded, in whole or part, standards that offer specific and often-restrictive guidance. While the proposed standard goes lengths in addressing IFRS’s lack of transaction specificity and GAAP’s overwhelming number of overly specific rules, it is lacking in certain areas.
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The Joint FASB/IASB Lease Project:  Discussion And Industry Implications

The Joint FASB/IASB Lease Project: Discussion And Industry Implications

ease accounting is controversial because significant amounts of future lease payments go unreported as liabilities on the balance sheet. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability—a situation generally referred to as off- balance sheet financing. In August 2010, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly issued exposure drafts for a proposed new lease accounting standard. Under the proposed standard, operating leases will not only be recognized in the balance sheet, but the resulting assets and liabilities will be measured under “the longest possible lease term that is more likely than not to occur” (FASB Proposed Accounting Standards Update, Leases, p. 2).
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The joint FASB/IASB lease project: Summary of proposed changes and impact on Lessee financial statements: Working paper series--11-05

The joint FASB/IASB lease project: Summary of proposed changes and impact on Lessee financial statements: Working paper series--11-05

The Joint FASB/IASB Lease Project – Working Paper Page 12 Table 5 presents summary statistics of the estimated amounts resulting from the operating lease capitalization procedures. As expected, the lease capitalization has a more significant impact on Kohl’s financial statements and resulting ratios, since Kohl’s use of operating leases (relative to J.C. Penney) is greater. The impacts for J.C. Penney and Kohl’s, respectively, are: increase in total liabilities of 18.9% and 96.8%; increase in total assets of 9.3% and 31.1%; and decrease in equity of (6.3%) and (13.4%). Impacts on the financial ratios are also significantly different. The percentage increase in the leverage ratio (debt-to-equity) for J.C. Penney’s is 26.9% and for Kohl’s is 127.2%. Similar impacts were found in the ROA measures. The ROA as a result of capitalizing operating leases decreased (8.5%) for J.C. Penney and (23.7%) for Kohl’s. As the graphs suggest, the differences between the two metrics are much smaller after constructive capitalization of their operating leases.
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FAIR VALUE ACCOUNTING under FAS 157 and IFRS 13: EVIDENCE from BOR

FAIR VALUE ACCOUNTING under FAS 157 and IFRS 13: EVIDENCE from BOR

necessitate some assets, liabilities and equity instruments to be measured at fair value. Although guidance on measuring fair value is discrete all through IFRS, it is not always steady. IASB deems that creating a specific guidance for every fair value measurements required by IFRS will develop higher quality of fair value information. A short definition of fair value combined with dependable guidance that is used for all fair value measurements should noticeably share the objective of fair value measurement and select the need for constituents to consider guidance discrete all through IFRSs. However, the IASB states that fair value measurement t a s k is not a way to increase the use of fair value in financial reporting [6].
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The Adoption of International Accounting Standards for Small- and Medium-Sized Entities

The Adoption of International Accounting Standards for Small- and Medium-Sized Entities

financial reporting needs of SME users and the associated cost-benefit issues. However, Di Pietra et al. argued that input from actual users and preparers of SMEs financial statements was not as prevalent as the opinions of accounting profession, regulators, and academics. Disagreeing with the IFRS for SMEs ED’s assumption that all SMEs have similar characteristics and needs, Di Pietra et al. contented that the complexity of the IFRS for SMEs ED would not be cost-beneficial to smaller and micro entities, especially in European countries where there is a close relationship between financial reporting and tax regulations (p. 31). Pointing out that the IFRS for SME ED was more complex than the UK’s Financial Reporting Standard for Smaller Enterprises (FRSSE), Di Pietra et al. argued that the IFRS for IFRS ED needed additional simplification and more exemptions (p. 42). Arguing that the IFRS for SMEs is bias towards large, internationally-focused SMEs, the EU accountants agreed with IFAC’s (2007) opinion that the IFRS for SMEs ED is “skewed in favor of entities with considerably more than 50 employees” ( p. 8). Noting the absence of supportive evidence , Di Pietra et al. disagreed with the use of the IFRS’s Framework as the theoretical foundation for the IFRS for SMEs, despite the IASB’s argument that a “fresh start” approach would have been “ costly and time-consuming and ultimately futile “ (IASB, 2009a, p. 33). Other issues raised by Di Pietra et al. included the lack of SME constituents’ representation on the IASB’ board structure and the practical enforcement of the standards given that SMEs are commonly exempted from audit requirements (p.43).
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Evolution of the relationship between the U.S. financial accounting standards and the international accounting standard setters: 1973-2008

Evolution of the relationship between the U.S. financial accounting standards and the international accounting standard setters: 1973-2008

to be overcome for international accounting standards to be widely accepted: (1) the differing national objectives of financial reporting; (2) the wide spectrum of national standard-setting structures from predominantly government-set to predominantly private-sector standards; (3) nationalism; and (4) the particular economic, political, and social priorities of various nations. After acknowledging the criticisms of the FASB’s attitude toward IASs (variously described by others as “benign neglect,” “uninterested,” “uncooperative,” and “less than enthusiastic”), Beresford identi- fied a number of actions that should help the FASB become more directly involved in improving international accounting standards. The FASB’s near-term international initiative included: (1) willingness to join the IASC Consultative Group; (2) expansion and strengthening relationships with national standard-setting bodies; (3) more systematic analysis of international accounting literature in connection with major FASB projects; (4) solicitation of more commentary on FASB exposure drafts from an interna- tional perspective; (5) discussion with IASC leadership on hold- ing an international conference of national standard setters on accounting conceptual frameworks; and (6) seeking accountants with foreign experience to join the FASB staff. Beresford com- mented, “Injecting an international perspective into [the FASB’s due] process can help make the FASB a constructive player in the quest for superior international standards that are universally ac- cepted.” He concluded, “International standards are not likely to be our highest priority for the foreseeable future but they will be a factor in our regular process. Their priority will rise as constitu- ent needs increase….” 31
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Essays on the U.S. GAAP-IFRS Convergence Project, the Nature of Accounting Standards, and Financial Reporting Quality

Essays on the U.S. GAAP-IFRS Convergence Project, the Nature of Accounting Standards, and Financial Reporting Quality

and improve the quality of its standards. The principles-based nature of IFRS and the dedication to this paradigm became the lynchpin of the efforts to improve international standards (IASB, 1998). One of the IASC’s main goals was the elimination of the 20-F reconciliation required by the SEC. Although IASC began improving the standards in earnest, the IOSCO did not endorse the revised core standards issued in 1993, and the IASC agreed to further develop its standards and reissue improved standards by 1999. In 1996, the SEC outlined the necessary attributes an international set of standards must have to be acceptable for cross-listing in U.S. markets. The most important attribute was the standards needed to be “high-quality”; the first time the term was publically used (Zeff, 2012). In 1999, SEC Chairman Turner sent a missive to the IASC outlining the attributes the restructured board must have for it to have authority and legitimacy. Although not stated explicitly, the gist of the letter was that the SEC wanted the new board to be modeled after FASB (Zeff, 2012). In May 2000, the IOSCO endorsed IASC’s core standards for use in cross-border listings and securities offerings but the SEC remained reluctant and insisted that “while the accounting standards used must be high quality, they also must be supported by an infrastructure that ensures that the standards are rigorously interpreted and applied”(SEC, 2000). Thus to fulfill this requirement, the IASC was restructured into the IASB in 2000.
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The Adoption of International Financial Reporting Standards for Small to Medium Enterprises in Zimbabwe

The Adoption of International Financial Reporting Standards for Small to Medium Enterprises in Zimbabwe

The objectives of this research paper are to establish the level of the adoption of the International Financial Reporting Standards(IFRS) for the Small to Medium Enterprises(SMEs) in Zimbabwe, the benefits accruing to such SMEs, the promotion of the adoption of these IFRS, maintenance of acceptable accounting records and related challenges for the adoption of IFRS for SMEs. The descriptive survey design integrate both the quantitative and qualitative approaches. The population consisted of SMEs in the retail trade sector, accounting professional bodies, Ministry of SMEs in Zimbabwe and the Small Enterprise and Development Corporation (SEDCO). The random sampling technique was used to come up with 40 participants. The composition was 32 SMEs,1 from SEDCO,1 from the Ministry of SMEs and 6 from accounting professional bodies. The research instruments used were questionnaires and interviews. Research findings showed that 80% of the SMEs did not maintain accounting records; none had adopted IFRS for SMEs. 20% which had accounting records observed provisions of IFRS in general which were in line with Generally Accepted Accounting Standards. Most of the employees in SMEs that lacked accounting records lacked basic accounting financial knowledge. A few SMEs prepare the Statement of Comprehensive Income, Statement of Financial Position and Statement of Cash flows. Little effort is being made to encourage the adoption of IFRS for SMEs by the policy makers within the retail trade sector. Benefits that could accrue to SMEs that would have adopted the IFRS for SMEs would be better decision-making leading to growth through better accountability and compliance with tax legislation. Non-adoption of the IFRS for SMEs has been prompted by ignorance of their existence, lack of separation of ownership from management, lack of capacity to implement the IFRS. The study recommends the need to formalise business operations for SMEs, promotion of business
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Expected-loss-based accounting for impairment of financial instruments:the FASB and IASB proposals 2009-2016

Expected-loss-based accounting for impairment of financial instruments:the FASB and IASB proposals 2009-2016

ABSTRACT: The financial and banking crisis of the late 2000s prompted claims that the incurred- loss method for the recognition of credit-losses had caused undesirable delay in the recognition of credit-loss impairment. In the wake of the crisis, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) worked towards the development of expected-loss-based methods of accounting for credit-loss impairment. Their work included an ultimately unsuccessful attempt to develop a converged FASB/IASB standard on credit-loss impairment. The FASB and IASB eventually developed their own separate expected-loss models to be included, respectively, in a 2016 FASB standard and in the IASB's 2014 final version of IFRS 9 Financial Instruments. The failure to achieve convergence on an issue of such high profile and materiality has generated some controversy, and it is claimed that it will impose significant costs on the preparers and users of the financial statements of banks. This paper examines the various sets of expected-loss-based proposals issued separately or jointly since 2009 by the FASB and the IASB. It describes and compares key features of the different approaches eventually developed by the two standard setters, referring to issues that arose in arriving at practically workable solutions and to issues that may have impeded FASB/IASB convergence. It also provides information indicative of the possible effect of differences between the two approaches.
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Accounting Day Town & Country Convention Center May 18, 2009 Track A 9:15am - 11:10am

Accounting Day Town & Country Convention Center May 18, 2009 Track A 9:15am - 11:10am

SHAPIRO: “When it comes to international accounting standards, it’s critical that these standards are converged in a way that does not kick off a race to the bottom. American investors deserve and expect high standards of financial reporting, transparency, and disclosure - along with a standard setter that is free from political interference and that has the

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A Study on the Globalization of Corporate Financial Reporting Standards ―Using Standard Schemes for International Accounting Standards―

A Study on the Globalization of Corporate Financial Reporting Standards ―Using Standard Schemes for International Accounting Standards―

▣ Oh, Joon Whan, 2006. A Policy Dilemma for Adopting IFRS in Korea , 3rd Symposium of KNU IMA. ▣ Prada Michel,2006. 2.16.,「Technical Committee of IOSCO at the Financial Stability Forum」 ▣ Radebaugh, Lee H and Sidney J. Gray, 2002. International Accounting & Multinational Enterprises. ▣ United Nations Conferences on Trade and Development, 2005. Review of Prectical Implementation

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Lease accounting convergence project: What are the impacts of the new accounting standards?

Lease accounting convergence project: What are the impacts of the new accounting standards?

The ELFF helped formulate the methodology and major assumptions that had to be made in valuing operating leases. The results are based off a random sample of 50 of the S&P Fortune 500. A random generator formula from excel was used to select the numbers. Financial figures were gathered by the company’s 10-K report where by the SEC are required to disclose the future five years of operating leases and a “thereafter” lump sum amount for all payments beyond five years. These 10-K annual reports were pulled from the SEC.Gov 2013 filings database. A key assumption that is made was that short-term leases were included in the first four years of disclosed payments. The fifth year is then the true annual long-term payments. This fifth year was used to divide the thereafter lump sum to estimate the number of future years’ worth of payment. The next major assumption is to expect the company is going to continue carrying the same expense amount of operating leases and project that fifth year remains constant for future years of payments. The next challenge is to determine the present value rate. The converting of operating leases into capital leases has been done by credit agencies in the past. Five to six years ago, it was done using a ten percent discount rate which is now viewed as greatly undervaluing the operating leases. In the ELFF’s report they conducted there analysis with a six and a half percent discount rate. This research is based on ten to thirty year corporate bonds yielding rates which range from two and half to four percent, and thus
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Community Academies Trust Leasing Policy

Community Academies Trust Leasing Policy

Under the Academies Financial Handbook, academies are not permitted to enter into finance leases (which are a type of borrowing) without obtaining prior EFA approval. It is unlikely that such approval will be given other than in exceptional circumstances and therefore CAT has a policy of not entering into finance leases.

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Generating Financial Statements using QuickBooks: A Group Project in Financial Accounting

Generating Financial Statements using QuickBooks: A Group Project in Financial Accounting

Each group will have up to 4 members. It is highly recommended you choose at least one computer savvy person and at least one accounting expert to be a part of your team. Just like when starting a business, you should choose your employees according to their skill set. Groups will name their own companies. At the end of week 1 (see the proposed schedule below), each group will inform the instructor of the group members, a group leader who will be the primary contact with the instructor, and the company name. Notification to the instructor will be made by way of email.
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ACCOUNTING BY THE LESSEE

ACCOUNTING BY THE LESSEE

of such a specialized nature that only the lessee can use it without major modifications. If a lease involves an asset with these characteristics, then the risks and rewards of ownership are likely to transfer. In addition to the determinative criteria, lessees and lessors should also consider the following indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease: (1) the lessee can cancel the lease, and the lessor’s losses associated with the cancellation are borne by the lessee; (2) gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (e.g., in the form of a rent rebate equaling most of the sales proceeds at the end of the lease); and (3) the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent. [2]
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Diverse accounting standards on disclosures of Islamic financial transactions : prospects and challenges of narrowing gaps.

Diverse accounting standards on disclosures of Islamic financial transactions : prospects and challenges of narrowing gaps.

Given the above, the primary aim of the present study is to assess the gaps of the application of AAOIFI disclosure standards in a country that uses IFRS-based standards and examine the extent to which discrepancies can be reduced. 8 Using Malaysia as a case-study, the paper examines the extent to which AAOIFI’s Financial Accounting Standard No 1 (FAS1), ‘General Presentation and Disclosure in the Financial Statements of Islamic Banks and Financial Institutions’ is implemented in the country. Malaysia is chosen since the country uses IFRS-based accounting and disclosure standards and it is at the forefront of Islamic finance in terms providing a highly supportive legal, regulatory and governance framework for the Islamic financial sector. Other than contributing to the negligible literature on de jure harmonization with AAOIFI disclosure standards, the paper is distinct in another important way. In line with Hudson's (2009) classification of laws/regulations, 9 we identify different architectural features of domestic accounting standards to accommodate AAOIFI guidelines. Specifically, three tiers of accounting standards related to disclosures relevant for Islamic banks that provide a comprehensive view of de jure harmonization are identified. The first and second tiers are accounting standards issued by the Malaysian Accounting Standards Board (MASB). While the former consists of general accounting standards that apply to all businesses, including the banking sector, the latter consists of specific guidelines that are applicable only to Islamic banks. The third tier consists of accounting guidelines that are formulated by the banking sector regulator, Bank Negara Malaysia (BNM). Considering the different tiers of accounting standards not only provides a comprehensive view of the status of de jure harmonization, but also identifies the different architectural features of accounting standards to accommodate AAOIFI guidelines in a jurisdiction that has not formally adopted Islamic accounting standards.
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The Application and Impacts of Operation Research Methodologies on Financial Markets

The Application and Impacts of Operation Research Methodologies on Financial Markets

Abstract:- In today’s day and age market participant face a costly and complex labyrinth of challenges that have become the new normal. The arrival of increased computer speed and increased access to better data allowed a lot of these problems to be solved. Many financial firms still face the burden of using outdated analytical methodologies and databases. In order for these firms to remain competitive they need to overcome data issues and use OR techniques to decipher the data and figure out the appropriate level of risk with which to maximize profit and minimize loss. If a firm is able to utilize data in the best manner possible, they can easily be set apart from their competition giving them a strong competitive advantage. The next big challenge is to be able to frame contextual data to the complete story at the time of trade. This will help them to serve their trading customers better and maximize the firm’s potential for brokerage revenues. Additionally, the increasing number of new financial regulation also gives opportunities to financial service firms. Also, the traditional system can’t handle complex equations employing several variables, hence those need to be modified as well as per current market standards.
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