...Assignment 2015 1. The measurement concepts in relation to historical cost and fair value accounting. IASB framework defines that measurement is the process to determine the monetary amount of the financial statements’ elements are to be recognized and carried on the balance sheet and income statements ( IASB Framework 2010). 1.1 Historical cost Historical cost is an accounting method about the original nominal monetary value of an economic item at the time of transaction (IFRS). Under this method, assets and liabilities listed on the balance sheet with the value at their purchase or acquisition, rather than the current market value. According to the historical cost principle, most assets or liabilities are recorded at historical cost on the balance sheet even if there is a significantly change in the value over a period. Hence the balance sheet value of the items may differ from the real value and this value is never adjusted by the changing of market and economy. For example, 10units of one item were purchased for $10 each. The price of this item today is $11 per unit. Therefore the inventory should appear on the balance sheet at $100 and not at $110. 1.2 Fair Value According to IFRS13, fair value is regarded as a scientifically true measurement concept. To be more specific, fair value is a market-based measurement; it is not an entity specific measurement. In other words, fair value is the price that the company will be received to sell assets or paid for transfer...
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...countries in Southeast Asia has also become one of the countries supporting the shift and full compliance with the International Financial Reporting Standards (IFRS). The change from following the U.S GAAP or the localized version of the U.S GAAP to the International Financial Reporting Standards has become one of the main priorities in the accounting system of the country. However, there is a need to fully understand whether or not there really is an economical benefit in the full compliance of the IFRS. This is needed in order to ensure that the full compliance is the best decision for the country. The full compliance with the International Financial Reporting Standards have been said to provide many benefits for the members of the European Union focusing more on the developed countries who are globally competing and interacting with one another. However, it is difficult to fully grasp the effect and benefits of the full compliance or any levels of compliance with the IFRS in relation to developing or less developed countries because of the lack in data and the different perspectives followed between the IFRS and the local accounting system of a particular entity. The need to interpret the effects of the different levels of compliance with the IFRS is encouraged and greatly needed however because at least two thirds of the members of the European Union fall under the developing and less developed countries, DLDC. This is where the need to critique the given article lies...
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... 1. Fair Value accounting was said to have created cycles of accounting write downs and distressed selling of assets during the financial Crisis. 2. The application of IAS-39 impairment model for loan loss provisions results in delayed recognition of losses. 3. The over complexity of IAS-39 such as mined valuation models, multiple impairment approaches, complicated transfer rules and hedge accounting requirement. Due to the above mentioned criticisms the IASB received calls to reduce the complexity of the accounting standards from G-20, European Union and regulators and other stakeholders from around the world. Thus, the new IFRS 9 comes to light to replace IAS 39. What is IFRS 9? IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: a) Amortized cost b) Fair value. Classification under IFRS 9 is driven by the entity’s business model for managing the financial assets and the contractual characteristics of the financial assets. A financial asset is measured at amortized cost if two criteria are met: a) The objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and b) The contractual cash flows under the instrument solely represent payments of principal and interest. Two of the existing three fair value option criteria...
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...How Fair Value Measurement Changes Risk Management Behavior in the Insurance Industry JANUARY 2013 SPONSORED BY Financial Reporting Section Society of Actuaries PREPARED BY Bruce B. Rosner, FSA, MAAA Ernst & Young LLP Mark J. Freedman, FSA, MAAA Ernst & Young LLP The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries or its members. The Society of Actuaries makes no representation or warranty to the accuracy of the information. In addition, the discussion and examples presented in this paper are for educational purposes. They are not to be viewed as an authoritative statement by the Society of Actuaries or Ernst & Young LLP on the quality and/or appropriateness of an individual company’s practices or an indicator of “better” practice from one company relative to another. © 2013 Society of Actuaries, All Rights Reserved Acknowledgments We would like to acknowledge and thank a number of individuals who contributed to the success of this study: • Ronora Stryker and Jan Schuh from the Society of Actuaries for providing leadership and coordination The Project Oversight Group for guidance throughout this project: • Robert Baldwin • Mark Bergstrom • Jim Bridgeman • Joonghee Huh • Kathryn McCarthy (Chair) • James Norman • Jim Reiskytl • Doug Van Dam The companies that volunteered to be interviewed anonymously for this study Other members of the Ernst & Young team who...
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...IFRS Convergence: Challenges and Implementation Approaches for Banks in India KPMG IN INDIA Foreword I am very happy to note that KPMG in India is releasing a specific publication for the Indian banking sector titled 'IFRS Convergence: Challenges and Implementation Approaches for Banks in India', on the occasion of the IBA/KPMG conference on 'IFRS: Developing a Roadmap to Convergence for the Indian Banking Industry'. The proposed convergence with IFRS is likely to create significant challenges. Most importantly, the initial and ongoing IFRS convergence will affect reported networth, available capital and capital adequacy for Indian banks. In view of the above, the release of this publication could not have been better timed. Through this publication, KPMG has provided a good perspective of some key areas which would impact the banking sector in India on their road to IFRS convergence. Further, the publication also brings out the specific challenges, particularly for the banking sector in India and the approach that the banks need to follow for successful implementation. Banks in India need to start thinking through the challenges and develop a roadmap for successful convergence at the earliest. I am hopeful that the publication will be able to ignite thoughts in today's bankers to be prepared for the IFRS reporting framework tomorrow. Dr K Ramakrishnan Chief Executive Indian Banks’ Association IFRS Convergence: Challenges and Implementation Approaches for Banks...
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...www.gtgifrs.com: 1 IFRS IMPLEMENTATION AND CHALLENGES IN INDIA By Vandana Saxena Poria, OBE CEO, Get Through Guides Published in MEDC Monthly Economic Digest – August 2009 issue Need for universal GAAP In recent times, capital markets have become global and continue to expand. Moreover, there has been significant globalisation of production and trade. Investors can trade shares and securities worldwide. Entities are in a position to access the funds globally in the most advantageous markets. For this, investors from all over the world rely upon financial statements before taking decisions. They need to be convinced that the financial statements are true and fair and what they understand from the statements is what the person preparing them intends to convey. However, different countries adopt different accounting treatments and disclosure patterns with respect to the same economic event. This may create confusion among the users while interpreting the financial statements. Financial statements that are based on a single, universally accepted and used GAAP will enable the world to exchange financial information in a meaningful and trustworthy manner. This will accelerate the globalisation of finance. Adoption of IFRS worldwide and in India The use of International Financial Reporting Standards (IFRS) as a universal financial reporting language is gaining momentum across the globe. Several countries have implemented IFRS and converged their national GAAP to IFRS. More than 100...
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...Professional Development Challenges Faced by Accounting Profession ACCT 5100 Professional Development Challenges Faced by Accounting Profession Introduction Accounting has evolved, like many other professions, over time and is playing an increasingly significant role in today’s business environment. The key accounting practices are still identify, measure and communicate the economic condition of an entity with both inside and outside stakeholders. Accounting professionals have widened their attention beyond technical skills to incorporate social implications over the past several decades. Over the past few years, the whole world witnessed the impact of modern advances in information technology, globalization, and many other factors, all of which increased the public awareness of changes in global business environment and also brought many challenges to this profession. In response to these difficulties, modern accountants must develop a broader range of knowledge and skills to better perform their financial responsibilities. This paper examines several key challenges concerning the profession: 1) independence, 2) globalization and IFRS, 3) knowledge and skills gap. Challenges faced by accounting profession Independence and objectivity Independence is not a new issue faced by accountants; however, it has been and always will be one of the biggest challenges faced by this profession. Accounting to the research done by Beverley...
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...Professional Development Challenges Faced by Accounting Profession ACCT 5100 Professional Development Challenges Faced by Accounting Profession Introduction Accounting has evolved, like many other professions, over time and is playing an increasingly significant role in today’s business environment. The key accounting practices are still identify, measure and communicate the economic condition of an entity with both inside and outside stakeholders. Accounting professionals have widened their attention beyond technical skills to incorporate social implications over the past several decades. Over the past few years, the whole world witnessed the impact of modern advances in information technology, globalization, and many other factors, all of which increased the public awareness of changes in global business environment and also brought many challenges to this profession. In response to these difficulties, modern accountants must develop a broader range of knowledge and skills to better perform their financial responsibilities. This paper examines several key challenges concerning the profession: 1) independence, 2) globalization and IFRS, 3) knowledge and skills gap. Challenges faced by accounting profession Independence and objectivity Independence is not a new issue faced by accountants; however, it has been and always will be one of the biggest challenges faced by this profession. Accounting to the research done by Beverley...
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...the new accounting standard IFRS. Infosys, the software giant is one of the early movers in India to prepare the financial statements as per IFRS. This company has carved a niche in itself in good practices in financial reporting. Though India has missed the earlier deadline of converging to IFRS from April 2011, has shown its commitments to implement IFRs compliant accounting standards once few ambiguities are addressed to The main thrust of IFRS prepared by IASB (internal Accounting standard Board) is the “fair value accounting and detailed disclosures to make the financial statements more useful for the stakeholders. With the paradigm shift in the accounting standard there might be volatilities of the numbers reported. Right from the classification of assets, liabilities, equities until principle differences of asset valuations, revenue recognitions IFRS differ from existing GAAP. There were inquisitive analysts, accounting experts who would want to capture the transition difference of the two accounting standards. Hence, it will be of academic interest to study the difference between local GAAP and IFRS. This paper analyses the IFRS statement of Infosys from Financial year 2009 and makes comparisons with the Indian GAAP numbers. This study would help to understand the differences of the accounting policies under both the standards and try to construct a comparability index. The main source for comparison is the annual report of Infosys prepared under Indian accounting standards...
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...sheet of many companies whether it is a publically traded or a privately owned company. In simple terms, goodwill is the result of one company obtaining another. In accounting, goodwill is identified as an asset that has future economic benefits, which results from the acquisition of another company’s assets (FASB ASC 350-20-20). This account is shown on the balance sheet of the acquiring company. The excess of purchase price less the book value of the company represents goodwill. The purchase price is also known as the fair value. In other terms, book value is also known as carrying value, which is the book value minus any accumulated impairment amounts. If the acquiring company pays more than the carrying value, there is a premium. Premium is defined as the additional amount that is paid in excess of the ordinary price, similar to the idea of a premium bond. In order to provide consistent and comparable information about goodwill, the Financial Accounting Standards Board (FASB) has established Generally Accepted Accounting Standards (GAAP) that are used to measure and valuate the impairment of goodwill for companies operating their businesses in the US. Also the International Accounting Standards Board (ISAB) has established international standards known as IFRS. Both the FASB and the ISAB have created accounting standards to help companies determine the valuation and impairment of goodwill. Goodwill is classified as an asset, specifically in the intangibles section on the...
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...requires acquisition-date fair value (see paragraph 805-30-30-7) 2. The fair value of any noncontrolling interest in the acquiree 3. In a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree. b. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Topic. Also goodwill shall be measured in whole because the acquiring entity is responsible for all of the acquiree’s assets and liabilities regardless of percentage owned. This means goodwill be measured for the acquiring entities portion and the non-controlling portion as well and presented on the balance sheet as a single figure of both controlling and noncontrolling portions combined. This section is taken from Deloitte’s A Roadmap to Accounting for Business Combinations and Related Topics example 5-4: Cash transferred by acquiring entity + fair value of contingent consideration agreement (if applicable) = total consideration transferred by acquiring entity + fair value of the non-controlling interests (if applicable) + fair value of acquiring entity’s previously held interest in acquiree entity (if applicable) = subtotal – fair value of net assets acquired = goodwill 2. If the costs of the assets and liabilities exceed their fair values costs will be assigned to goodwill by there is no way to measure the fair value of the overpayment as...
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...International Financial Reporting Standards (IFRS) MBA 691: Managerial Accounting Professor: Prepared by: April 19, 2009 Bibliography: • Ernst & Young, “U.S. GAAP vs. IFRS: The basics”, January 2009. • Securities & Exchange Commission, “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers”, www.sec.gov/spotlight/ifrsroadmap.htm (Release No. 33-8982; November 14, 2008). • The Association of Chartered Certified Accountants (ACCA), “Impact of IFRS in Europe”, www.accaglobal.com/publicinterest/activities/research/reports/global_integration/, October 7, 2008. • Internal Auditor, magazine, “Getting Up To Speed with IFRS’, October 2008. • International Accounting Standards Board, “IASB Responds to G20 Recommendation and US GAAP Guidance’, www.iasb.org/News/Press+Releases/IASB+Responds+to+G20+Recommendations+and+US+GAAP+Guidance.htm, April 7, 2009. • EU Finance Ministers Statement, www.eu2009.cz/en/news-and-documents/news/statement-by-the-informal-ecofin-15621/ , April 4, 2009. • National Association of Corporate Directors (NACD) – Directors Monthly article, “IFRS – What The Board Needs to Know”, http://www.deloitte.com/dtt/cda/doc/content/us_assur_IFRS_DM%20Sep08_20080911pdf.pdf, September 2008. • Deloitte, www.deloitte.com/us/debates/IFRS. • Deloitte, “IFRS Conversion: Front or back...
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...Standards vs. Generally Accepted Accounting Principals Over the last decade, the world has become increasingly connected. Businesses are embracing opportunities abroad and gathering investors from a progressively growing international market. Globalization has given rise to a number of questions regarding multicultural business practice. It has also created a need for universal financial reporting that is consistent and useful to all of its users, international and domestic alike. Due to this growing concern, the International Accounting Standards Board was established and has created a code of standards to facilitate such financial reporting. IFRS is an acronym for International Financial Reporting Standards. IFRS are a set of accounting standards that will establish a uniform financial statement accounting standard across the world (AICPA, “What is IFRS”). These standards will create a consistency among financial statements, and will allow external uses better comparability from one entity to another, regardless of the entity’s country of origin. IFRS was developed by the International Accounting Standards Board, IASB, a London based organization established in 2001. The AICPA was a founder member of this board, and, while not in direct affiliation thereof, has established a website to educate individuals and businesses on IFRS (AICPA, “What is the IASB”). The cost of the United States converting to IFRS is under scrutiny, many believe the benefits would be less than the actual...
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...implementation of International Accounting Standards Theodosia Leventi Department of Business Administration, T.E.I. of Larissa, Greece leventi@teilar.gr Abstract This paper belongs to the category of literature review. In this descriptive article we take a brief look at the impacts of the implementation of International Accounting Standards. The continued globalization of business has led to the development of internationally applicable standards and codes of practice. The remarkable expansion of international trade and business, the international co-operation among countries and the breaking down of national barriers led to new challenges and new problems too. Problems in the analysis and comparison of financial reports and differences in auditing and taxation practices among countries made necessary the application of International Accounting Standards. Harmonization of this practice in order to get closer to a universal accounting language is affected by many factors such as: economic, financial, social, legal, cultural, political and others. Moreover, the level of preparedness for each country is significantly associated with many other factors. This process, as every new measure, had both positive and negative effects. So, this study highlights the advantages and disadvantages of adopting a uniform set of International Accounting Standards worldwide and also examines their volatility effects. Keywords: International Accounting Standards, Adoption, Positive...
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...that the two most widely recognized sets of accounting standards, namely Generally Accepted Accounting Practice in the US (US GAAP) and International Financial Reporting Standards (IFRS), address the measurement of non-financial assets differently, and compelling arguments exist in favor of each approach. Notes that, despite the challenges to auditing fair value estimates, some suggest that Financial Accounting Standards Board (FASB) should conform more closely to current IFRS procedures by allowing the revaluation of certain non-financial assets. The authors propose that FASB should allow the upward revaluation of fixed assets, such as property, plant, and equipment (PP&E), which have extended economic lives. The main difference discussed is revaluation of nonfinancial assets compared to fair value. GAAP does not permit revaluation whereas IFRS is in support of revaluation. Also, IFRS permits the reversal of impairment losses from prior periods for all nonfinancial assets besides goodwill. The IFRS standard for accounting for PPE differs from the treatment of available-for-sale investments under GAAP. Some similarities, however, include the fact that initial recognition of an asset is valued at cost. As always, the IFRS approach is a little bit more lenient, as it is more principles-based, and gives companies more freedom to decide how they want to value their assets. The cost model is the only approach allowable under GAAP to value nonfinancial assets, whereas under IFRS, the...
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