...AND ACCOUNTING CANADIAN GAAP – IFRS COMPARISON SERIES Issue 15: IAS 1 Presentation Of Financial Statements Both IFRS and Canadian GAAP are principle based frameworks, and from a conceptual standpoint, many of the general principles are the same. However, the application of those general principles in IFRS can be significantly different from Canadian GAAP. Therefore, to understand the magnitude of the differences between IFRS and Canadian GAAP, it is essential to look beyond the general principles and look at the detailed guidance provided in the standards. This is our fifteenth issue in a series of publications, which will provide detailed information on the key differences between IFRS and Canadian GAAP. This issue will focus on the significant differences between current Canadian GAAP requirements for financial statement presentation and the IFRS requirements. These differences relate mainly to: • • • • • Presentation of financial position and equity; Presentation of comprehensive income; Presentation of cash flows; Other Presentation Issues; and First Time Adoption Issues related to Presentation of Financial Statements. Be advised that this publication is a guide to the differences between Canadian GAAP and IFRS and is not meant to be a comprehensive manual. Please contact a BDO representative for specific details and information. Introduction The requirements of financial statement structure and content are more prescribed under IFRS than Canadian GAAP; however...
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...What we’ll cover: 1. Income Statement 2. Format of the Income Statement 3. Reporting Irregular Items 4. Special Reporting Issues 1. Income Statement a. Usefulness • Evaluate past performance • Predicting future performance • Help assess the risk or uncertainty of achieving future cash flows b. Limitations • Companies omit items that cannot be measured reliably • Income is affected by the accounting methods employed • Income measurement involves judgment c. Quality of Earnings • Companies have incentives to manage income to meet or beat Wall Street expectations, so that o market price of stock increases and o value of stock options increase. • Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. 2. Format of the Income Statement a. Elements of the Income Statement • Revenues – Inflows of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations. Examples of Revenue Accounts: o Sales o Fee revenue o Interest revenue o Dividend revenue o Rent revenue • Expenses – Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations. Examples...
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... | |Exercises |Problems | | | |Income measurement concepts. | | |12, 14, 16 |1 | | |Calculation of net income. |1, 7 |1, 2, 3 |6, 7, 8, 9 | | | |Single-step income statements; |1, 2, 4, 5, 8, 9 |4, 5, 6, 7, 10, 13,|2, 3, 4, 5, 8, 9, | | | |earnings per share. | |14 |11, 12, 16 | | | |Multiple-step income statements. |3 |5, 6, 7, 8, 9, 10 |1, 4, 6, 8, 15 | | | |Extraordinary items. |5 |6, 8, 9, 10, 13 |1, 3, 5, 6, 8, 11, | | | | | | |13, 15, 16 | | | |Disposal of a segment (discontinued |4, 6 |7, 11, 12, 14 |1, 3, 6, 9, 10, 11 | | | |operations). | | | | | | |Retained earnings statement. |10, 11 |10, 15 |1, 2, 4, 5, 7, 8, 15| | | ...
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...CHAPTER 4 INCOME STATEMENT AND RELATED INFORMATION IFRS questions are available at the end of this chapter. TRUE-FALSe—Conceptual Answer No. Description T 1. Usefulness of the income statement. F 2. Limitations of the income statement. F 3. Earnings management. T 4. Transaction approach of income measurement. T 5. Single-step income statement. T 6. Revenues and gains. F 7. Multiple-step vs. single-step income statement. F 8. Multiple-step income statement. T 9. Multiple-step vs. single-step income statement. F 10. Current operating performance approach. T 11. Reporting discontinued operations. F 12. Reporting extraordinary items. F 13. Irregular items. T 14. Intraperiod tax allocation. F 15. Reporting earnings per share. F 16. Computation of earnings per share. T 17. Prior period adjustments. F 18. Retained earnings restrictions. F 19. Comprehensive income definition. T 20. Reporting other comprehensive income. Multiple Choice—Conceptual Answer No. Description c 21. Elements of the income statement. d 22. Usefulness of the income statement. b 23. Limitations of the income statement. d S24. Use of an income statement. d S25. Income statement reporting. c 26. Income statement information. b 27. Example of managing earnings down. c 28. Example of managing earnings up. b 29. Improving current net income. a 30. Decreasing current net income. d 31. Single-step income statement advantage. b 32. Single-step...
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...“Data suggest that economic activity has bottomed and that the worst is now being reported for corporate profits. As such, stock price gains are expected to continue, supported by improvements in corporate performance and mild-mannered inflation and interest rates.” [Abby Joseph Cohen ] Financial Analysis & Control Report on Presentation www.twelve-knights.com.nu OPERATING AND NON-OPERATING COMPONENTS OF THE INCOME STATEMENTS A multiple-step statement distinguishes between operating and non-operating activities. This distinction provides users with more information about a company’s income performance. On the income statement, accounting standards encourage separate treatment of operating and nonoperating items. Operating items are those relating to the day-to-day management of the enterprise: sales, cost of sales, selling, general and administrative expense, research and development costs etc. Often the net of these items is presented as a subtotal, operating income. Non-operating items include investing and financing activities, which are reported separately from operating income. Non operating items include the interest, dividends and profits on investments made in the securities of other companies; interest expense; etc. Non-operating activities consist of (1) revenues and expenses from auxiliary operations and (2) gains and losses that are unrelated to the company’s operations. The results of non-operating activities are shown in two sections: “Other...
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...following. a. What is the definition of “ordinary income” (loss) (740-270-20) Ordinary income (or loss) refers to income (or loss) from continuing operations before income taxes (or benefits) excluding significant unusual or infrequently occurring items. Extraordinary items, discontinued operations, and cumulative effects of changes in accounting principles are also excluded from this term. The term is not used in the income tax context of ordinary income versus capital gain. The meaning of unusual or infrequently occurring items is consistent with their use in the definition of the term extraordinary item. Ordinary income is income (or loss) exclusively from operations. Taxes expenses are not deducted. It does not include capital gains, or any other gain that could be infrequent or unusual. b. What is an error in previously issued financial statements? (250-10-20) An error in recognition, measurement, presentation, or disclosure in financial statements resulting from mathematical mistakes, mistakes in the application of generally accepted accounting principles (GAAP), or oversight or misuse of facts that existed at the time the financial statements were prepared. A change from an accounting principle that is not generally accepted to one that is generally accepted is a correction of an error. Errors found in financial statements that were already prepared. These errors could be recognition, measurement, presentation or disclosure errors due to mathematical mistakes...
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...CHAPTER 4 Income Statement and Related Information ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) | | |Brief Exercises | | |Concepts for Analysis| |Topics |Questions | |Exercises |Problems | | | 1. |Income measurement concepts. |1, 2, 3, 4, 5, 6, 7,| | | |3, 4, 5, 6, 8 | | | |8, 9, 10, 18, 28, | | | | | | | |31, 32, 33 | | | | | | 2. |Computation of net income from | |1 |1, 2, 7 | | | | |balance sheets and selected | | | | | | | |accounts. | | | | | | | 3. |Single-step income statements; |11, 19, 23, 24 |2, 8 |3, 4, 6, 7, 10, 15, |2, 3, 4, 5 |1, 2, 7 | | |earnings per share...
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...ANSWERS TO QUESTIONS 1. The income statement is important because it provides investors and creditors with information that helps them predict the amount, timing, and uncertainty of future cash flows. It helps investors and creditors predict future cash flows in a number of different ways. First, investors and creditors can use the information on the income statement to evaluate the past performance of the enter-prise. Second, the income statement helps users of the financial statements to determine the risk (level of uncertainty) of income—revenues, expenses, gains, and losses—and highlights the relationship among these various components. It should be emphasized that the income statement is used by parties other than investors and creditors. For example, customers can use the income statement to determine a company’s ability to provide needed goods or services, unions examine earnings closely as a basis for salary discussions, and the government uses the income statements of companies as a basis for formulating tax and economic policy. 2. Information on past transactions can be used to identify important trends that, if continued, provide information about future performance. If a reasonable correlation exists between past and future performance, predictions about future earnings and cash flows can be made. For example, a loan analyst can develop a prediction of future performance by estimating the rate of growth of past income over the past several periods and...
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...Part I: Know the FASB I. As discussed many times in ACC 310, the FASB is the current accounting standard setters in the U.S. as they are empowered by the SEC. Visit the FASB website at www.fasb.org and answer the following questions: (Do not cut and paste but answer in your own words. Any material quoted should be cited). 1. What is the FASB mission? 1pts The FASB mission is to establish and improve financial accounting standards and reporting. This sets the guidance for nongovernmental entities that provide decision-useful information to users. Users include issuers, auditors, and other users of financial information. 2. Who are the current FASB Board members and what are their backgrounds? 2pts a. Russel G. Golden, Chariman. Mr. Golden has an extensive background with the FASB holding different positions ranging from the FASB’s Emerging Issues Task Force, Technical Director of the FASB, and served 6 years as an FASB staff member. b. James L. Kroeker, Vice Chariman. Mr. Kroeker used to work for Deloitte as the Deputy Managing Partner for Profession Practice. He also worked for the Securities and Exchange Commission as the Chief Accountant. c. Daryl E. Buck, Board Member. Mr. Buck worked at Reasor’s Holding Company for 18 years. It is a privately-owned retail grocery company. d. Thomas J. Linsmeier, Board Member. Mr. Linsmeier was a professor at Michigan State University. He also worked for the...
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...Topics: Income from continuing operations * Income from continuing operations includes the revenues, expenses, gains and losses that will probably continue in future periods. * In general, gains and losses result from changes in equity that do not result directly from operations but nonetheless are related to those activities. * INCOME TAX EXPENSE is shows as a separate expense in the income statement. * TAXABLE INCOME comprises revenues, expenses, gains, and losses as measured according to the regulations of the appropriate taxing authority. * While the actual measurement of income tax expense can be complex, at this point we can consider income tax expense to be a simple percentage of income before taxes. * A distinction often is made between operating and nonoperating income. * OPERATING INCOME includes revenues and expenses directly related to the primary revenue-generating activities of the company. * NOPERATING INCOME relates to peripheral or incidental activities of the company. (like selling investments and interest expense in nonoperating income) Earnings quality * The presentation of the components of net income and the related supplemental disclosures provide clues to the user of the statement in an assessment of earnings quality. * Earnings quality is used as a framework for more in-depth discussions of operating and nonoperating income. * The term EARNINGS QUALITY refers to the ability...
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...which was introduced in the third quarter of fiscal year 2011. These spas for children offer hair and nail care, make-up application, massage services, and even etiquette classes. Topic The issue we are to present on this case is how to format the income statement for L&L, due to the addition of Sassy Spa. The areas to consider are net sales, gross profit, a gain on the sale of corporate headquarters, and a class action settlement. Facts The financials followed are given. Net Sales is already given, so no other calculations need to be considered. For gross profit, the formula (given) is Sales-Cost of Sales, which includes both L&L and Sassy Spa. The cost of Sales excludes depreciation. 2011 2012 (in millions) Net Sales L&L 70.6 75.3 Sassy Spa 3.9 11.2 Cost of Sales L&L 46.5 56.1 Sassy Spa Gross Profit L&L 28 30.4 Gain on sale 1.7 Issues The issues we need to properly address are primarily how Sassy Spa will be presented on the income statement. L&L excludes depreciation in its cost of sales and we need to determine how to disclose this. Due to the relocation of L&L’s headquarters, the company sold the abandoned...
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...paragraph from the standards into this document for each question and provide a full reference, including the topic, subtopic, section, and paragraph (e.g. “ASC 605-15-25-1”, or “ASC Master Glossary” for definitions). Submit a hard copy of your answers by Wednesday, October 30th 9:00 am. The FASB Codification database is available at: http://aaahq.org/ascLogin.cfm Student Access Username: AAA51226 Password: KMFpjSW 1. To gain familiarity with the content and organization of the FASB’s Accounting Standard Codification (ASC), use the general topics presented below and determine where the following accounting terms would be located. Topical Categories: Section # General Principles ................................... 100 Presentation .............................................. 200 Assets........................................................... 300 Liabilities...................................................... 400 Equity........................................................... 500 Revenue........................................................ 600 Expenses..................................................... 700 Broad Terms............................................... 800 Industry........................................................ 900 Accounting Terms General Topic Section # e.g. Receivables 300 Stock Splits __500_______ ...
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...characteristics, elements, measurement, and recognition concepts. The FASB Concepts Statements guide the board in developing accounting principles and provide understanding. These concept statements are non-authoritative and do not establish generally accepted accounting principles. Entities do not use the FASB Concept Statements in routine preparation of financial statements. (8,2) The IASB and the Interpretations Committee use conceptual framework when developing new or revised International Financial Reporting Standards (IFRS) and interpretations or when amending existing IFRSs. It is used as a point of reference to help preparers of financial statements in applying IFRSs or when no specific guidance is given. The IASB’s Conceptual Framework is not an International Financial Reporting Standard and does not override any specific IFRS. However, the Conceptual Framework is used in development of future standards and the IASB is reviewing IFRSs and the Conceptual Framework to eliminate all conflicts between them. (2,7) Basis of Accounting Both U.S. GAAP and IFRS use a modified historical cost basis with a growing emphasis on fair value when preparing financial statements. When non-U.S. entities operate in a highly inflationary environment and prepare GAAP financial statements; they have the choice to either report price-level adjusted local currency financial statements or measure its financial statements into a non-highly inflationary currency. Under IFRS, an entity is to adjust...
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...BTEC National Business Assignment No. 5 Business Accounting Task 1.1 Task 1.2. International accounting standards are a set of rules and/or practices in recording and registering business transactions in company’s ledgers and accounts, keeping books and preparing reports on the financial and other business results and standing to owners, public and authorities. Certainly all standards are based on a golden rule of accounting – double entry. Accounting standards are necessary so that financial statements are meaningful across a wide variety of businesses. In the past the authorities of each country endorsed their own rules and instructions on how the financial reports should be made up but in the second half of the XX-th century international business and governments recognized that the international capital markets require both transparency and unification, otherwise, the accounting rules of different companies would make comparative analysis almost impossible and the economic development and growth could be hindered when international investors were deprived of the possibility to compare cost-effectively their investments options across the trading board. Initial efforts focused on harmonization—reducing differences among the accounting principles used in major capital markets around the world. By the 1990s, the notion of harmonization was replaced by the concept of convergence—the development of a unified set of high-quality, international accounting standards that...
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...FINANCIAL REPORTING ANALYSIS CHAP - 22 Standard-setting bodies are professional organization of accountants & auditors that establish financial reporting standards. Regulatory authorities are govt. agencies that have legal authority to enforce compliance with financial reporting standards. Difference Between GAAP & IFRS GAAP (FASB) | IFRS (IASB) | Under U.S GAAP firms can choose to report comprehensive income in the statement of shareholder’s equity. | Under IFRS the income statement can be combined with “other comprehensive income” & presented as a single statement of comprehensive income. Alternatively presented separately. | CHAP – 24 GAAP (FASB) | IFRS (IASB) | FASB framework includes revenue, expenses, gains, losses and comprehensive income. | IASB framework lists income and expenses as elements related to performance. | FASB defines an asset as a future economic benefit. It also uses word probable in its definition of assets and liabilities. | IASB defines it as a resource from economic benefit is expected to flow. | FASB does not allow the upward valuation of most assets. | ------------- | U.S GAAP has traditionally been more rules-based, but the common conceptual framework is moving towards an objective-oriented approach. | IFRS is largely a principles-based approach. | Companies must disclose their accounting policies and estimates in the footnotes and Management’s Discussion Analysis. | Companies must disclose their accounting...
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