US GAAP
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International Financial Reporting
Standards (IFRS) vs. US
Generally Accepted Accounting
Standards (GAAP)
What does it mean for you?
Convergence!!!!
Dictionary Definition:
2011-2014 2011-2014
2010 2011
2015
•Fill SME •Choose IFRS
•Put team •Impact
gaps 1 options •Issue
together analysis
•Impact on •Make policy financial
•Train •Create
processes/IC choices statements
•Keep track formal plan
•Develop •Restate
of
communicati /reaudit
convergence
on plan
Based on SEC proposal to begin IFRS for large accelerated filers in 2014
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Google Inc. Balance Sheet
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Some Major Differences between
US GAAP and IFRS (Continued)
• Earnings per Share (EPS)
– IFRS has only Basic and Diluted EPS on
continuing operations and net profit or loss
per share
– US GAAP has Basic and Diluted from
continuing operations, discontinued
operations, extraordinary items, cumulative
effect of changes in accounting policy, and
net income or net loss.
EXAMPLE OF EARNINGS
DIFFERENCE IFRS VS GAAP
• DAIMLER BENZ
– IFRS STANDARDS IN PLACE FOR YEAR
2006, ITS OPERATING PROFIT OF $2.4 BIL
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British Airlines Auditor’s Report
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Auditor’s Report-Google, Inc.
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WHAT DOES IT MEAN TO
BUSINESSES? (Continued)
• What does it do for tax planning and tax
deferred liabilities and assets on the
balance sheet?
• What about Investor relationships,
explaining the inconsistencies between
years when implemented? What will be
required to be restated? Educating them.
WHAT DOES IT MEAN TO
BUSINESSES? (Continued)
• Costs of training of the company
personnel on the new standards, pass it
on to customers
• Discussing with banks over the debt
covenants, and the effect of them on the
loans.
What does it mean to me?
• If the IFRS are being made mandatory, as an
professional the accounting degree earned
recently may not be relevant. Retraining must
be done. Community College in NJ gave a
money back guarantee on learning? Free
retraining??
• How do I read the financial statements and
analytical information for comparability? Cost?
• Per my clients, how do I explain the differences
between the two? NO EASY WAY!!
• Is this coming to the privately held companies
that I work on? Probably!!!
What does it mean to me?
(Continued)
• What is next change or challenge, are I
ready? Is my firm ready?
• Challenge to keep up. Looking forward to
it. Competitive Advantage?
• Example, If you got your Masters Degree
in Taxation, MST in 1986 and the tax law
dramatically changed later that year.
SEC Hearing on IFRS
• Panel on US Financial Services and IFRS
recap:
– IFRS creates more work or interpretation to
determine whether you put it on the Financial
Statements
– US GAAP gives you more guidance
– Entity recognition is a problem, Asset
capitalization was not easy task, Example
used where 200 leased vehicles had to be
capitalized due to control of vehicle.
SEC Hearing on IFRS (Continued)
• On Panel, John Smith, An American IASB
member.
-Mentioned that on the board there are 14
members and they are from United States,
South Africa, Japan, China, Sweden, France
and United Kingdom.
-Panelists stated time consuming and costly
to use IFRS.
-Are they getting better information to the
creditors, regulators, investors and management
were questioned? Are the interested parties
getting value for this exercise? MAYBE??
Recent Developments -IFRS
• Issuance in 2009, IASB issued
International Financial Reporting Standard
for Small and Medium Sized Entities (IFRS
for SME’s).
– For example, no Earnings per Share (EPS),
no Interim reporting or Segment reporting are
needed
– No Fair Value determination of Long term
assets are needed to complete financial
statements
Latest Proposals on Financial
Statement Presentation
– Overall Project Goal
– Develop a common standard on organization
and presentation of information in financial
statements
– Improve:
• The usefulness of information provided to users of
financial statements (in making decisions as
providers of capital)
• Communication between management and users
of financial statements
Latest Proposals on Financial
Statement Presentation-(Cont’d)
– Status of Project
– IASB/FASB joint project – formerly known as
the “Performance Reporting Project”
– Discussion paper issued October 16, 2008
– Comments received April 14, 2009
– Exposure draft expected in 2010
Latest Proposals on Financial
Statement Presentation-(Cont’d)
– Objectives
– Three objectives for financial statement presentation:
– Cohesiveness – flow of information should follow
through all of the different statements
• Relationships are clear: statements are complimentary
– Disaggregation – more information should be shown
separately
• Common sections and categories: more line items
– Ability to assess liquidity and cash flow
• Ability to meet financial commitments and invest in business
opportunities
Latest Proposals on Financial
Statement Presentation-(Cont’d)
– Statement of Financial Position
• Grouped by operating, investing, financing (no longer by
assets liabilities and equity)
• Disaggregate assets and liabilities into short term and long
term, totals and subtotals
– Statement of Comprehensive Income
• One statement
• More disaggregation (function, nature)
– Statement of Cash Flows
• Direct method
– New reconciliation schedule
• Reconcile cash flows to comprehensive income
• In notes
Latest Proposals on Financial
Statement Presentation-(Cont’d)
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Bibliography
• Thank you!!