Ifrs 8 operating segments ppt

International Financial Reporting Standards (IFRS)

Since all of you have already taken Intermediate Accounting and are aware of US GAAP, the focus this week will be on the International Accounting Standards (IAS) with some comparison comments to US GAAP. Also included this week is a Grant Thornton report, Comparison between U.S. GAAP and IFRS.

IAS1 PRESENTATION OF FINANCIAL STATEMENTS

This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.*

When reviewing this IAS, keep in mind two other standards that are closely tied to IAS 1; namely,

IAS 34 Interim Financial Reporting, and

IAS 7 Statement of Cash Flows

*Source: http://annualreporting.info/ifrs_standard_title/ias-1-presentation-of-financial-statements/

IAS2 INVENTORIES

Guidance is more extensive than US GAAP and includes

· Cost of inventories

· Purchase, conversion and other costs

· Excluding abnormal costs of wasted materials, labor or other production costs; storage costs, administrative overhead and selling costs.

· Cost formulas to be used when expenses

· LIFO is not allowed; only FIFO or weighted-average

· Measurement of inventories on financials

· Inventory on balance sheet is either at lower of cost or net realizable value (NRV)

· NRV is estimated selling price less estimates costs of completion and costs necessary to make the sale.

IAS7 STATEMENT OF CASH FLOWS

The statement contains details on the requirements. Reference link below for details.

http://www.iasplus.com/en/standards/ias/ias7

IAS8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES & ERRORS

Provide guidance for

· The selection of accounting policies,

· Accounting for changes,

· Dealing with changes in accounting estimates and

· Correction of errors

When reviewing this IAS, keep in mind two other standards that closely tie to IAS 8; namely,

IAS 10 Events After the Reporting Date, and

IAS 24 Related Party Disclosures

IAS10 EVENTS AFTER THE REPORTING PERIOD

Explains when an entity should adjust its financials for event occurring after the balance sheet date and the disclosures needed.

IAS11 CONSTRUCTION CONTRACTS

Identifies two types of construction contracts: fixed-price and cost-plus. Revenues and expenses should be recognized using the percentage-of-completion method when the outcome of the contract can be estimated reliability.

This standard ties closely to IAS 18 Revenue. Both IAS 11 and 18 have been superseded by IFRS 15 Revenue from Contracts with Customers, effective January 2018.

IAS12 INCOME TAXES

Standard uses an asset-and-liability approach that requires recognition of deferred tax assets and liabilities for temporary differences and for operating losses and tax credit carry-forwards. A deferred tax asset is recognized only if it is probably that a tax benefit will be realized.

IAS14 SEGMENT REPORTING

Replaced by IFRS 8, Operating Segments – see below for details.

IAS16 PROPERTY, PLANT & EQUIPMENT (PPE)

The following guidance is provided for:

1. Initial costs of PPE

2. Subsequent costs

3. Measurement at initial recognition and afterward

4. Depreciation

a. Allows for component depreciation (US GAAP does not)

5. Retirement and disposal

IAS16 allows PPE to be carried at cost less accumulated depreciation and impairment losses

or

at a revalued amount less any subsequent accumulated depreciation and impairment losses.

NOTE: US GAAP does not permit use of the revaluation model.

IAS17 LEASES

There is a distinction between finance (capitalized) leases and operating leases. IAS17 also provides guidance for sale-leaseback transactions.

Finance lease – transfers substantially all the risks and rewards incidental to ownership to the lessee. Examples are provided by IAS17.

Any lease not classified as above is considered an operating lease and payments are expensed by lessee and recognized as income by the lessor

Sales-leaseback – sale of an asset by initial owner of asset who then leases it back.

If the event is a finance lease, the initial owner must defer any gain on the sale and amortize it to income over the lease term. If an operating lease, difference between fair value and carrying value is recognized immediately as income.

IAS 17 Leases Update

February 25, 2016 FASB released ASU 2016-02 Leases

This brings the project to overhaul lease accounting.

New guidance – effective for public business entities in fiscal years beginning after 12/15/2018

– effective date for most other entities (private) deferred for one year to 2020; in October, 2019

the effective date was moved to January 2021. In May, 2020, because of the coronavirus fallout, the date was moved again to 2022.

– early adoption permitted for all entities

Important points:

· Lessees will be required to recognize most leases “on balance sheet.”

· The new guidance retains a dual lease accounting model for purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees.

· Lessors will focus on whether control of the underlying asset has transferred to the lessee to assess lease classification.

· A new definition of a “lease” could cause some contracts formerly accounted for under ASC 840 to fall outside the scope of ASC 842, and vice versa.

· A modified retrospective transition will be required, although there are significant elective transition reliefs available for both lessors and lessees.

Source: http://www.grantthornton.com

Bottom line: Nearly all of the lessees’ leases will be on the balance sheet, unless the lease terms are 12 months or less. Lessors will also see changes that will align with this revised lessee model and also to comply with FASB’s new revenue recognition guidance.

NOTE: IAS 17 will be superseded by IFRS16 Leases as of 1 January 2019. January 1 effective date with the annual report date of 12/31/2019. Early adoption only if IFRS 15 (Revenue Recognition) is also adopted.

SPECIAL NOTES:

Leases, for the most part, will now be on the Balance Sheet, which changes the reported assets and liabilities….in some cases, significantly. Although the Standard implementation isn’t until 2019, it’s never to earlier to start familiarizing yourself with its components.

IAS18 REVENUE

Requires that revenue be measured at the fair value of the consideration received or receivable. This standard will be superseded by IFRS 15 Revenue from Contracts with Customers effective January 2018.

IAS19 EMPLOYEE BENEFITS

Standard that covers all forms of employee compensation and benefits other than share-based compensation; i.e., stock options, which are covered in IFRS 2 (see below).

Four type of employee benefits:

1. Short-term benefits (i.e., compensated absences and profit-sharing and bonus plans)

a. Recognize an expense and a liability at the time that the employee provides services; amount recognized is undiscounted.

2. Post-employment benefits (i.e., pensions, medical benefits and other post-employment benefits)

a. Distinguishes between a defined contribution plan and defined benefit plan

i. Defined contribution plan is simple…the employees accrues an expense and a liability at the time the employees renders services for the amount employers is obligated to contribute. The liability is reduced when the contributions are made.

ii. Defined benefit plans are considerably more complicated.

3. Other long-term employee benefits (i.e., deferred compensation and disability benefits)

a. A liability should be recognized for the benefit equal to the difference between the present value of the defined benefit obligation and the fair value of plan assets (if any).

4. Termination benefits (i.e., severance pay and early retirement benefits)

a. Benefits recognized as an expense and a liability when an employer is demonstrably committed to either terminating the employment of an employee or a group of employees or providing termination benefits as a result of an offer made to encourage voluntary termination.

IAS20 ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURES OF GOVERNMENT ASSISTANCE

This standard outlines how to account for government grants and other assistance. For details please reference the following link:

https://www.iasplus.com/en/standards/ias/ias20

IAS21 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Accounting for foreign currency transactions and foreign operations in the financial statements of an entity as well as the translation of financial statement into a presentation currency.

Scope of IAS 21

· Accounting for transactions and balances in a foreign currency, that is a currency other than the functional currency of an entity

· Translating the results and financial position of an entity for

· consolidation or equity accounting purposes and

· where financial statements are presented in a different currency from that in which they are prepared, in other words where the presentation currency is different from the functional currency of an entity.

The following situations are those in which IAS 21 does not apply: Foreign currency derivatives, hedge accounting, and cash flows arising from transactions in a foreign currency.

IAS23 BORROWING COSTS

Capital costs to the extent that they are attributable to the acquisition, construction or production of a qualifying assets; other costs are expensed in the period incurred.

IAS 24 RELATED PARTY DISCLOSURES

A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the “reporting entity”).

The scope of IAS 24 is applied as follows:

· Identifying related party relationships and transactions;

· Identifying outstanding balances, including commitments, between an entity and its related parties;

· Identifying the circumstances in which disclosure of related party items is required;

· Determining the related party disclosures

This IAS also ties to IAS 8 and 10

IAS26 ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS

This standard outlines the requirements for the preparation of financial statements of retirement benefit plans.

Please see the following reference for details:

https://www.iasplus.com/en/standards/ias/ias26

IAS27 SEPARATE FINANCIAL STATEMENTS

This standard has a history, which started in April 2001 when the IASB adopted IAS27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries.

In 2008 it was amended and entitled Consolidated and Separate Financial Statements as part of the joint project on business combinations with FASB.

In May 2001 the IASB issued IAS27, concurrently with IFRS10, with a modified title of Separate Financial Statements.

IAS 27 addresses only the accounting and disclosure requirements for investments in subsidiaries, joint ventures, and associates when an entity prepares separate financial statements. Some jurisdictions require entities to present both consolidated and separate (parent-only) financial statements. The standard requires an entity preparing separate financial statements to account for those investments either at cost, in accordance with IFRS 9, Financial Instruments, or using the equity method. Note that financial statements of an entity that does not have a subsidiary, associate, or joint venturer's interest in a joint venture are not separate financial statements. IFRS 10 replaces the guidance formerly included in IAS 27 and establishes the principle of control and the requirements for the preparation of consolidated financial statements.

Note: The information in this section reflects an amendment issued by the IASB in August 2014, titled Equity Method in Separate Financial Statements. The purpose of this amendment is to restore the option to use the equity method to facilitate convergence of local GAAP in those jurisdictions with IFRS. Entities should apply this amendment for annual periods beginning on or after January 1, 2016, retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted with proper disclosure.

IAS28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

IAS 28 defines an associate and provides criteria to determine whether an investment meets that definition. It ties directly with IFRS 11, which defines a joint arrangement and provides criteria to determine whether a joint arrangement is a joint operation or a joint venture.

In terms of accounting for these investments, IAS 28 discusses the accounting treatment for associates and joint ventures; IFRS 11 discusses how to account for joint operations.

Here’s a chart to help visualize how each standard works.

The objective of IAS 28 is to prescribe the accounting for investments in associates and requirements for the application of the equity method when accounting for investments in associates and joint ventures. It does not define financial or operating policy.

The objective of IFRS 11 is to establish the principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements).

IAS29 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

This standard applies when an entity’s functional currency is that of a hyperinflationary economy. See the following link for details:

https://www.iasplus.com/en/standards/ias/ias29

IAS32 FINANCIAL INSTRUMENTS: PRESENTATION

Defines a financial instrument as any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. This standard ties closely with IFRS 9 and 7 and IAS 39.

The objective of IAS 32 is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. IAS 32 applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities, and equity instruments; the classification of related interest, dividends, losses, and gains; and the circumstances under which financial assets and financial liabilities should be offset.

IAS33 EARNINGS PER SHARE

The objective of IAS 33, Earnings per Share, is to prescribe the principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. Even though earnings per share data have limitations because of the different accounting policies that may be used to determine "earnings," a consistently determined denominator enhances financial reporting. Therefore, the focus of IAS 33 is on the denominator for the earnings per share calculation. The scope applies to separate or individual financials statements of an entity and then consolidated financials of a group with a parent.

IAS34 INTERIM FINANCIAL REPORTING

An interim financial report is a financial report that contains either a complete or condensed set of financial statements for a period shorter than an entity's full financial year. This standard does not mandate which entities should publish interim financial reports, how frequently, or how soon after the end of an interim period. These matters should be decided by national governments, securities regulators, stock exchanges, and accountancy bodies. This standard applies when a company is required or elects to publish an interim financial report. IAS 34 defines the minimum content of an interim financial report, including disclosures, and identifies the accounting recognition and measurement principles that should be applied in an interim financial report.

For the most part requires interim period to be treat as discrete reporting periods; i.e. unlike US GAAP, an annual bonus would be recognized in the interim period that it was given and not spread over four quarters.

This standard ties to IAS 1 and 7.

IAS36 IMPAIRMENT OF ASSETS

Requires testing of PPE; intangibles, including goodwill; and long-term investments.

An entity must assess annually whether there are any indicators that an asset is impaired; that is, when an asset’s carrying value exceeds its recoverable amount.

· Recoverable amount is the great of net selling price and value in use

· Net selling price is the price of an asset in an active market less disposal costs

· Value is use is determined as the present value of future net cash flows expected to arise from continued use of the assets over its remaining useful life and upon disposal.

Measurement of impairment loss is the amount by which carrying value exceeds recoverable amount and it is recognized in income.

At each balance sheet date a review should be undertaken to determine if an impairment loss should be reversed. Reversals are recognized in income immediately.

Here’s a link that provides more detail if you are interested: https://www.iasplus.com/en/standards/ias/ias36

NOTE: US GAAP does not allow reversals.

IAS37 PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

Guidance for reporting liabilities and assets of uncertain timing, amount or existence. Also contains specific rules related to arduous* contracts and restructuring costs.

*contract in which the unavoidable costs of meeting the obligation of the contract exceed the economic benefits expected to be received.

Provisions are defined as liabilities of uncertain timing or amounts.

Restructuring is a program that is planned and controlled by management and that materially changes either the scope of a business undertaken by an entity or the manner in which the business is conducted; i.e., sale of a line of business, closure of a location, changes in management structure.

Contingent asset is a probable asset that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of a future event. These assets should not be recognized but disclosed when the inflow of economic benefits is probable.

IAS38 INTANGIBLE ASSETS

Definition: nonmonetary asset without physical substance held for use in the production of goods or services, rental to others or administrative purposes.

IAS38 provides guidance as follows:

· Purchased intangible assets

· Initially measured at cost

· Useful life is assessed as finite or indefinite

· Intangibles acquired in a business combination

· Patents, trademarks and customer lists acquired are recognized at their fair value

· Development costs are capitalized

· Goodwill is included with IFRS 3, Business Combinations and not included here. See below under IFRS3 for information on goodwill.

· Internally generated intangibles

· The expenditure(s) giving rise to the potential intangible needs to be classified as either research or development expenditures. If the distinction cannot be established, then all are classified as research expenditures and expensed as incurred…no intangible asset would be recognized.

· Judgment becomes key since you are determining where research ends, and development begins. IAS38 provides extensive lists as a reference.

IAS39 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT

Establishes categories into which all financial assets (four) and liabilities (two) must be classified. The classification determines how it will be measured. This standard is closely tied to IAS 32 and IFRS 9 and 7.

Replaced by IFRS 9 Financial Instruments

· See IFRS 9 for more details. There is also a file attached to this week’s lecture that further explains the standard.

IAS40 INVESTMENT PROPERTY

Land and/or buildings held to earn rentals, capital appreciation or both.

Options: Use of fair value model or cost model

NOTES: US GAAP requires use of cost model.

IAS41 AGRICULTURE

This standard sets out the accounting for agricultural activity. It was issued in December 2000 and applied to annual periods beginning on or after January 2003.

See the following link for more details:

https://www.iasplus.com/en/standards/ias/ias41

For additional information on any of the above IAS, use the following link…

https://www.iasplus.com/en/standards/

IAS vs IFRS…is there a difference? From my research, the International Accounting Standards Committee (IASC) was established in 1973 and issued a number of standards. The above list includes all of the standards issued by IASC.

In 2001 it was restructured and became the International Accounting Standards Board (IASB). It was agreed that all of the above standards would be adopted by the IASB but moving forward all standards would become IFRS…International Financial Reporting Standards.

One major implication IFRS principles take precedence over IAS. So when contradictory IFRS standards are issued by the IASB, older ones (IAS) are usually disregarded.

IFRS 1 FIRST-TIME ADOPTION OF IFRS

The objective of IFRS 1 is to ensure that the entity’s first IFRS financial statements and its interim financial reports for the portion of the period recorded in those financial statement, contain high-quality information that:

· Is transparent for users and comparable over all periods presented,

· Provides a suitable starting point for accounting in accordance with International Financial Reporting Standards (IFRSs), and

· Can be generated at a cost that does not exceed the benefits.

Please note: It is continually being updated….

IFRS 2 SHARE-BASED PAYMENT

Sets out measurement principles and specific requirements for three types of payments:

1. Equity-settled share-based payment transactions

2. Cash-settled share-based payment transactions

3. Choice-of-settlement share-based transactions

Requires entity to recognize all share-based payment transactions in its financial statements; no exceptions. Standard applies a fair-value approach.

Note: Reference IAS 19 Employee Benefits for additional details on this topic.

IFRS 3 BUSINESS COMBINATIONS

The core principle of IFRS 3 is that an acquirer of a business recognizes the assets acquired and liabilities assumed at their acquisition-date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition.

The objective of IFRS 3 is to improve the relevance, reliability, and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. To accomplish this, IFRS 3 establishes principles and requirements for how the acquirer:

· recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;

· recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and

· determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

Includes initial measurement of goodwill as follows:

· The difference between

· Consideration transferred by the acquiring firm plus any amount recognized as non-controlling interest

· The fair value of net assets acquired.

If the first one exceeds the second, goodwill is recognized as an asset. If reversed, then it is a “bargain purchase” and the difference becomes negative goodwill and is recognized as a gain in net income by the acquiring firm.

IFRS 4 INSURANCE CONTRACTS

IFRS 4 Insurance Contracts applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. In light of the IASB's comprehensive project on insurance contracts, the standard provides a temporary exemption from the requirements of some other IFRSs, including the requirement to consider IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors when selecting accounting policies for insurance contracts.

Note: IFRS 4 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005. IFRS 4 will be replaced by IFRS 17 as of 1 January 2021.

For additional details https://www.iasplus.com/en/standards/ifrs/ifrs4

IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

In theory, IFRS classifies an asset based upon how management intends to realize its future economic benefits. A non-current asset is basically an asset which management cannot or does not expect to realize, sell, or use up within its normal operating cycle or at least twelve months after the reporting period's end.

The main principle of IFRS 5 is that management intent determines measurement and presentation of non-current assets. Management intent regarding asset use can change over time.

This chart shows how management's intended use affects the classification of several major types of non-current assets

The second part of IFRS 5 sets standards for discontinued operations, which is a component of an entity that has been disposed of or is classified as held for sale, and that

· represents a separate major line of business or major geographical area of operations, or

· is part of a single coordinated plan to dispose of a separate major line of business or major geographical area of operations, or

· is a subsidiary acquired exclusively with a view to resale.

For more details reference https://www.iasplus.com/en/standards/ifrs/ifrs5

IFRS 6 EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES

IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment).

For more details reference https://www.iasplus.com/en/standards/ifrs/ifrs6

IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

Requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to transferred financial assets and a number of other matters.

When learning this topic you also have to reference IFRS 9 Financial Instruments, which establishing principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing, and uncertainty of an entity's future cash flows.

Also, for this topic reference IAS 32 and 39.

IFRS 8 OPERATING SEGMENTS

Extensive disclosures are required for each separately reportable operating segment.

Operating segments are components of a business:

1. That generate revenues and expenses

2. Whose operating results are regularly reviewed by the COO, and

3. For which separate financial information is available.

For additional guidelines reference https://www.iasplus.com/en/standards/ifrs/ifrs8

IFRS 9 FINANCIAL INSTRUMENTS (Replacement of IAS39)

The International Accounting Standards Board (IASB) completed the final element of its comprehensive response to the financial crisis with the publication of IFRS 9 Financial Instruments in July 2014. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.

The IASB has previously published versions of IFRS 9 that introduced new classification and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). The July 2014 publication represents the final version of the Standard, replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.

The objective of IFRS 9, Financial Instruments, is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing, and uncertainty of an entity's future cash flows.

IFRS 9, Financial Instruments, is effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS

The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. An entity that is a parent should present consolidated financial statements with some exceptions. The basis for consolidation is control and the standard provides detailed guidance for applying the control principle.

IFRS 10 replaces the pats of IAS 27 Separate Financial Statements that deal with consolidations. For more details reference https://www.iasplus.com/en/standards/ifrs/ifrs10

IFRS 11 JOINT ARRANGEMENTS

Outlines the accounting by entities that jointly control an arrangement. Return to page 5 and take note of the information provide on IFRS 11 and review the charts that were provided.

IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES

When discussing IFRS 12 you also have to consider IAS 28 and IFRS 11. IFRS 12 provides the disclosure requirements for interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities.

IFRS 13 FAIR VALUE MEASUREMENT

The objective of IFRS 13 is to provide a definition of fair value, include all related guidance in one standard, and outline the required disclosures for fair value.

Additional information https://www.iasplus.com/en/standards/ifrs/ifrs13

IFRS 14 REGULATORY DEFERRAL ACCOUNTS

Permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements.

Details can be found at https://www.iasplus.com/en/standards/ifrs/ifrs14

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

Focus is entirely on identifying the contract with a customer and the performance obligations that result from that contract rather than on a particular transaction or event. It does not apply to leases, insurance contracts, or financial instruments and other contractual rights within the scope of IFRS9. It does tie to IAS 11 and 18.

We will be covering this topic in more detail in Week 4. This standard is full converged with US GAAP; reference ASU 2014-09.

IFRS 16 LEASES

The objective is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures to apply in relation to finance and operating leases.

In January 2016, the IASB issued IFRS 16, Leases, which will replace the current standard on leases (IAS 17) and related interpretations. The effective date of this standard is January 1, 2019. Entities can choose to apply IFRS 16 before that date but only in conjunction with the application of IFRS 15, Revenue from Contracts with Customers. Reference IAS 17 on pages 2 and 3 for more details.

This standard is a high-priority for both the FASB and the IASB…working toward convergence.

IFRS 17 INSURANCE CONTRACTS (Replacement of IFRS4)

The International Accounting Standards Board (IASB) issued a standard for insurance contracts to help investor’s and others better understand insurers’ risks exposure, profitability and financial position. Goal is for transparency in reporting and consistency in accounting for insurance contracts. It goes into effect on January 1, 2021 and early application is permitted.

As reported in AccountingToday.com on October 2019: The insurance contracts standard would be delayed for both public and private companies, as well as for nonprofits. The deferral moves the effective date for SEC filers from January 2021 to January 2022. Other public business entities, including smaller reporting companies, would see the effective date move from January 2021 to January 2024. For private companies and nonprofits, the effective date would move from January 2022 to January 2024.

QUALIFYING NOTE: Many of these standards are still being developed and improved upon; you may find in your research differences from these lecture notes. If you do, please bring it to my attention.

REFERENCE SOURCES:
The International Financial Reporting Standards Database and Textbook (online) and
International Accounting, 3rd edition, Doupnik & Perera

AICPA Certificate Program for International Financial Reporting Standards

Online resources for IAS and IFRS

PLEASE SEE THE NEXT PAGE FOR THE HOMEWORK ASSIGNMENTS

HOMEWORK:

There are two assignments this week…

· Select any two of the IAS or IFRS standards presented this week, identify which two you have selected and then discuss how your MNC handles the standards. Post your response in this week’s forum so that everyone can benefit from your posting and also provide their comments

· There are six major reasons for accounting diversity throughout the world:

1. Legal systems

2. Taxation

3. Sources of financing

4. Inflation

5. Political and economic ties

6. Culture

Two additional factors to consider

7. Level of economic development

8. Education

Select which one factor has exerted the greatest influence on the development of accounting (in general you are not focusing on a specific country) in your opinion and why. Again, post your homework in this week’s forum. Once everyone has submitted their response, I will post a summary of your opinions and also include my own along with previous author’s opinions.