1 Adopting IFRS: Implications for Accounting Educators Rong-Ruey Duh National Taiwan University Seminar on Teaching IFRS Tainan University of Science and Technology Taiwan Accounting Association August 21, 2009 Do not quote; comments welcome

2 Introduction Objectives Exchange of Ideas Prelude to Today’s Program

3 Introduction Approach to a Single Set of Financial Reporting Standards in the World Harmonization vs. Convergence Convergence vs. Adoption Convergence means differently for different countries –Example: Joint projects between FASB and IASB

4 Introduction Approach Used in Taiwan in the Past Revising existing standards (US GAAP based) to be aligned with IFRS while remaining differences primarily arising from the unresolved differences between IFRS and US GAAP Issuing new standards based on IFRS Adopting IFRS when most Taiwanese standards are in alignment with IFRS Starting in 2013, all listed firms will be required to prepare financial reports in accordance with IFRS; earlier adoption in 2012 is permitted

5 Introduction What if adopting IFRS without the convergence process? Evolution vs. Revolution Hindsight =/ Foresight Mind-set vs. literal words

6 Introduction Does Adopting IFRS Necessarily Produce Financial Reports with Higher Quality? Empirical evidence –IFRS vs. US GAAP –IFRS vs. local GAAP (in particular German GAAP) –Conservatism, liquidity, cost of capital, etc. Incentives and institutional factors matter

7 Teaching IFRS Features of IFRS Principles-based vs. rules-based Less bright-line tests Less implementation guidance and interpretations More judgmental elements Conceptual framework becomes more important

8 Teaching IFRS Examples –Capital lease: the lease term is for the major part of economic life of the asset vs. 75% bright line –Capital lease: at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset vs. 90% bright line

9 Teaching IFRS –Business combinations: In determining the cost of the acquisition, marketable securities issued by the acquirer are measured at their fair value which is their market price as at the date of the exchange transaction, provided that undue fluctuations or the narrowness of the market do not make the market price an unreliable indicator. When the market price on one particular date is not a reliable indicator, price movements for a reasonable period before and after the announcement of the terms of the acquisition need to be considered.

10 Teaching IFRS Teaching Materials Knowledge to support judgments, and judgments of judgments –Economics –Finance –Industry –Research methods –Example: Impairment of assets: The discount rate (or rates) should be a pre-tax rate (or rates) that reflects current market assessments of the time value of money and the risks specific to the asset. The discount rate(s) should not reflect risks for which cash flow estimates have been adjusted.

11 Teaching IFRS Ethics to hold up judgments –Distinctions between laws and ethics –Principles of ethics –Cases for discussions and illustrations Materials from Big4 accounting firms

12 Teaching IFRS Teaching Methods Training how to make judgments and choices Training how to find answers; not just telling answers UIUC Project Discovery –Stone and Shelley (1997, JAR supplement) –Greater use of expertise-building instructional processes: field projects, case analysis, group work, and presentation –Higher scores in CPA examinations (especially auditing), stronger problem-solving skills, and better attitudes –Would any university want to experiment? –What are the obstacles to accounting education change? Modified controversial-issue approach

13 Teaching IFRS Examination and Grading Giving questions relying on reasoning (not just memorizing) Encouraging answers based on reasoning (not just memorizing) Learning levels –Knowledge, comprehension, application, analysis, synthesis, and evaluation (Bloom 1956)

14 Teaching IFRS Learning levels are to be enhanced across all kinds of examinations –CPA examinations (intermediate accounting, cost and managerial accounting, and auditing) in emphasize comprehension and application (Hsu 2002). –Examinations for government accountants show a similar trend (Liu 2002). –Mid-term and final examinations in two universities (introductory accounting, intermediate accounting, cost and managerial accounting, and auditing) emphasize knowledge and comprehension, but do not go beyond (Chow, Duh and Yen 2001).

15 Teaching IFRS Institutional Support Teaching evaluation Compensation Databases Example: market rate of return; market value of various assets

16 What Else Can Accounting Educators Do? We seem to know more about foreign situations than about our own? –Institutions matter Knowledge consumers vs. knowledge producers –Knowledge-based judgments –Literature review –Meta-analysis –Editorial policy of journals Scattered research vs. systematic research

17 Thank you for your attention