IFRS and Current Assets 1

Comparing GAAP and IFRS Current Asset Presentation US GAAP requires companies to list assets in order of liquidity starting with Current Assets and followed by Noncurrent Assets. Under IFRS order of liquidity is not specified. – Entities can report assets and liabilities broadly without separating current from noncurrent if they believe this is reliable and more relevant. 2

Specific Asset Treatment Cash – no substantive differences in the presentation 3

Specific Asset Treatment continued Accounts Receivable under IFRS – A/R recorded for events that create revenue but have not been settled – Trade receivables are generally distinguished from other categories of receivables but this isn’t absolutely required. – Bad debts usually recognized using the aging approach. Companies cannot use direct write-off method. 4

Sale of Receivables US GAAP sale of trade receivables without recourse is generally treated as a sale if control is surrendered with no continued involvement. Per SFAS No. 140 sales with recourse are treated as sales if: – Assets are transferred beyond the reach of the transferor – Transferee can pledge or exchange the transferred assets freely – Transferor has not kept effective control such as with required repurchase provisions 5

Sale of Receivables continued Under IFRS factoring receivables without recourse qualifies as a sale. Now factoring with recourse does not qualify as a sale if there is no substantive risk assumed by the “buyer” of the receivables. – Management may interpret ‘substantive risk’ in a way consistent with SFAS No. 140 but perhaps not. – Another example of the use of professional judgment under IFRS which may lead to different treatment than with GAAP 6

Inventories LIFO inventory costing is not allowed under IFRS – FIFO and Weighted Average are the only allowable methods Biological assets and agricultural produce are valued at fair value less point of sale costs Thus inventories may be valued differently with US GAAP than with IFRS 7

Inventories US GAAP Carried at LCM. – Market is replacement cost subject to floor and ceiling constraints. IFRS Carried at lower of cost or net realizable value. 8 NRV > Mkt > (NRV – Normal Profit Margin) This difference can create significantly different carrying values for inventory.

Inventory continued With US GAAP if inventory is written down it may not be written back up if market value recovers IFRS allows such write-ups when economic circumstances indicate recovery of market values – Such recoveries are reported in income US GAAP applies LCM rule to total inventory, each item, or to groups of components of inventory. IFRS prohibits aggregation based on classification such as finished goods, industry or geographical segment. No further convergence is planned at present. 9

Marketable Securities US GAAP categorizes marketable securities into – Trading – Available for sale (AFS) – Held to maturity (HTM) To categorize as HTM - entity must have ‘positive intent and ability’ to hold until maturity – Carried at amortized cost (effective interest method) – With IFRS if more than an insignificant amount (as compared to total HTM securities) are sold entity cannot use the HTM classification for two years (2 year penalty period is not specified for nonpublic firms under US GAAP) 10

Marketable Securities continued AFS securities are valued at fair value The offsetting side of the asset revaluation is accounted for differently GAAP vs. IFRS – GAAP the change is reflected in other comprehensive income – IFRS the change is recognized directly in equity through the statement of changes in equity 11

Marketable Securities continued Impairments of HTM securities – With both GAAP and IFRS, impaired securities must be written down to estimated recoverable amount (PV of future cash flows discounted at original effective rate) With IFRS recoveries of impaired HTM securities are included in income. Recoveries of impairments are not allowed with GAAP. 12