1. As of April 2011 Presented by Teri Willoughby Deters
IFRS
As of April 2011
Presented by
Teri Willoughby Deters

2. IFRS Who Impacted? Differences between IFRS & US GAAP IFRS for SMEs
Transition
Other considerations

3. Who Impacted?

4. IFRS – Who Impacted? Who needs to be thinking about IFRS
Public companies
Non-public with international subsidiaries

5. IFRS – Who Impacted?
Securities Exchange Commission (“SEC”) believes a single set of high-quality globally accepted accounting standards will benefit U.S. investors and the goal is consistent with their mission to protect the investors.
SEC currently analyzing and decision to be announced by end of 2011

6. IFRS – Who Impacted? 2011 2014 Canada United Kingdom and Ireland India
Country
Year
Accounting Standard to Apply
Canada
2011
International Accounting Standards OR
Accounting Standards for Private Enterprises
United Kingdom and Ireland
2014
International Accounting Standards as adopted by EU, OR
Financial Reporting Standards for Medium-sized Entities
India
(depending on net worth)
India equivalent IFRS (recently issued)

7. Accounting Standard to Apply
IFRS – Who Impacted?
Country
Year
Accounting Standard to Apply
China
Continuous
China equivalent IFRS
Singapore
Singapore equivalent IFRS, OR
Singapore Financial Reporting Standards for Small Entities
Mexico
Mexico equivalent IFRS

8. Differences between IFRS & US GAAP

9. Differences between IFRS & US GAAP
Areas for consideration in adopting IFRS
Tangible and intangible assets
Liabilities
Pension
Financial instruments
Income taxes
Consolidation

10. Differences between IFRS & US GAAP
Tangible and intangible assets under IFRS
Prohibits costing of inventory using the LIFO method
Allows for revaluation
Requires de-recognition of components of assets
Level in which impairments performed at the cash-generating unit and involves only 1 step
Allows for reversal of impairment losses

11. Differences between IFRS & US GAAP
Liabilities under IFRS
Contingencies recognized when an obligation “more likely than not” exists
When a range of possible outcomes exists, the mid point of the range would be recognized
Asset retirement obligations recorded at the present value of the best estimate
Provision should be recognized at the present value of the expected expenditure

12. Differences between IFRS & US GAAP
Pensions under IFRS (under evaluation)
Allows for recognition of actuarial gains and losses in equity, without subsequent recycling to net income
Vested past service costs recognized immediately in net income
Curtailment gain recognized when commitment to reduce employees is demonstrated

13. Differences between IFRS & US GAAP
Pensions under IFRS (under evaluation)
Classification of pension expense in operating and non-operating income (i.e., interest)
Plan assets recognized at fair value; calculated value is not allowable
Recognition of an overall plan asset subject to a ceiling test

14. IFRS Financial instruments under IFRS (under evaluation)
Instruments measured at fair value, including equity instruments that do not have quoted market price
Reclassification between categories available
Previous losses on debt instruments may be reversed
High threshold for de-recognition of financial assets under securitization agreements

15. Differences between IFRS & US GAAP
Financial Instruments and Equity
Those items classified as mezzanine would be classified as a financial liability
Financial instruments issued between related parties should be recognized at time of issuance at fair value with an offsetting earnings impact
Effective yield method based upon expected cash flows—not contractual cash flows
Transaction costs should be reported net of the financial liabilities, instead of a non-current asset

16. Differences between IFRS & US GAAP
Hedge accounting (under evaluation)
Generally different definitions used and differences in application of the methodologies
Application of hedge accounting, specific to foreign currency risk with a firm commitment to enter a business combination, is permissible
A parent company may apply hedge accounting on foreign currency exposure of a subsidiary, regardless of the parent company’s functional currency
Shortcut method that assumes no ineffectiveness is not available under IFRS

17. Differences between IFRS & US GAAP
Income taxes
Current and deferred taxes recognized using the enacted or substantively enacted tax rate
Timing of recognition of deferred tax assets
Recognition of deferred tax assets on the following:
Items relating to equity
Items not part of a business combination
Translation of non-monetary assets measured using historical rates
Inter-company transfers

18. Differences between IFRS & US GAAP
Income taxes
A separate tax valuation allowance is not maintained
Uncertain tax positions recognized using probability-weighted average method
Entire balance classified as non-current

19. Differences between IFRS & US GAAP
Functional currency
Same premise—primary economic environment. Be sure analysis is consistent at the subsidiary and consolidated level.
Consolidations (under evaluation)
Requires consolidation of all subsidiaries
Point at which control is assessed
Option for proportional consolidation of jointly controlled entities

20. IFRS for SMEs

21. IFRS for SMEs Entities that qualify to use IFRS for SMEs:
Entities that do not have public accountability, and
Publish general purpose financial statements for external users.

22. IFRS for SMEs Section 1 of IFRS for SMEs:
“A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using IFRS for SMEs in its own financial statements if that subsidiary by itself does not have public accountability.”

23. IFRS for SMEs IFRS IFRS for SMEs Investments in Affiliates (IAS 28.13)
Use of equity method required, when applicable
Investment in affiliates (Section 14.4)
Accounting policy election: cost, equity or fair value
Joint ventures (IAS and 31.38)
Proportionate consolidation or equity method may be used
Joint venture (Section 15.9)
Same as investment in affiliates. Proportionate consolidation not available
Intangibles (IAS 38.88)
Useful lives may be finite or indefinite
Intangibles (Section 18.19)
All intangible assets shall be considered to have a finite useful life
Goodwill (IFRS 3.B63(a))
Measured at acquisition date less accumulated impairment losses (under IAS 36)
Goodwill (Section 19.23)
Measure at cost less accumulated amortization and accumulated impairment losses
Borrowing costs (IAS 23.8)
Borrowing costs shall be capitalized when directly attributable to the acquired asset
Borrowing costs (Section 25.2)
Borrowing costs are expensed as incurred

24. IFRS for SMEs
Completed contract method for revenue recognition is prohibited.
Hedge accounting is limited under IFRS for SMEs. Only permitted for the following hedge risks:
Interest rate risk of a debt instrument
Foreign exchange interest rate risk in a firm commitment or highly probable forecasted transaction
Foreign exchange risk in a net investment
Price risk of a commodity

25. IFRS for SMEs IFRS IFRS for SMEs Consolidated financial statements
(IAS 27.9 and 27.10)
*Most likely will not meet exemption as the ultimate or intermediate parent’s financial statements are NOT publicly available
(Section 9.3)
*May not meet the exemption if the intermediate parent does not produce consolidated general purpose financial statements that comply with full IFRS
Receivables (IFRS 7.37)
Aging of receivables
Receivables
No similar disclosure requirements
Investment in Associates (IAS 28.37(b))
Disclose summarized financial data, including assets liabilities, revenues and profit (loss)
Investment in Associates (Section and 14.15)
Income taxes (IAS 12.81)
Numerical tax rate reconciliation
Income taxes (Section 29.32)
Explanation of changes in applicable tax rate
Capital management and risk management (IAS and IFRS 7.31)
Capital management and risk management

26. Transition

27. Transition
Regardless of adopting IFRS or IFRS for SMEs, the respective transition standard shall be applied:
IFRS 1, or
Section 35 of IFRS for SMEs
Comparable financial statements will need to be provided
Accounting policies shall be re-established and consistently applied

28. Policy Elections Available at Adoption
Transition
Activity
Policy Elections Available at Adoption
Business Combinations
Elect to apply standards to acquisitions that occurred prior to adoption OR apply to acquisitions from the transition date going forward
Property
Property, plant and equipment may be recorded at either:
Fair value
Historical costs less accumulated depreciation (after assets lives have been analyzed under newly-elected GAAP)
Investments
in subsidiaries, jointly controlled entities and associates
Investments may be recorded at either:
Cost (under cost or equity method, as appropriate)
Deemed costs: fair value or previous GAAP carrying amount
Employee future benefits
All cumulative actuarial gains and losses and past services costs may be recognized in opening retained earnings
Cumulative translation difference
If reporting entity maintains CTA at the local level, this amount may be recorded to retained earnings

29. Transition Re-assess designation of financial assets and liabilities
Retrospective application at time of adoption:
De-recognition of financial assets and liabilities: prospective application for transactions occurring on or after date of transition
Hedging: elimination all deferred gains (losses)
Non-controlling interest: prospective application for changes in ownership

30. Other Considerations

31. Other Considerations Implementation team needs
System capabilities for financial reporting purposes
U.S. GAAP
Parallel reporting
Future statutory reporting
Tax
Communication with Tax and Treasury teams

32. Q & A