IBM, Accounting/IFRS assignment help

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I need a memo(1 - 2 pages) completed for IBM based on the attached impact analysis chart and the description of the IFRS(also attached) and doing the following:

Write a memo to the CEO and CFO of the subject company providing them with the following:

  • Describe what you have done to update the existing statement to comply with the IFRS. Contrasting the standards listed in the IA chart.
  • Outline the steps that will need to be taken by this company to ensure a smooth transition



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Impact Analysis Chart [International Business Machines (IBM) Inc.] Pronouncement IFRS 1: First-time Adoption of International Financial Reporting Standards Describe what the company is currently doing under GAAP. The company require to comply with GAAP incase preparing financial statement. . The company does not require to prepare any opening balance sheet. The company does not require to make any discourse to explain transition. IFRS 15: Revenue from Contracts with Customers IAS 1:Presentation of Financial Statements What changes will occur under IFRS? The company will require to ensure an explicit and unreserved statement of the compliance with the IFRS in the financial statement. How will the transition to IFRS impact the company? Extensive disclosure will be made on financial statement, and the accounting convention of the company will be changed. The company will require to ensure preparation of an opening balance sheet at the date of transition of IFRS. An opening balance sheet will be prepared what will cause to change in the figures of the financial statements. The company will require making of an extensive disclosure to explain the transition to IFRS. Users will get an understanding that cause of change in accounting convention. The company requires to select accounting policies that will ensure effective compliance with GAAP. The company will require to select accounting policies that will ensure effective compliance with IFRS and apply retrospective application in the financial statements. The company follows GAAP rules The company will follow only IFRS and SAB 104 (in absence of GAAP) prescribed rules to determine when to determine when revenue should revenue should be recognized for a be recognized for a transaction. transaction. The company does not recognize revenue for a service contract until it is realized or realizable and earned. The company does not prepare balance sheet and income statement in accordance with and specific layout as there is no layout from GAAP. The company will recognize revenue from service contract in accordance with long-term contract accounting. The company will require to include some minimum items in the financial statements prescribed by IFRS. The company presents ‘exceptional The company will not require to Accounting policies will be changed and thus figures in the financials stamens will be changed. Revenue recognized for service contract will be changed. Revenue recognized for service contract will be changed. The presentation format of financial statements will be changed. Format of the income statement will items’ and ‘Extraordinary items’ as components of income separate from continuing operations. include ‘exceptional items’ and ‘Extraordinary items’ as components of income statement. The company has discretion to present the statement of change in equity as a primary statement or notes to the financial statement. change. ‘Exceptional items’ and ‘Extraordinary items’ will no more be recorded. IAS 7: Statement of Cash Flow The company can classify interest & dividends paid as operating or financing activities, and interest & dividends received as operating or investing activities. The company will require to present the statement of change in equity as a Discretion with respect to presenting primary statement of statement of change in equity as a primary statement or notes to the financial statement will be no more. The company will require to classify Cash flow from operating activities, interest and dividend paid as investing, and financing activities may operating & financing activities, and be changed interest and dividend received as operating activities. IAS 2: Inventory Accounting The company uses LIFO. The company will not use LIFO. Inventory value will be changed. The company records inventory at the lower of cost and market. The company will record inventory at the lower of cost and Net Realizable Value (NRV). Inventory value will be changed. The company does not make reversal of the impairment loss of inventory. The company will to able to make reversal of the value of inventory previously impaired. The company will require to make revaluation of fixed assets is not permitted. Inventory value will be changed. The company does not review the residual value and useful lives of the assets at each balance sheet date. The company will require to make review the residual value and useful lives of the assets at each balance sheet date. Annual depreciation amount can change due to change of remeasurement of residual value and useful lives of the assets. The company does not show depreciations of the components of assets separately. The company will require to show depreciations of the components when components’ useful lives are separate. More disclosure of the components consisting total Property, Plant and Equipment (PPE) will be made. The company does not separately The company will record Investment Gain or loss will be shown for a IAS 16: Property, Plant and Equipment The company does not make revaluation of property at the fair value if required. Assets value of the company may be increased due to revaluation of property. IFRS 9: Financial Instruments IAS 12: Income Taxes IAS 17: Leases IAS 10: Events After the Reporting Period defined and recognized Investment property as ’held to use’ or ‘held for sale’. The company recognizes impairment of Available for Sale (AFS) in the ‘Income statement’. property at fair value and show change in fair value in income statement. The company will recognize impairment of Available for Sale (AFS) in the ‘Statement of Comprehensive Income’. change in market (fair) value of Investment property. The company measure impairment loss of HTM securities as the difference between its fair value and amortized cost. The company will measures impairment loss of HTM securities as the difference between the carrying amount of the instrument and the present value of estimated future cash flows discounted at the instrument’s original effective interest rate. Amount of impairment loss of HTM securities will be changed. The company recognizes deferred tax assets in full and then reduces it by a valuation allowance. The company will record deferred tax assets only when it is probable that deferred tax asset will be used and valuation allowances will not be recorded. The amount of deferred tax of the company will be changed. The company uses enacted tax rate to calculate deferred tax assets and liabilities. The company will use enacted or “substantively enacted” tax rates to determine deferred tax assets and liabilities. The amount of deferred tax assets sad deferred tax liability will be changed. The company uses four - prong test to The company will now focus on make decision with respect to overall substance of the transaction to classification of lease. make decision with respect to classification of lease. The company review and evaluate The company will now review and subsequent events from the date evaluate subsequent events from when financial statements are the date when financial statements issued or available to be issued are “authorized for issue”. Net income in the income statement will be higher than previous. The previously classified lease will be re-classified again. This will cause to change in capital lease amount as well as long term liability. There will be change with respect to time period from which subsequent events are searched. IBM currently follows GAAP standard. Due to transition from the GAAP to IFRS it will require to make some adjustments to its financial statement. The company will be required to prepare an opening balance sheet at the date of transition of IFRS. Under GAAP, IBM may follow LIFO, FIFO, or Weighted Average Cost Method. But under IFRS, LIFO is permissible to use. So, there will be no problem if FIFO or Weighted Average Cost Method is currently used by the company. There will be a required change if the company uses LIFO. In this case, the inventory will be revalued to FIFO or Weighted Average Cost Method basis. As there exists an inflationary environment (Trading Economics, 2016), a modification from LIFO to FIFO will result in increase of closing inventory balance, thus reduction of cost of sales and increase of gross profit. Currently IBM records closing inventory value at the lower of cost and market (IBM, 2016). Modification will be needed when the company will shift to IFRS. In that case, it will require to record inventory at the lower of cost and Net Realizable Value (NRV). This may cause to reduction of closing inventory value after modification if Net Realizable Value (NRV) is required to consider which is less than market value. A modification will make the company make a reversal of the value of inventory previously impaired. This will cause to increase in value of the closing inventory, thus reduction of cost of sales and increase of gross profit. Valuation of the property plant and equipment (IAS16) Under GAAP, there is no revaluation of property at the fair value. So, in the transition period, there may be a revaluation of the property, plant, and equipment. This will cause an increase of the value of the PPE (as there is inflationary pressure in the economy), thus increase of depreciation expenses and reduction of net income. In GAAP, there is no review the residual value and useful lives of the assets at each balance sheet date. So, in the transition period, there may be a review the residual value and useful lives of the assets. This will result in the change in the PPE figure and depreciation expenses. Fair value measurement standards (IFRS 13) Under GAAP, there is a permission to measure certain alternative investments at net asset value (RSM, 2012), however under IFRS there is no such permission (IBM, 2016). Thus, In case of modification, the balance of alternative investment measured at fair value, if any. Income Taxes (IAS12) As with the current system (GAAP), the company recognizes the deferred tax assets in full and then reduces it by a valuation allowance (IBM, 2016). In case of transition to IFRS, the company will require to record the deferred tax assets at the time only when it is probable that deferred tax asset will be used and valuation allowances will not be recorded (Ernst & Young, 2013). Thus, with the transaction to IFRS from GAAP, the company will apply more conservative principle in recognizing the differed tax assets. Thus, there is probability of the reduction of deferred tax assets after transition from the GAAP to IFRS. Also, with the GAAP, IBM uses enacted tax rate for calculating deferred tax assets and liabilities (IBM, 2016). But, with the transaction to IFRS from GAAP, the company will use enacted or “substantively enacted” tax rates for determining the deferred tax assets and liabilities (Ernst & Young, 2013). Change in the tax rate determination policy will definitely bring change in the deferred tax asset and deferred liabilities in the opening balance sheet required to prepare at the date of transition of IFRS. Leases (IAS17) Under GAAP, IBM uses four - prong tests for undertaking decision with respect to classification of a lease (IBM, 2016). On the other hand, with IFRS it will require to focus on overall substance of the transaction besides some hard and fast rules or criterion for undertaking decision with respect to classification of lease (PWC, 2015). As a result of transition from the GAAP to IFRS the company is moving from stricter rule to reorganization of the finance lease. At the opening balance sheet required to prepare at the date of transition of IFRS, the company may reclassify some leases. This will cause to change in capital lease amount as well as long term liability. Some leases may be reclassified from operating lease to finance lease due to not meeting up of more stringent recognition rules of capital lease. This will cause to decrease total assets size, leverage, and operating income of the company. Financial instruments (IFRS 9) Under GAAP, IBM recognizes the impairment of Available for Sale (AFS) securities in the ‘Income Statement’ (IBM, 2016). On the other hand, with IFRS it will require to recognize the impairment of Available for Sale (AFS) securities in the ‘Comprehensive Income Statement’ (Ernst & Young, 2013). Thus due to of transition from the GAAP to IFRS, net income figure in the income statement of the company will be increased and higher income will be shown than before transition. Again, Under GAAP, IBM measures the impairment loss of HTM securities as the difference between its fair value and amortized cost (IBM, 2016). On the other hand, with IFRS it will require to measure the impairment loss of HTM securities as with the difference between the carrying amount of the instruments and the present value of estimated future cash flows discounted at the instruments’ original effective interest rate (Diffen, 2014). Thus after transition, the amount of impairment loss of HTM securities will be changed. First-time Adoption of International Financial Reporting Standards (IFRS 1) In the transition from GAAP to IFRS will require ensuring of an explicit and unreserved statement in the compliance with IFRS in the financial statement (KPMG, 2014). Thus, the notes of the financial statement will be modified and compliance to IFRS will be made. There is a requirement of explaining extensive disclosure to explain the transition to IFRS in the notes of the financial statements (KPMG, 2014). Also, accounting policies that will be selected for ensuring effective compliance with IFRS and applying retrospective application in the financial statements (KPMG, 2014). At the date of transition of IFRS, the company will require prepare an opening balance sheet. In this opening balance sheet change in the figure will be made and balance sheet will be restated for inventories, PPE, Leases, Financial Instruments etc. Revenue from Contracts with Customers (IFRS 15) Under GAAP, IBM follows rules of GAAP, or SAB 104 (in absence of GAAP) in determining the time and amount of revenue recognized for a transaction (RSM, 2012). But in transition from GAPP to IFRS will require the company to follow rules of IFRS in determining the time and amount of revenue recognized for a transaction (RSM, 2012). The revenue recognition rules of GAAP and IFRS are nearly same just IFRS applies some additional and slightly stringent rules on the revenue recognition. With GAAP for service revenue recognition, the company does not recognize revenue until the money for service is realized or realizable and earned (RSM, 2012). But, with IFRS, the company will recognize revenue from service contract in accordance with long-term contract accounting (RSM, 2012). Due to this the revenue figure in the new financial statement will changed significantly. Events After Reporting Period (IAS 10) Under GAAP, IBM reviews and evaluates the subsequent events from the date when financial statements are issued or available to be issued (pwc, 2015). On the other hand, under IFRS, IBM will review and evaluate the subsequent events from the date when financial statements are authorized for issuing (pwc, 2015). Due to this change in the timing period of reviewing and evaluating the subsequent events, there will be change in the financial statements of the company.
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Explanation & Answer

Hello kindly disregard the first attachment and use the one below please

Running Head: TRANSITION FROM GAAP TO IFRS
Transition from GAAP to IFRS
Name:
Tutor:
Course:
College:
Date:

1

TRANSITION FROM GAAP TO IFRS

2

Describe what you have done to update the existing statement to comply with the IFRS.
Contrasting the standards listed in the IA chart.

The transition from GAAP to IFRS has called for numerous changes to be introduced on
the company’s statements to ensure they comply with the IFRS standards. Most of these changes
that were introduced significantly vary from the company’s previous standards that were used to
record its statements. Below is a breakdown of the various steps that were incurred by the system
to comply with the IFRS standards. The company has upgraded from the previous LIFO to t...


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