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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