ACCT 3357 Saint Marys University IRFS Implications on Bankruptcy amid the Covid19 PPT

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ACCT 3357

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The topic is about the relationship between IFRS and COVID with Bankruptcy. Please follow the instructions and outline.

The attached is the example of the presentation and also in class slides could provide the format for the PowerPoint. The most important thing is the speaker note down below.
presentation must cover the following aspect:

What?

The context of the paper, the research question(s) and how the theory is used to respond to the research question(s).

Why?

Why this research question is important from an international accounting perspective.

Major findings and the professional implications of these findings.

Connection of the main take away

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Chapter 3 International Convergence of Financial Reporting Learning Objectives ▪ Explain the meaning of convergence ▪ Identify the arguments for and against international convergence of financial reporting standards ▪ Discuss major harmonization and convergence efforts under the IASC and IASB, respectively. ▪ Explain the principles-based approach in setting accounting standards ▪ Describe the difference in approaches taken by the IASC and FASB in setting accounting standards ▪ Describe the support for, and the use of, IFRS across countries Learning Objectives ▪ Examine the issues related to international convergence of financial reporting standards ▪ Describe the progress made with regard to IASB/FASB convergence project ▪ Explain the meaning of “Anglo-Saxon” accounting International Accounting Standard-setting ▪The evolution of the IASC and the IASB shows international accounting standard setting has been in the private sector ▪With the support of the accounting bodies, standard-setters, capital market regulators, government authorities, and financial statement preparers ▪It is responsible for developing International Financial Reporting Standards (IFRS Standards), previously known as International Accounting Standards (IAS) and promoting the use and application of these standards ▪The IASB was founded on April 1, 2001, as the successor to the International Accounting Standards Committee (IASC). International Accounting Standard-setting ▪Harmonization allows countries to have different standards as long as they do not conflict ▪Accounting harmonization considered in two ways ▪Harmonization of accounting regulations or standards ▪Harmonization of accounting practices International Accounting Standard-setting ▪Other factors leading to noncomparable accounting numbers despite similar accounting standards ▪Quality of audits ▪Enforcement mechanisms ▪Culture ▪legal requirements ▪Socioeconomic and political systems ▪International convergence of accounting standards refers to both a goal and the process adopted to achieve it Harmonization and Convergence ▪International standard setting is associated with the word harmonization ▪ It means different things to different people ▪ Reduction of alternatives while maintaining a high degree of flexibility in accounting practices ▪Convergence ▪ Enforcement of single set of accepted standards by several regulatory bodies ▪ Efforts towards convergence include projects that aim to improve the respective accounting standards, and those that aim to reduce the differences between them. Harmonization ▪Can be considered in two ways ▪Harmonization of accounting regulations and standards ▪Harmonization of accounting practice ▪Ultimate goal of international harmonization efforts ▪Harmonization of standards may or may not result in harmonization of practice ▪Different from standardization ▪Standardization involves using the same standards in different countries ▪Standardization implies the elimination of alternatives in accounting for economic transactions and other events. ▪Allows for different standards in different countries as long as they do not conflict Arguments for Convergence ▪Facilitate better comparability of financial statements ▪Financial statement comparability would make it easier for investors to evaluate potential investments in foreign securities ▪Facilitate international mergers and acquisitions ▪Reduce financial reporting costs ▪Cost-listing would allow access to less expensive capital ▪Reduce investor uncertainty and the cost of capital ▪Reduce cost of preparing worldwide consolidated financial statements ▪The auditing of these statement would be simplified ▪Easy transfer of accounting staff internationally Arguments for Convergence ▪Raise the quality level of accounting practices internationally ▪Increase credibility of financial information ▪Enable developing countries to adopt a ready-made set of high- quality standards with minimum cost and effort Arguments against Convergence ▪Significant differences in existing standards ▪Enormous political cost of eliminating differences ▪Nationalism and traditions ▪Arriving at universally accepted principles is difficult: indifference born of economic power, or resistance to intrusion of foreign influence, some say that national entities will not bow to any international body. ▪The need for common standards is not universally accepted ▪Well-developed global capital market exists already Arguments against Convergence ▪May cause standards overload as a result of requiring some companies to comply with a set of standards not relevant to them. ▪Differences in accounting across countries might be necessary. For example, countries that are at different stages of economic development or that rely on different sources of financing perhaps should have differently oriented accounting systems. Harmonization Efforts ▪Several organizations were involved at global and regional levels in harmonization effort ▪International Organization of Securities Commissions (IOSCO) ▪International Federation of Accountants (IFAC) ▪European Union (EU) ▪International Forum on Accountancy Development (IFAD) ▪International Accounting Standards Committee(IASC) ▪International Accounting Standard Board (IASB) International Organization of Securities Commissions (IOSCO) ▪Established in 1974 ▪Initially limited its membership to regulatory agencies in America ▪Opened membership to agencies in other parts of the world in 1986 ▪Aims at ensuring a better regulation of markets on both domestic and international levels ▪Works to facilitate cross-border securities offering and listings by multinational issuers ▪Advocates the adoption of a set of high-quality accounting standards ▪ To this end, IOSCO supported the effort of IASC in developing IAS that foreign issuers could use in lieu of local accounting standards when entering capital markets outside of their home country. International Federation of Accountants (IFAC) ▪Established in October1977 at 11th World Congress of Accountants in Munich ▪Promotes adherence to high-quality professional standards of auditing, ethics, education, and training ▪Launched International Forum on Accountancy Development (IFAD) to ▪Enhance the accounting profession in emerging nations ▪Promote transparent financial reporting, duly audited to high standards by a strong accounting and auditing profession ▪In May 2000, IFAC and the large international accounting firms established the Forum of Firms with an aim of ▪Protecting the interests of cross-border investors ▪Promoting international flows of capital European Union (EU) ▪Founded in March 1957 with the signing of the Treaty of Rome by six European nations ▪Issued two directives aimed at harmonizing accounting ▪Fourth Directive: Dealt with valuation rules, disclosure requirements, and the format of financial statements ▪Established the true and fair view principle ▪Provided considerable flexibility ▪Allowed countries to choose from among acceptable alternatives ▪Opened the door for noncomparability in financial statements ▪Seventh Directive: Dealt with consolidated financial statements European Union (EU) ▪Directives helped reduce differences in financial statements ▪Complete comparability was not achieved ▪European Commission decided not to issue additional accounting directives ▪In 1995 the European Commission indicated that it would associate itself with efforts undertaken by the IASC toward a broader international harmonization of accounting standards International Forum on Accountancy Development (IFAD) ▪IFAD was created as a working group between the Basel Committee, the IFAC, IOSCO, the large accounting firms, the OECD, the UNCTAD, and the world bank ▪Its mission was to improve the market security and transparency, and financial stability on a global basis ▪Assists in defining expectations from accountancy profession ▪Encourages governments to focus on the needs of developing economies in transition ▪Harness funds and expertise to build accounting and auditing capacity in developing countries International Accounting Standards Committee (IASC) ▪Established in 1973 by leading professional accounting bodies in 10 countries (Australia, Canada, France, Germany, Ireland, Japan, Mexico, Netherlands, UK, and the U.S) ▪Broad objective of formulating international accounting standards ▪ Harmonization efforts evolved in three mail phases ▪Lowest-common-denominator approach ▪Issuance of 26 generic International Accounting Standards, many of which allowed multiple options ▪Comparability project ▪Publication of Framework for the Preparation and Presentation of Financial Statements ▪Comparability of Financial Statements Project: the purpose is to eliminate most of the choices of accounting treatment currently permitted under IAS. ▪IOSCO agreement: the main activity during this phase is the development of one core set of international standards that could be endorsed by IOSCO for cross listing purposes. International Accounting Standards Board (IASB) ▪Replaced IASC in 2001 ▪IFRS Foundation appoints board of 16 members ▪13 full and 3 part-time ▪Board approves standards, exposure drafts, and interpretations ▪Shift in emphasis from harmonization to global standard-setting or convergence ▪Main aim is to develop a set of high-quality financial reporting standards for global use EXHIBIT 3.2—The Structure of the IASB Principles-Based Approach to International Financial Reporting Standards ▪IASB follows a principles-based approach to standard setting vs a rulesbased approach ▪Standards establish general principles for recognition, measurements, and reporting requirements for transactions ▪Limits guidance and encourages professional judgment in applying general principles to entities or industries ▪ Rules-based accounting is basically a list of detailed rules that must be followed when preparing financial statements IASB Framework ▪Created to develop accounting standards systematically ▪The framework for Preparation and Presentation of Financial Statement was first approved by the IASC board in 1989. ▪The scope of Framework ▪Objective of financial statements and underlying assumptions ▪Qualitative characteristics that affect the usefulness of financial statements ▪Definition, recognition, and measurement of the financial statements elements ▪Concepts of capital and capital maintenance Qualitative Characteristics of Financial Statements ▪Understandability: Understandable to people with reasonable financial knowledge ▪Relevance: Useful for making predictions and confirming existing expectations ▪Affected by nature and materiality of information: an information is material if its misstatement or omission could influence the decision ▪Reliability: Neutral and represents faithfully (free of bias) ▪Reflecting items based on economic substance rather than their legal form ▪Comparability Definition, recognition, and measurement of the financial statements elements • Assets: should be recognized only when it is probable that future economic benefits will flow to the enterprise and the cost has a cost or value that can be measured (definition and recognition). • Different measurement base may be used to measure assets • Historical cost • Current asset • Realizable value • Present value Concepts of capital and capital maintenance • The IASB Conceptual Framework identifies two concepts of capital: • A financial concept of capital: whereby capital is linked to the net assets or equity of a company. • A physical concept of capital: where capital is linked to the productive capacity of the entity. • They lead to different basis for measuring assets (historical cost vs current cost) Proposed Changes to existing frameworks by IASB and FASB ▪IASB and FASB work on existing frameworks to provide basis for developing future standards by boards. They commenced a joint project to develop an updated and improved common conceptual framework that would build on their existing frameworks. ▪ Phases of project ▪Objectives and qualitative characteristics ▪Elements and recognition ▪Measurement ▪Reporting entity ▪Presentation and disclosure ▪Purpose and status ▪Application to not-for-profits ▪Finalization Elements of Financial Statements ▪Definition ▪Assets, liabilities, and other financial statement elements are defined ▪Recognition ▪Guidelines as to when to recognize revenues and expenses ▪Measurement ▪Various bases are allowed: historical cost, current cost, realizable value, and present value The Norwalk Agreement ▪In September 2002, at a meeting in Norwalk, the FASB and IASB pledged to use their best efforts to make their financial reporting standards fully compatible as soon as practicable. ▪The following are key FASB initiatives to further convergence between IFRS and U.S. GAAP: ▪Joint projects: sharing staff resources and working on a similar time schedule. Revenue recognition, business combination,… ▪Short-term convergence project: convergence is expected to occur by selecting either existing U.S. GAAP or IFRS requirements as the high-quality solution. The Norwalk Agreement • Liaison IASB member: a full time IASB member is in residence at the FASB offices. This facilitates information exchange and cooperation • Monitoring of IASB projects: the FASB monitors IASB projects according to the FASB’s level of interest in the topic being addressed • The convergence research project: the FASB staff have embarked on a project to identify all the substantive differences between U.S. GAAP and IFRS and catalog differences according to the FASB’s strategy for resolving them • Consideration of convergence potential in board agenda decisions Presentation of Financial Statements (IAS 1) ▪IAS 1 is a single standard providing guidelines for the presentation of financial statements ▪ It provides guidance in the following areas: ▪Purpose of financial statements ▪Components of financial statements ▪Overriding principle of fair presentation ▪Requires the faithful representation of the effects of transactions and events ▪Accounting policies ▪Management should select and apply accounting policies to be consistent with all IASB standards ▪When specific guidance is lacking, management may use standards on similar issues, and definitions of the financial statement elements Presentation of Financial Statements (IAS 1) ▪Basic principles and assumptions ▪Adds to the guidance provided in the Framework ▪Immaterial items should be aggregated ▪Assets and liabilities, and income and expenses should not be offset and reported at a net amount unless specifically permitted by a standard or interpretation ▪Structure and content of financial statements ▪Distinction between current/noncurrent ▪Items to be included on face of financial statements ▪Items to be disclosed in the notes First Time Adoptions of IFRS (IFRS 1) ▪Provides guidance to companies that are adopting IFRS for the first time ▪Requires compliance with all effective IFRS at the reporting date of an entity’s first IFRS financial statements ▪Allows exemptions when costs outweigh benefits The adoption of IFRS ▪Evidence of support for IFRS ▪Adoption by the EU – public companies in the EU were required to begin using IFRS in 2005 ▪IOSCO has endorsed IFRS for cross-listings ▪IFAC G20 accountancy summit in July 2009 issued renewed mandate for adoption of global accounting standards ▪Latest IFAC Global Leadership Survey—emphasized that investors and consumers deserve simpler and more useful information ▪Adoption of IFRS in 2011: Japan, Canada, India, Brazil and Korea International Convergence Issues ▪The complicated nature of standards such as financial instruments and fair value accounting ▪The tax-driven nature of the national accounting regime ▪Disagreement with significant IFRS, such as financial statements and fair value accounting ▪Insufficient guidance on first time application of IFRS ▪Limited capital markets are less beneficial ▪Investor satisfaction with national accounting standards ▪IFRS difficulties in language translation Anglo-Saxon Accounting ▪Accounting systems prevalent in English-speaking countries including U.S., U.K., Canada, Australia and New Zealand ▪Fundamental features: ▪Micro orientation (firm level) with emphasis on professional rules and self-regulation ▪Investor orientation ▪Primary aim is efficient operation of capital markets ▪Very transparent ▪Less emphasis on prudence and measurement of taxable income or distributable income ▪Substance over form What did we Learn ? •Accounting harmonization is a process that reduces alternatives while retaining a high degree of flexibility in accounting practices. •There are many arguments for international harmonization of accounting standards (more comparable, easier for investors to evaluate foreign firms, less cost, high level of accounting practices, ..) •There also are several arguments against international harmonization of accounting standards (socio-politicoeconomic systems, Nationalism, standards overload, ..) 37 Next Class ▪ Required readings: ▪Chapter 4 & 5 ▪S. Li, 2010, “Does mandatory adoption of international financial reporting standards in the European Union reduce the cost of equity capital?” The Accounting Review, 607-636. Does mandatory IFRS adoption improve information comparability? Overview There has been an increase in the demand for accounting information to become internationally comparable across countries due to accelerated growth in cross-country investment. A reflection of this widespread trend is shown through the widespread employment of IFRS in the 17 countries across in the European Union in 2005. Although the intention of mandatory IFRS adoption is to make information among regions comparable, the extent of information comparability has never been fully examined. In this presentation, we all assess the effect of the mandatory IFRS adoption in the European Union under three focal points for information comparability. The three research questions presented in the article are: 1. What is the similarity of accounting functions that translate economic events into accounting data? 2. What is the degree of information transfer? 3. What is the similarity of the information content of earnings and of the book value of equity to measure information comparability? How has the mandatory IFRS adoption altered comparability of accounting data among countries in the EU? ● Information comparability differs from the pre to the post-IFRS period. Mandatory IFRS adoption has illustrated that there was a significant improvement in the similarity facet of the accounting data, but not in the difference facet of cross-country comparability. ● A positive information transfer takes place when a positive earnings surprise for an announcing firm indicates an unexpected improvement in market condition, which positively affects the stock prices of similar firms. A negative information transfer occurs when the opposite conditions exist. ● For different firms within different countries within the EU, the mean comparability scores for the information content of earnings and of the book value of equity illustrates that the mandatory IFRS adoption increases the similarity facet of cross-country information comparability. Research Design ● IFRS during 2004 and 2005, we exclude these two years by defining the pre-IFRS period as 2002–2003 and the post–IFRS period as 2006–2007. ● The mean correlation is significantly lower in the post-IFRS period (0.134) than in the pre-IFRS period (0.314), suggesting that firms' responses to economic shocks become less similar in the post-IFRS period = no effect CON’T ● In the return model the mean comparability score in the post-IFRS period (0.990) is significantly higher than that in the pre-IFRS period (0.945). ● Non-price based comparability measures the mean comparability score in the post-IFRS period (0.861) is significantly higher than that in the pre-IFRS period (0.764) Results - IFRS adoption improves information comparability across countries A significant increase in the similarity facet of cross-country comparability in the post-IFRS period. Mandatory IFRS adoption is not sufficient to achieve a full enhancement in comparability in the EU Comparability improvement is more likely to occur among firms from similar environments Accounting convergence and higher quality accounting information are likely to be the mechanisms underlying the observed comparability Legal origins have an effect on comparability Post-IFRS period effects on countries - - IFRS adoption reduces information acquisition cost and estimation risk with its increased comparability (Habib, Hasan, & Al-Hadi, 2017) It provides auditors and managers greater ability to spot mistakes in the financial statements. (Gross & Perotti, 2017) IFRS adoption increases the ability to recognize long term trends of financial statements for their users and other stakeholders. (Gross & Perotti, 2017) 120 nations permit or require IFRS in domestically listed companies although only 90 actually acknowledge that conformity in audit reports (IFRS.com) China, the second largest insurance market in the world has decided to adopt IFRS 17 in their revised Chinese accounting standards (Globe & Mail) Real World Examples Chapter 4 International Financial Reporting Standards Learning Objectives ▪ Discuss the types of differences that exist between International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP) ▪ Describe IFRS requirements related to the recognition and measurement of assets, specifically inventories; property, plant, and equipment, and leased assets ▪ Explain major differences between IFRS and U.S. GAAP on the recognition and measurement of assets ▪ Analyze the impact that differences in asset recognition and measurement rules have on financial statements ▪ Explain how investment property and biological assets differ from PPE and what special rules govern their accounting treatment under IFRS Learning Objectives (2) ▪ Describe IFRS requirements related to business combinations, goodwill, and non-controlling interests. ▪ Describe IFRS requirements for determining effective control and the scope of consolidation. Types of Differences Between IFRS and U.S. GAAP ▪ ▪ ▪ ▪ ▪ ▪ ▪ Definition differences Recognition differences Measurement differences Alternatives Lack of requirements or guidance Presentation differences Disclosure differences IFRS and U.S. GAAP ▪ IFRS more flexible in many cases ▪ Choice between alternative treatments in accounting ▪ IFRS generally have less bright-line guidance ▪ More judgment is required in applying IFRS ▪ IFRS is a principles-based accounting system: ▪ whereas U.S. GAAP is a rules-based system IAS 2, Inventories IFRS US GAAP IAS2 provides more extensive guidance than U.S. GAAP ▪ Cost of inventories include: ▪ Costs of purchase ▪ Costs of conversion ▪ Other costs ▪ design, interest if takes time to bring to saleable condition ▪ Cost of inventories exclude: ▪ Abnormal waste ▪ Storage, unless necessary for the production process ▪ Administrative overhead ▪ Selling costs ▪ An entity must use same cost formula for similar inventory items US GAAP allows much choice with regard to cost formulas. US GAAP does not require use of a uniform inventory valuation method for inventories having a similar nature. U.S. GAAP now uses same approach without allowing reversal of writedowns ▪ Inventories IAS 2, Inventories ▪ IAS 2 requires inventory to be reported on the balance sheet at the lower of cost or net realizable value ▪ Net realizable value is defined as estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale ▪ Write-downs are reversed when selling price increases IAS 2, Inventories • Example: Assume that Distributor Company Inc. has the following item on hand at December 31, Year 1: Historical Cost Estimated selling price Estimated costs to complete and sell $1,000 880 50 Net realizable value Normal profit margin- 15% Net realizable value less normal profit margin 830 124,50 $705,50 Net realizable value is $830, which is lower than historical cost. In accordance with IFRS, inventory must be written down by $170. The journal entry at December 31, Year 1, is: IAS 2, Inventories Inventory Loss $170 inventory $170 To record the write down on inventory due to decline in net realizable value Assume that at the end of the first quarter in Year 2, replacement has increased to $900, the estimated selling price has Increased to $980, and the estimated cost to complete and sell remains at $50. The item now has a net realizable value of $930. This is$100 greater than the carrying amount (and $70 less than historical cost). Under IFRS, $100 of the write down that was made at December 31, Year 1, is reversed through the following journal entry: Inventory Recovery of inventory loss $100 $100 To record a recovery of inventory loss taken in the previous period IAS 16, Property, Plant, and Equipment • IAS 16 covers the following aspects of accounting for fixed assets: 1. Recognition of initial costs 2. Recognition of subsequent costs 3. Measurement at initial recognition 4. Measurement after initial recognition 5. Depreciation 6. Derecognition • IAS 16 allows companies to choose between the historical cost method and a fair value method known as the revaluation model. IAS 16, Property, Plant, and Equipment IFRS US GAAP ▪ ▪ US GAAP allows much choice with Recognition of initial costs ▪ Cost includes ▪ Purchase price ▪ All costs needed for asset to perform as intended ▪ Estimate of cost of dismantling and removing asset along with restoring site ▪ Exchange of assets for a non monetary asset or combination of monetary and nonmonetary assets should be measured at: ▪ Fair value unless no commercial substance or fair value can’t be determined regard to cost formulas. IAS 16, Property, Plant, and Equipment • Caylor Corporation constructs a powder coating at a cost of $3,000,000: 1,000,000 for the building and 2,000,000 for machinery and equipment. local law requires the company to dismantle and remove the plant assets at the end of their useful life. Caylor estimates that the net cost for removal of the equipment, after deducting salvage value will be $100,000 and the net cost for dismantling and removing the building will be $400,000. The useful life of the facility is 20 years, and the company uses a discount rate of 10% in determining present values. • The initial cost of the machinery and equipment and the building must be include the estimated dismantling and removal cost discounted to present value IAS 16, Property, Plant, and Equipment Building Machinery and Equipment $1,059,457 $ 2,014,864 Cash 3,000,000 Provision for dismantling and removal 74,321 IAS 16, Property, Plant, and Equipment IFRS ▪ Measurement subsequent to initial recognition • An entity may choose 2 accounting models for its property plant and equipment: 1. Cost model: An entity shall carry an asset at its cost less any accumulated depreciation and any accumulated impairment losses. 2. Revaluation model: An entity shall carry an asset at a revalued amount. Revalued amount is its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. ▪ Different useful lives or depreciation methods are appropriate to be split into components for purposes of depreciation. US GAAP ▪ US GAAP does not permit use of the revaluation model. IAS 16, Property, Plant, and Equipment The change of asset’s carrying amount as a result of revaluation shall be treated in the following way: Change in Carying Amount Where Increase Other comprehensive income (heading “Revolution surplus”), are credited Profit or loss if reverses previous revaluation decrease of the same value Profit or loss Other comprehensive income if reduces previously recognized revaluation surplus (heading “Revaluation surplus”) Decrease IAS 16, Property, Plant, and Equipment Two alternative treatments are described in IAS16 for the treatment of accumulated depreciation when a class of PPE is revalued: 1.by adjusting the gross book value of the asset and accumulated depreciation 2.by eliminating accumulated depreciation and adjusting the gross book value of the asset to equal revalued amount Example: Treatment of Accumulated Depreciation at revaluation Assume that Kiely Company Inc. has building that cost $1,000,000, with accumulated depreciation of $600,000 and a carrying amount of $400,000 on December 31, Year 1. On that date , the company determines that the market value for these building is $750,000. The company wishes to carry buildings on the December 31, Year 1, balance sheet at a revalued amount. IAS 16, Property, Plant, and Equipment • Under treatment one, the company would restate both the buildings account and accumulated depreciation on buildings. Building Accumulated Depreciation Revaluation Surplus $875,000 $525,000 350,000 IAS 16, Property, Plant, and Equipment Under treatment 2, accumulated depreciation of 600,000 is first eliminated against the buildings account, and then the buildings account is increased by 350,000 to result in a net carrying amount of $750,000. The necessary journal entries are as follows: IAS 16, Property, Plant, and Equipment IFRS • When dealing with the depreciation please do have 3 basic things in mind: • Depreciable amount: Depreciable amount is simply HOW MUCH you are going to depreciate. It is the cost of an asset, or other amount substituted for cost, less its residual value. • Depreciation period: Depreciation period is simply HOW LONG you are going to depreciate and it is basically asset’s useful life. • Useful life is the period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from the asset by an entity. ▪ Different useful lives or depreciation methods are appropriate to be split into components for purposes of depreciation. US GAAP ▪ Component depreciation uncommon in US GAAP. is IAS 16, Property, Plant, and Equipment Derecognition • IAS 16 prescribes that the carrying amount of an item of property, plant and equipment shall be derecognized on disposal; or when no future economic benefits are expected from its use or disposal. • The gain (not classified as revenue!) or loss arising from the derecognition of an item of property, plant and equipment shall be included in profit or loss when the item is derecognized. The gain or loss from the derecognition is calculated as the net disposal proceeds (usually income from sale of item) less the carrying amount of the item. IAS 40, Investment Property IFRS ▪ ▪ ▪ IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both). Investment properties are initially measured at cost and, with some exceptions. May be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognised in profit or loss Revaluation gains and losses included in the income statement. US GAAP ▪ US GAAP does not apply special accounting rules for investment properties. ▪ U.S. GAAP generally requires use of the cost model for investment property. Biological Assets • IAS 41 impacts those agricultural activities where the income-producing biological assets are living animals or plants and will include the harvested produce of these assets. For example if the biological asset is dairy cattle, the agricultural produce is milk or the same distinction could be made with trees in a plantation/felled trees or sugarcane/harvested cane. Biological assets do not include bearer plants. Recognition • IAS 41 specifies the usual tests in order that a biological asset or agricultural produce be recognised on the statement of financial position, namely: Control: the enterprise must have ownership or rights of control akin to ownership that result from a past event Value: future economic benefits are expected to flow to the enterprise from its ownership or control of the asset Measurement: the cost or fair value of the asset can be measured reliably. Biological Assets IFRS ▪ IAS 41 allows fair value accounting for biological assets ▪ Revaluation gains and losses included in the income statement. US GAAP ▪ US GAAP allows cost method. ▪ it ignores growth of biological asset and no income until final product sold. Relevance-Reliability Trade-Off • Relevance requires that the financial accounting information should be such that the users need it and it is expected to affect their decisions. • Reliability requires that the information should be accurate, true and fair. • Relevance and reliability are both critical for the quality of the financial information, but both are related such that an emphasis on one will hurt the other and vice versa. • Hence, we have to trade-off between them. Accounting information is relevant when it is provided in time, but at early stages information is uncertain and hence less reliable. But if we wait to gain while the information gains reliability, its relevance is lost. Relevance-Reliability Trade-Off ▪ IASB: requirement to apply for fair value, relevance at the risk of less reliability ▪ FASB: cost method, reliability over relevance ▪ Reliability challenges with fair value ▪ Illiquidity of markets, resulting in the need to use valuation modeling instead of observed prices used ▪ Competing valuation frameworks and models that lead to different results ▪ Subjectivity in estimates of modeling ▪ Long forecasting horizon, which add to uncertainty of the subjective estimates ▪ Management incentives to exploit model choices to improve perceptions of the company’s performance and financial health. IAS 36, Impairment of Assets IFRS ▪ US GAAP Must test annually for impairment to plant, ▪ Under US GAAP, impairment exists property and equipment; intangible assets; goodwill; investments in subsidiaries; associates, and joint ventures. ▪ Events that might indicate an asset is impaired are: ▪ External events such as a decline in market value, an increase in market interest rates, or economic, legal, or technological changes that adversely affect the value of an asset. ▪ Internal events such as physical damage, obsolescence, idleness of an asset, or the restructuring of part of an asset If indicators of impairment are present, an entity must estimate the recoverable amount of the asset and compare the amount with asset’s carrying amount. IAS 36, Impairment of Assets IFRS ▪ An asset is impaired when its carrying amount >> recoverable amount. Recoverable amount is the greater of net selling price and value in use. ▪ ▪ ▪ . Value in use: is determined as the present value of future net cash flows expected to arise from continued use of the asset over its remaining useful life and upon disposal. Impairment more likely under IFRS since discounted cash flows are used US GAAP ▪ Under US GAAP, impairment exists when an asset’s carrying amount > the future cash flows expected to arise from its continued use and disposal. ▪ Net selling price is not involved in the test ▪ Future cash flow are not discounted to their present value IAS 36, Impairment of Assets IFRS ▪ Impairment loss: carrying value> recoverable amount A review should be undertaken to determine if impairment losses have reversed ▪ ▪ ▪ ▪ If subsequent to recognizing an impairment loss, the recoverable amount of an asset is determined to exceed its new carrying amount, the impairment loss should be reversed. The loss should be reversed only if there are changes in the estimates used to determine the original impairment loss or there is a change in the basis for determining the recoverable amount Recognize reversal in income immediately (increase) US GAAP ▪ Impairment loss: carrying value> fair value ▪ Fair value may be determined by reference to quoted market prices in active markets, estimated based on the values of similar assets. ▪ U.S. GAAP allows no reversal IAS 36, Impairment of Assets • At December 31, Year1, Delta Cuisine Company has specialized equipment with the following characteristics: Carrying amount Selling price Costs of disposal Expected future cash flows Present value of expected futures cash flows 70,000 40,000 1,000 75,000 50,0000 IAS 36, Impairment of Assets • In applying IAS 36, the asset's recoverable amount would be determined as follows Net selling price value in use recoverable amount (greater of the two) 39,000 50,000 50,000 • The determination and measurement of impairment loss would be Carrying amount 70,000 Recoverable amount 50,000 impairment loss 20,000 IAS 36, Impairment of Assets • The journal entry is the following: impairment loss Equipment To recognize an impairment loss 20,000 20,000 IAS 38, Intangible Assets ▪ Applies to purchased intangibles, intangibles acquired in business combination, internally generated intangibles ▪ Goodwill is covered separately under IFRS 3 ▪ Intangible asset is identifiable, nonmonetary asset without physical substance: ▪ Held for production of goods or services, rental to others, or for administrative purposes ▪ Controlled by enterprise as result of past events from which future economic benefits are expected to be realized ▪ Must be expensed immediately if it does not meet the definition ▪ Except when obtained in business combination IAS 38, Intangible Assets (2) ▪ Purchased intangibles measured at cost ▪ Useful life could be assessed as finite or indefinite ▪ Distinction between intangibles with finite life and indefinite life is made in IAS 38 ▪ An intangible asset is deemed to have an indefinite life when there is no foreseeable limit to the period over which it is expected to generate cash flows for the entity. If the useful life of an intangible assets is indefinite, no amortization should be taken until the life is determined to be definite. IAS 38, Intangible Assets (2) ▪ Intangibles can be acquired: ▪ by separate purchase ▪ as part of a business combination ▪ by a government grant ▪ by exchange of assets ▪ by self-creation (internal generation) Intangibles Acquired in Business Combination ▪ Patents, trademarks, customer lists, computer software, databases and trade secrets recognized as assets measured at fair value ▪ The three critical attributes of an intangible asset are: • Identifiability • Control (power to obtain benefits from the asset) • Future economic benefits (such as revenues or reduced future costs) ▪ Must have finite or infinite life Internally Generated Intangibles ▪ Major difference with U.S. GAAP ▪ IFRS allows some development costs to be capitalized ▪ U.S. GAAP expenses all research and virtually all development • Examples of internally generated intangible assets: • All costs directly attributable to development activities and those that can be reasonably allocated to such activities, including: • Personal costs • Materials and services costs • Depreciation of PPE • Overhead costs, other than general administrative costs • Amortization of patents and licences ▪ Special treatments for in-process research and development ▪ Capitalize when certain criteria is met ▪ Otherwise include in goodwill Internally Generated Intangibles ▪ Criteria for development cost capitalization: ▪ Technical feasibility of completion ▪ Intention to complete asset for use or sale ▪ Ability to use or sell the asset ▪ How probable future economic benefits will be generated ▪ Market or internal use ▪ Available adequate technical, financial, and other resources to complete the asset for use or sale ▪ Ability to reliably measure expenditures pegged to development Internally Generated Intangibles Example: Capitalized Development costs In year 1: Development Cost: 300,000. Of that amount, $250,000 was incurred up to the point at which the technical feasibility of the product should be demonstrated and other recognition criteria were met. In year 2: additional development cost$300,000 In year 3: the product is ready for sale In year 3: sales of the product are expected to continue for 4 years, at which time it is expected that a replacement product will need to be developed. The total number of units expected to be produced over the product’s 4 year economic life is 2,000,000. The number of units produced in year 3 is 800,000. Required: Record the journal entries in Year 1, 2, and 3. Internally Generated Intangibles ▪ Financial Statement Effects ▪ Income Statement effects ▪ With increasing R&D expenditures….higher income ▪ Therefore inflates shareholder equity (retained earnings) ▪ Balance sheet effects ▪ Inflates intangible assets net of accumulated amortization ▪ Offset is higher shareholder equity (retained earnings) ▪ Cash Flow Statement effects ▪ Capital expenditure consists of investments in new PPE as well as in new intangible assets: the decision to begin capitalizing R&D expenditures reclassifies this spending as capex (capital expenditure) outflow ▪ Expenditure is investing instead of operating outflow Internally Generated Intangibles ▪ Other issues: ▪ Revaluation model is allowed with finite-lived intangibles ▪ If there is a price on an active market ▪ Impairment of intangibles ▪ If carrying amount can’t be recovered on finite-lived assets—need to look at changes in events or circumstances ▪ For indefinite-lived intangibles and goodwill ▪ Test annually ▪ Under special circumstances can reverse as per IAS 36 ▪ Goodwill not subject to reversal of impairment Acquisition Method of Combinations ▪ Used by both IFRS and GAAP ▪ Must have acquirer and acquire ▪ Acquiree’s assets and liabilities shown at FMV ▪ Business combination: is a transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as 'true mergers' or 'mergers of equals' are also business combinations as that term is used in [IFRS 3] Business Combinations ▪ Steps in applying the acquisition method (business combinations) are: ▪ Identification of the 'acquirer’ ▪ Determination of the 'acquisition date' ▪ Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly called minority interest) in the acquiree ▪ Recognition and measurement of goodwill or a gain from a bargain purchase Business Combinations ▪ Recognize goodwill only in business combinations ▪ Goodwill is Difference between: ▪ Consideration paid by acquirer plus noncontrolling interest ▪ Fair value of net assets acquired Goodwill = Consideration transferred + Amount of non-controlling interests + Fair value of previous equity interests Net assets recognised ▪ Negative goodwill must be recognized as income Business Combinations (2) ▪ Not amortized as it is an indefinite-lived intangible asset ▪ Impairment of goodwill must be tested annually ▪ Impairment is tested at the level of the cash-generating unit (CGU) ▪ Compare carrying value of CGU, including goodwill, with recoverable amount ▪ U.S. GAAP is tested at level of the reporting unit which can be different and typically larger than CGU ▪ U.S. GAAP only requires a bottom-up test IAS 23, Borrowing Costs ▪ Similar to U.S. GAAP in general approach ▪ Capitalize all borrowing costs to extent they are attributable to acquisition, construction, or production of a qualifying asset ▪ Expense all other borrowing costs ▪ Borrowing costs include interest and other costs incurred in connection with borrowing ▪ IAS 23 includes foreign currency exchange to the extent they related to interest costs ▪ Under IAS 23, inventories qualify if they require substantial period to manufacture IAS 23, Borrowing Costs (2) ▪ Capitalize interest that could have been avoided in absence of expenditure on the qualifying asset ▪ Amount capitalized determined by multiplying weighted-average accumulated expenditures by appropriate interest rate ▪ Can use actual interest rate if average expenditures are less than specific borrowing total ▪ Interest income on temporary investment of specific new borrowing offsets interest capitalized under IFRS…no netting allowed under GAAP Current Liabilities ▪ IAS 1, Presentation of Financial Statements, requires classification of liabilities ▪ Current liabilities ▪ Noncurrent liabilities ▪ Current liabilities ▪ Expected to settle in normal operating cycle ▪ Held primarily for purpose of trading ▪ Settled within 12 months of balance sheet date ▪ No right to defer until 12 months after balance sheet date Differences in IFRS and U.S. GAAP: Current Liabilities ▪ Refinanced short-term debt may reclassified as ▪ IFRS: Long-term, if refinancing is completed prior to balance sheet date ▪ U.S. GAAP: Long-term, if refinancing is agreed prior to balance sheet being issued ▪ Accounts payable on demand due to violation of debt covenants must be classified as ▪ IFRS: Current, unless lender issued waiver of 12 months by balance sheet date ▪ U.S. GAAP: Current, unless lender issued waiver obtained by annual report issuance date ▪ Bank overdrafts are classified as ▪ IFRS: Long-term, if integral part of cash management netted against cash ▪ U.S. GAAP: Always treated as current liabilities Provisions, Contingent Liabilities, and Contingent Assets ▪ IAS 37, Provisions, Contingent Liabilities and Contingent Assets, provides guidance for: ▪ Reporting liabilities and assets of uncertain timing, amount, or existence ▪ Specific rules related to onerous contracts and restructuring costs ▪ Environmental and nuclear decommissioning costs Contingent Liability ▪ IFRS; contingent liability not on balance sheet provision is: ▪ Provision Recognized under IFRS, when: ▪ There is a present obligation from past events ▪ It is probable that there will be an outflow of resources ▪ A reliable estimate of the obligation can be made ▪ Constructive obligation: arise from past actions or current statements indicating that a company will accept certain responsibilities ▪ No concept of constructive obligation in U.S. GAAP Contingent Liability (2) ▪ As defined by IAS 37 ▪ Possible obligation confirmed by occurrence or nonoccurrence of future event ▪ Present obligation not recognized because: ▪ No probable outflow of resources ▪ Amount cannot be measured reliably ▪ Recognized under U.S. GAAP when outflow is probable ▪ Only disclosed if outflow possible, and not probable ▪ GAAP: probable usually means 70% IFRS ‘more likely than not’ over 50% Provisions ▪ IAS 37 ▪ The best estimate of the expenditure required to settle the present obligation ▪ Probability-weighted expected value ▪ Provisions must be discounted to present value ▪ Recognized under U.S. GAAP at the low end of the range of possible amounts ▪ No present value unless amount and timing fixed or reliably determinable ▪ Provision is reversed when outflow of resources is not probable ▪ IFRS: can omit disclosure that ‘can be expected to prejudice seriously the position of the enterprise in a dispute with other parties” GAAP: no such exemption Contingent Asset ▪ Contingent asset: probable asset that arises from past events and whose existence will be confirmed by occurrence or nonoccurrence of future event ▪ Not recognized (IFRS) disclosed when inflow of economic benefits is probable ▪ IFRS: is recognized if realization is virtually certain ▪ GAAP: asset realized before it can be recognized ▪ An example of a contingent asset (and its related contingent gain) is a lawsuit filed by Company A against a competitor for infringing on Company A's patent. Even if it is probable (but not certain) that Company A will win the lawsuit, it is a contingent asset and a contingent gain. As such, it will not be recorded in Company A's general ledger accounts until the lawsuit is settled. (At most, Company A could prepare a carefully worded disclosure stating that it has filed the lawsuit but the outcome is uncertain.) Income Taxes ▪ IAS 12, Income Taxes, similar to U.S. GAAP ▪ Asset-and-liability approach ▪ Deferred tax assets and liabilities ▪ For temporary differences ▪ For operating loss and tax credit carry forwards ▪ Under IFRS, measure on the basis of tax laws and rates enacted or substantively enacted ▪ Under U.S. GAAP, measure on the basis of actually enacted tax laws and rates ▪ Account for double taxation effects and differences in rates Income Taxes (2) ▪ Recognition of Deferred Tax Asset ▪ Under IFRS, recognize if future realization of tax benefit probable ▪ IAS 12 provides a more stringent threshold ▪ U.S. GAAP, recognize if realization is more likely than not ▪ Disclosures ▪ IFRS requires ▪ Extensive disclosures of tax expense ▪ Explanation of hypothetical expense based on two approaches ▪ Compare statutory tax expense in the home country and effective tax expense ▪ Compare weighted-average statutory tax rate across jurisdictions and tax expense based on the effective tax rate ▪ IFRS vs. U.S. GAAP ▪ IFRS application can cause temporary differences unknown under U.S GAAP Income Taxes (3) ▪ Financial Statement Presentation ▪ U.S. GAAP ▪ Deferred tax assets and liabilities ▪ Current ▪ Non-current ▪ Based on underlying asset or liability ▪ Tax loss or credit carry-forwards ▪ Timing of expected realization ▪ IAS 1 ▪ Deferred tax assets and liabilities ▪ Only classified as noncurrent Revenue Recognition ▪ Most significant example of cross-border cooperation in accounting standard-setting ▪ 5 Steps in recognition of revenue ▪ Identify contract with a customer ▪ Identify the separate performance obligations in the contract ▪ Determine the transaction price ▪ Allocate the transaction price to the separate performance obligations ▪ Recognize the revenue allocated to each performance obligation when the entity satisfies each performance obligation ▪ Shift from evaluation of risk and rewards of ownership to transferal of control Revenue Recognition (2) ▪ Bill-and-Hold Sales: seller segregates inventory meant for a customer but still maintains physical possession of it. ▪ Has product been separately identified as belonging to the customer? ▪ Is the product ready for shipment to the customer? ▪ Can the seller use the product or reallocate it to another customer? ▪ Is there a substantive business reason for the bill-and-hold arrangement such as that the customer’s warehouse if full? Revenue Recognition (3) ▪ Customer Loyalty Programs ▪ IFRS 15: award credits should be treated as a separately identifiable component of the sales transaction in which they are granted ▪ Revenue allocated between awards credit and current sale Disclosure and Presentation Standards ▪ Statement of Cash Flows ▪ Required statement ▪ IAS 7 requirements ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Operating, investing and financing activities Operating: direct or indirect; no reconciliation with direct method Cash from interest, taxes, dividends reported separately Interest/dividends paid can be operating or financing Interest dividends received can be operating or investing Income tax is operating unless specific to investing/financing activity Noncash investing/financing excluded but disclosed elsewhere within the financial statements Cash and cash equivalents reconciled with balance sheet but not necessarily 1 number Distinction between bank borrowings and overdrafts; latter may be considered reduction of cash or financing activity Disclosure and Presentation Standards (2) ▪ Statement of Cash Flows ▪ Differences with U.S. GAAP ▪ ▪ ▪ ▪ Interest paid, interest received, dividends received operating under GAAP Dividends paid financing under U.S. GAAP Direct method must have reconciliation U.S. GAAP Cash and cash equivalents on cash flow statement MUST reconcile to cash and cash equivalents on balance sheet Disclosure and Presentation Standards (3) ▪ Events after reporting period ▪ 2 types ▪ Adjusting events: provide evidence of conditions that existed at the end of the reporting period….recognized through adjustment of financial statements ▪ Non adjusting events: conditions arisen after balance sheet date but before statements have been issued…not recognized on financial statements but disclosure required ▪ Nature of event ▪ Estimate of financial effect (or statement that estimate can’t be made) Accounting Policies, Changes in Accounting Estimates, and Errors ▪ Selection of Accounting policy ▪ Hierarchy of authoritative pronouncements ▪ ▪ ▪ ▪ 1) IASB Standard or Interpretation of transaction/event 2) IASB Standard or Interpretation of similar transaction/event 3) IASB Framework 4) Most recent pronouncements of other standard-setting bodies that use similar conceptual framework ▪ Changes in Accounting Policy ▪ Allowed ONLY if ▪ Required by IFRS ▪ Results in statements that are more relevant/reliable Accounting Policies, Changes in Accounting Estimates, and Errors (2) ▪ Change in Estimates: prospectively ▪ Correction of Error: errors corrected retrospectively by restating all prior reported accounts through retained earnings ▪ Related Party Disclosures: must be disclosed in footnotes ▪ Earnings per Share: both basic and fully diluted reported on income statement ▪ Interim Financial Reporting: ▪ No mandate on: ▪ Who needs to do them ▪ How frequently ▪ Time from end of period to release of interim report ▪ Does define minimum content as required by national jurisdiction ▪ Noncurrent Assets Held for Sale ▪ Shown separately on balance sheet ▪ Not depreciated ▪ Shown at lower of: carrying value or fair value less cost to sell Accounting Policies, Changes in Accounting Estimates, and Errors (3) ▪ Operating Segments ▪ Operating Segment is component of business ▪ Generates revenues and expenses ▪ Operating results regularly reviewed by chief operating officer ▪ Separate financial information available ▪ 3 tests to be operating segment ▪ Revenue test ▪ Asset test ▪ Profit/loss test Accounting Policies, Changes in Accounting Estimates, and Errors (4) ▪ Disclosures ▪ Assets ▪ Capital expenditures ▪ Liabilities ▪ Profit/loss ▪ External revenue ▪ Intercompany revenues ▪ Interest expense/income ▪ Depreciation/amortization ▪ Equity method income ▪ Income tax expense ▪ Noncash expenses ▪ Revenue of all segments must be at least 75% of total What did we Learn ? •Prior agreements between IASB and U.S. Financial Accounting Standards Board (FASB) to work together to reduce differences between IFRS and U.S. GAAP have resulted in convergence in many areas—notably, inventories, revenue recognition, and leases. •There are several types of differences between IFRS and U.S. GAAP (Definition differences, Recognition differences, Measurement differences, Alternatives, Lack of requirements or guidance, Presentation differences, Disclosure differences) • IFRS requirements’ related to the financial reporting of current liabilities, provisions, income taxes, and revenue. • The effect of major differences between IFRS and U.S. GAAP related to the financial reporting of current liabilities, provisions, income taxes and revenue. 67 End of Chapter 4 Foreign Currency Transactions and Hedging Foreign Exchange Risk Chapter 6 Introduction • Developing an overview of the foreign exchange market • Accounting for foreign currency transactions • Understanding foreign exchanges risks • How to hedge against foreign exchange risk • Contracts involved in foreign currency The price at which the foreign currency can be acquired (exchanged for another) What is the Foreign Exchange Rate? Exchange rates have the ability to fluctuate Value of one country’s currency in relation to another Independent float Currency arrangements: Pegged to another currency European Monetary System Spot and Forward Exchange Rates There are two ways foreign currency trades can occur: • Spot Rate: price at which a foreign currency can be purchased or sold today • Forward Rate: price today at which foreign currency can be purchased sold in the future Currencies can sell at a discount or a premium due to the difference in interest rates between countries Foreign Currency Transactions What is Transaction Exposure? • the risk that currency exchange rates will fluctuate after a firm has already undertaken a financial obligation Export Sale: Import Purchase: Foreign currency can decrease in Foreign currency can increase in price value between the date of sale between the date of purchase and the and the date of payment, resulting date of payment, resulting in an in a loss of domestic currency increase of domestic currency owed How does one account for the change in value of foreign currency? Foreign Currency Transactions • One-transaction perspective • Two-transaction perspective *Both U.S. GAAP and IFRS do not accept the one-transaction perspective • International Accounting Standard (IAS) 21 and FASB ASC 830 both only accept the two-transaction perspective in accounting for foreign currency transactions How do companies account for gains and losses that happen at the balance sheet date when payment is happening in the next fiscal year? I. Deferral Approach II. Accrual Approach * Both IFRS and U.S. GAAP do not accept the deferral approach Balance Sheet Date before Date of Payment Need to be reported under balance sheet at fair value “Hedge Accounting” needs to have a relationship clearly defined, be measurable, and effective Derivatives Issues involved in accounting for derivatives: Determination of fair value How to treat unrealized gains and losses that arise from adjustments of the fair value Exposure to Foreign Exchange Risk How can we tell if a MNC is exposed to Foreign Exchange Risk? We look at: Profitability Net Cash-flows Market Value of the firm Transaction Risk Types of Foreign Exchange Risk Operating Risk Translation Exposure Risk Tax Exposure Risk Hedging Against Foreign Exchange Risk Types of Financial Instruments used to Hedge against Foreign Exchange Risk: • • • • Forward Contracts Futures Contracts Options Contracts SWAP Contracts Forward Contracts Features of a Forward contract: a. b. c. d. Contract is customized Contract is legally binding Contract has massive counterparty risk Contract is free Futures Contracts Features of Futures contracts: a. b. c. d. Contract is standardized Contract is legally binding Contract does not have any counterparty risk Contract is free Option Contracts Features of an Options contract: a. b. c. d. Contract is standardized Contract is not legally binding Contract does not have any counterparty risk Contract is costly SWAPS Contracts Features of a SWAPS contract: a. b. c. d. Contract is customized Contract is legally binding Contract as counterparty risk Contract is free Thank You!
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Overview
 The COVID-19 pandemic and related government measures has affected the financial performance of

organizations by decreasing the demand of products and services, the disruption of input supply, and
stiffened credit provision. The financial system has also been affected based on the drastic increase in
bankruptcy filings, preventable liquidations, non-performing loans, and asset fire-sales (Neissen &
Schulte-Mattler, 2021).
 In this presentation, we will assess IFRS implications on companies financial reports on bankruptcy in

relation to the effects of COVID-19 pandemic. This will be explored under three focal points for
financial reporting. The three research questions presented in the study include:
1.

Which IFRS provisions have been established to enable companies assess impairments during the

Covid-19 pandemic?
2.

How should firms assess ‘Going concern’?

3.

What are other impacts on accounting and reporting should companies assess on bankruptcy?

How is the COVID-19 affecting financial
reporting on the solvency of companies amid
heightened insolvency
 Uncertain market situations makes the assessment and

forecasting of various financial statements elements difficult
for most companies.
 Regulators and auditors will be required to leverage

hin...

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