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com

Jose Cintron, MBA-CPC

(954) 374-8298
Josecintron.mba@gmail.com
International Accounting
 Explain the meaning of "generally
accepted accounting principles."

Generally accepted accounting principles are those principles that have

substantial authoritative support, such as FASB Standards and
Interpretations, APB Opinions and Interpretations, AICPA Accounting
Research Bulletins, and other authoritative pronouncements.

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 Explain the need for
accounting standards.
In preparing financial statements, accountants are confronted with the
potential dangers of bias, misinterpretation and inexactness.
In order to minimize these dangers, the accounting profession has
attempted to develop a set of standards that is generally accepted and
universally practiced. Without this set of standards, each accountant or
enterprise would have to develop its own standards, and readers of
financial statements would have to familiarize themselves with every
companys peculiar accounting and reporting practices. As a result, it
would be almost impossible to prepare statements that could
be compare.

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 Identify the major financial statements
and other means of financial reporting.

The financial statements most frequently provided are (1) the balance
sheet, (2) the income statement, (3) the statement of cash flows, and (4)
the statement of owners or stockholders 'equity.
Financial reporting other than financial statements may take various
forms.
Examples include the presidents letter or supplementary schedules in the
corporate annual report, prospectuses, reports filed with government
agencies, news releases, managements forecasts, and descriptions of an
enterprises social or environmental impact.

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Time Table

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 What is IFRS?
What is IFRS?
Standards and Interpretations adopted by the
International Accounting Standards Board (IASB).
They comprise:
International Financial Reporting Standards;
International Accounting Standards (IAS)
Interpretations developed by the International Financial
Reporting Interpretations Committee (IFRIC) or the
former Standing Interpretations Committee (SIC).

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 IFRS-IASB
IFRS are developed by the International Accounting Standards Board
(IASB), based in London. The IASB is the successor to the International
Accounting Standards Committee (IASB) and is privately-funded. The
IASB has 15 Members.

The IASBs objectives are:

to develop and adopt global accounting standards

to decide on publication of IFRICs
to organize public events of the IFRS Foundation, the IASB and the
IFRS Interpretations Committee and regular meetings

The IFRS Advisory Council support and advises the IASB.

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 IFRS vs. GAAP

IFRS vs. GAAP

The key difference between IFRS and GAAP is
that IFRS provides much less overall detail and
industry-specific instructions.
Effective Date
An entity shall apply this IFRS if its first IFRS
financial statements are for a period
beginning on or after January 1, 2009.
Although earlier application is permitted.
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 IFRS vs. GAAP

IFRS: More 'principles-based' standards with limited

application guidance.

GAAP: More 'rule-based' standards with more

specific application guidance.

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 Manny Differences are
Not in Writing

Since US GAAP is much more detailed and specific

there are many contractual clauses that are covered
in US GAAP that are not addressed in writing in IFRS.

International auditors sometimes, but not always,

look to US GAAP when IFRS is silent about a
particular issue.

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 IAS 1 Comprehensive Income

IFRS: Statement of changes in equity is required. A grand

total of "comprehensive income" is permitted but not
required.

GAAP: Must present grand total of "comprehensive

income". Can present in income statement, statement of
comprehensive income, or changes in equity.

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 IAS1 Extraordinary Items

IFRS: Prohibited.

US: Extraordinary items are permitted but restricted

to items that are both infrequent in occurrence and
unusual in nature.

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 IAS2 Method for determine
inventory cost

IFRS: LIFO is prohibited.

US: LIFO is permitted.

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 IAS 32 Classification of convertible
debt instruments by the issuer

IFRS: Split the instrument into its liability and equity

components at issuance.

GAAP: Classify the entire instrument as a liability.

However, the intrinsic value of the conversion feature at
the commitment date of the instrument, if any, is
recognized as additional paid-in capital.

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 IAS 39 Basis Adjustment

IFRS:
Fair value hedge: Required.
Cash flow hedge of a transaction resulting in a financial asset or liability:
Same as US GAAP.
Cash flow hedge of a transaction resulting in a non-financial asset or
liability: Choice of US GAAP or basis adjustment.

GAAP:
Fair value hedge: Required.
Cash flow hedge of a transaction resulting in an asset or liability: Gain/loss
on hedging instrument that had been reported in equity remains in equity
and is reclassified into earnings in the same period the acquired asset or
incurred liability affects earnings.
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 IAS 39 Hedging gain or loss on net
investment in a foreign entity

IFRS: The portion determined to be an effective hedge is

recognized in equity.

GAAP: Gains and losses relating to hedge ineffectiveness is

recognized in profit or loss immediately.

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 IAS 39 Use of "partial-term
hedges"

(hedge of a fair value exposure for only a part of the

term of a hedged item)

IFRS: Allowed.

GAAP: Prohibited.

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 IAS 39 Option to designate any financial asset or
financial liability to be measured at fair value
through profit or loss

IFRS: Option is allowed.

GAAP: No such option.

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 IAS 39 Option to designate loans and receivables
as available for sale to be measured at fair value
through equity

IFRS: Option is allowed.

GAAP: No such option.

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 Investments in unlisted equity
instruments

IFRS: Measured at fair value if reliably measurable;

otherwise at cost.

GAAP: Measured at cost.

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 IAS 39 Held-to-Maturity
Classification

IFRS: Prohibited from using held-to-maturity classification

for the next two years.

GAAP: Prohibited from using held-to-maturity classification.

SEC indicates that prohibition is generally for two years.

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 IAS 39 Derecognition of
financial assets

IFRS: Combination of risks and rewards and control

approach. Can derecognize part of an asset. No "isolation
in bankruptcy" test. Partial derecognition allowed only if
specific criteria are complied with.

GAAP: Derecognize assets when transferor has

surrendered control over the assets. One of the conditions
is legal isolation in bankruptcy. No partial derecognition.

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 IAS 39 Use of "Qualifying
SPEs"

IFRS: No such category of SPEs.

GAAP: Necessary for derecognition of financial assets if

transferee is not free to sell or pledge transferred assets.

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 Presentation of Financial
Statements

IFRS Financial Statements include:

Statement of Financial Position
Statement of Comprehensive Income
Statement of Cash Flow
Statement of Changes in Equity
Notes to Financial Statements

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 Statement of Financial Position
IAS 1:54 lists the minimum line items that must be
presented:
(a) property, plant and equipment;
(b) investment property;
(c) intangible assets;
(d) financial assets (excluding amounts
shown under (e), (h) and (i));
(e) investments accounted for using the
equity method;
(f) biological assets;
(g) inventories;
(h) trade and other receivables;
(i) cash and cash equivalents;
(j) the total of assets classified as held for
sale and assets included in disposal groups
classified as held for sale in accordance with
IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations;
(k) trade and other payables;
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(l) provisions;
(m) financial liabilities (excluding amounts
shown under (k) and (l));
(n) liabilities and assets for current tax, as
defined in IAS 12 Income Taxes;
(o) deferred tax liabilities and deferred tax
assets, as defined in IAS 12;
(p) liabilities included in disposal groups
classified as held for sale in
accordance with IFRS 5;
(q) non-controlling interests, presented
within equity; and
(r) issued capital and reserves attributable
to owners of the parent.
Other line items, headings and subtotals
should be presented when the information
is relevant in understanding the entitys
financial position. (IAS 1.55)
 Presentation of Assets
& Liabilities
An entity should present current and non-
current assets, and current and non-current
liabilities, as separate classifications in its
statement of financial positionexcept when
a presentation based on liquidity provides
information that is reliable and more
relevant. When that exception applies, an
entity shall present all assets and liabilities in
order of liquidity. (IAS 1.60)

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 Presentation of Assets &
Liabilities
An entity that supplies good and/or services
would generally classify assets and liabilities
using current or non-current distinctions. (IAS
1.62)
An entity not supplying good and services,
such as financial institutions, would provide
more relevant and reliable presentation by
listing in order of liquidity. (IAS 1.63).

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 Presentation of Assets
& Liabilities
Entities are also able to present a mixed basis
of presentation and list some assets and
liabilities as current/non-current and others
in order of liquidity. (IAS 1.64)
Make sure you are presenting the most
reliable and relevant information in the
financial statements by choosing the correct
presentation.

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 Property, Plant &
Equipment
IAS Definitions:
Fair value is the amount for which an asset could
be exchanged between knowledgeable, willing
parties in an arms length transaction.
Property, plant and equipment are tangible
items that:
(a) are held for use in the production or supply of
goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than
one period. (IAS 16)

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 Property, Plant &
Equipment
Accounting models for property, plant &
equipment:

Cost- after recognition of an asset, the item shall be

carried at its cost less accumulated depreciation
and any accumulated impairment losses. (IAS
16.30)

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 Property, Plant &
Equipment
Revaluation- after recognition of an asset whose
fair value can be measured reliably can be carried
at a revalued amount, which is its fair value at the
date of the revaluation less any subsequent
accumulated depreciation or impairment losses.
Revaluations will be made with sufficient
regularity to ensure that they carrying amount
does not differ materially from that that would
be determined using fair value at the end of the
reporting period. (IAS 16.31)

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 Property, Plant
& Equipment
When the carrying value is increased, the
increase is recognized in other
comprehensive income, accumulated under
the heading Revaluation Surplus. (IAS
16.39)
If the value decreases, the decrease is
recognized under profit & loss. (IAS 16.40)
When the asset is derecognized, the
revaluation surplus may be transferred to
retained earnings. (IAS 16.41)
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 Intangibles

IAS Definition of Intangibles:

An identifiable, non-monetary asset without

physical substance.

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 Intangibles

Important notes on Intangibles:

Internally generated goodwill is not an asset. (IAS
38.48)
No Intangibles from research can be recognized.
(IAS 38.54)
Intangibles from development can only be
recognized under certain conditions. (IAS 38.57)

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 Intangibles

Intangibles can also be carried under either

the cost or revaluation model like PP&E.

For revaluation purposes, fair value is

determined by reference to an active market.
(IAS 38.74 & 75)

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 Statement of Comprehensive Income

An entity shall present all items of income and

expense recognized in a period:
(a) in a single statement of comprehensive income, or
(b) in two statements: a statement displaying components
of profit or loss (separate income statement) and a second
statement beginning with profit or loss and displaying
components of other comprehensive income (statement of
comprehensive income). (IAS 1.81)

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 Components in The SOCI
IAS 1.82 As a minimum, the statement of
comprehensive income shall include line
items that present the following amounts for
the period:
(a) revenue;
(b) finance costs;
(c) share of the profit or loss of associates and
joint ventures accounted for using the equity
method;
(d) tax expense;

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 Components in The SOCI
(Cont.)
(e) a single amount comprising the total of:
(i) the post-tax profit or loss of discontinued operations
(ii) the post-tax gain or loss recognized on the disposal
of the assets constituting the discontinued operation;
(f) profit or loss;
(g) each component of other comprehensive
income classified by nature;
(h) share of the other comprehensive income of
associates and joint ventures accounted for using
the equity method; and
(i) total comprehensive income.

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 Revenue
Revenue is the gross inflow of economic
benefits (during the period) arising in the
course of the ordinary activities of an entity
when those inflows result in increases in
equity, other than increases relating to
contributions from equity participants. (IAS
18.7)
Revenue should be measured at the fair
value of the consideration received or
receivable. (IAS 18.9)
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 Revenue Recognition

Revenue from the sale of goods shall be recognized when all

the following conditions have been satisfied(IAS 18.14):
the entity has transferred to the buyer the significant
risks and rewards of ownership of the goods;
the entity retains neither continuing managerial
involvement to the degree usually associated with
ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with
the transaction will flow to the entity;
the costs incurred or to be incurred in respect of the
transaction can be measured reliably.

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 Expenses

An entity shall classify its expenses based on

their nature or
their function within the entity
Whichever provides information that is
reliable and more relevant. (IAS 1.99)

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 Expenses
Analysis by the nature of expense method.
For example, depreciation, purchases of materials,
transport costs, employee benefits and advertising
costs
Analysis by the function of expense or cost
of sales
For example, the costs of distribution or
administrative activities.
At a minimum, an entity discloses its cost of sales
under this method separately from other
expenses. (IAS 1.103)
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Expense Examples

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 Expenses

The choice between the function of expense

method and the nature of expense method
depends on historical and industry factors and
the nature of the entity.
IFRS requires management to select the
presentation that is reliable and more relevant.
However, additional disclosure is required when
the function of expense classification is used,
because information on the nature of expenses is
useful in predicting future cash flows, . (IAS 1.105)

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 Extraordinary Items

An entity shall not present any items of

income or expense as extraordinary items
Not in the statement of comprehensive income
Not in the separate income statement
Not in the notes. (IAS 1.87)

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 Other Comprehensive
Income
The components of other comprehensive income
include:
changes in revaluation surplus
actuarial gains and losses on defined benefit plans
gains and losses arising from translating the financial
statements of a foreign operation
gains and losses on premeasuring available-for-sale
financial assets
gains and losses in a cash flow hedge

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 Statement of Cash
Flow(IAS7)

The objective of this Standard is to require

the provision of information about the
historical changes in cash and cash
equivalents of an entity by means of a
statement of cash flows which classifies cash
flows during the period from operating,
investing and financing activities.

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 Presentation of Statement of Cash Flow

Operating activities are the principal revenue-

producing activities of the entity and other
activities that are not investing or financing
activities.

An entity shall report cash flows from

operating activities using either:(IAS7-17 to 20)
(a) the direct method
(b) the indirect method.
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 Statement of Cash Flow
Investing activities are the acquisition and
disposal of long-term assets and other
investments not included in cash
equivalents.(IAS7-16)

Financing activities are activities that result in

changes in the size and composition of the
contributed equity and borrowings of the
entity. (IAS7-17)
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 IAS 1.106 Statement of
change in equity
An entity shall present a statement of changes in
equity showing in the statement:

a. total comprehensive income for the period, showing

separately the total amounts attributable to owners
of the parent and to non-controlling interests;

b. for each component of equity, the effects of

retrospective application or retrospective
restatement recognized in accordance with IAS

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 IAS 1.106 (cont.)
C. for each component of equity, a reconciliation between the
carrying amount at the beginning and the end of the period,
separately disclosing changes resulting from:

(i) profit or loss;

(ii) each item of other comprehensive income; and
(iii) transactions with owners in their capacity as owners,
showing separately contributions by and distributions to
owners and changes in ownership interests in
subsidiaries that do not result in a loss of control.

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 IAS 1.107

An entity shall present, either in the statement of

changes in equity or in the notes, the amount of
dividends recognised as distributions to owners
during the period, and the related amount per
share.

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 IAS 1.112 Notes to the
Financial Statements
The notes shall:

a. present information about the basis of preparation of the

financial statements and the specific accounting policies
used in accordance with paragraphs 117124;

b. disclose the information required by IFRSs that is not

presented elsewhere in the financial statements; and

c. provide information that is not presented

elsewhere in the financial statements, but is relevant to an
understanding of any of them.

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 IAS 1.114

An entity normally presents notes in the following

order, to assist users to understand the financial
statements and to compare them with financial
statements of other entities:
a. statement of compliance with IFRSs (see
paragraph 16);
b. summary of significant accounting policies
applied (see paragraph 117);

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 IAS 1.114 (cont.)

c. supporting information for items presented in the

statements of financial position and of
comprehensive income, and in the statements of
changes in equity and of cash flows.

d. other disclosures, including:

(i) contingent liabilities
(ii) non-financial disclosures,

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 IAS 1.117
An entity shall disclose in the summary of significant
accounting policies:

a. the measurement basis (or bases) used in

preparing the financial statements, and

b. the other accounting policies used that are

relevant to an understanding of the financial
statements.

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 Conclusion
Advantages
Same basis with foreign competitors, easy to
make comparison
Easy to consolidate the parents company and
the foreign subsidiaries
Disadvantages
Effectiveness of GAAP will be lost
Discourage the domestic public companies which
have no significant market outside the US
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 Financial statement disclosures
Disclosures are governed by Generally Accepted Accounting Principles
(GAAP) and the SEC for publicly traded companies. While most
disclosure requirements are similar for all publicly traded companies,
some industries are required to provide more specific disclosures based
on the operations of a business.

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 Financial statement disclosures

Financial statement disclosures are secondary information provided by

companies to clarify or interpret certain published financial information.
Disclosures are designed to assist outside reviewers of financial
information for the purpose of making investments in the business.
Management also use disclosures to attest to the accuracy and validity of
reported financial information as required by the (SEC).

http://www.ehow.com/about_5156814_financial-statement-
disclosures.html

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 The new GAAP: Internationally
accepted accounting principles

Trends toward globalization and open markets have expanded the

playing field for U.S. commerce. And one of the trade offs may be a
fast-growing international movement to unify basic principles of
financial reporting.

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 Financial statement disclosures
Mandatory Disclosures
Disclosures are required by GAAP for certain items in a financial
statement, such as accounting changes or errors, asset retirement and
insurance contract modifications. By requiring disclosures for these
technical items, investors will have a clearer picture of the financial
health of the company. Additionally, future expenses can be calculated so
investors can determine long-term growth opportunities and projected
cash outflows for a business.

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 IASB

Since 2000, the International Accounting Standards Board, whose

members represent many countries, has been issuing accounting
standards and interpretations and developing a new international
accounting framework that can work as well in Shanghai as it does in
San Francisco.

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 International Financial
Reporting Standards
The result is the International Financial Reporting Standards (IFRS),
which now serves as the mandatory financial reporting tool for publicly
held companies within the European Union(EU). Australia, Eastern
Europe, Russia, China and a growing number of other nations are either
moving toward IFRS or adopting standards substantially consistent with
IFRS, while retaining some local identity
The EUs adoption of the standard was the biggest change in global
financial reporting in recent memory.

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 FASB creation

The SEC has statutory authority to establish financial accounting and

reporting standards for publicly held companies under the Securities
Exchange Act of 1934. Throughout its history, however, the
Commissions policy has been to rely on the private sector for this
function to the extent that the private sector demonstrates ability to fulfill
the responsibility in the public interest. FASB

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 FASB

Since 1973, the Financial Accounting Standards Board (FASB) has been
the designated organization in the private sector for establishing
standards of financial accounting that govern the preparation of financial
reports by nongovernmental entities.

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 The mission of the FASB

The mission of the FASB is to establish and improve standards of

financial accounting and reporting that foster financial reporting by
nongovernmental entities that provides decision-useful information to
investors and other users of financial reports. That mission is
accomplished through a comprehensive and independent process that
encourages broad participation,

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 Sources for accounting principles

1. The Board identifies a financial reporting issues based on requests/recommendations from

stakeholders or through other means.
2. The FASB Chairman decides whether to add a project to the technical agenda, after
consultation with FASB Members and others as appropriate, and subject to oversight by the
Foundation's Board of Trustees.
3. The Board deliberates at one or more public meetings the various reporting issues identified
and analyzed by the staff.
4. The Board issues an Exposure Draft to solicit broad stakeholder input. (In some projects, the
Board may issue a Discussion Paper to obtain input in the early stages of a project)
the Board holds a public roundtable meeting on the Exposure Draft, if necessary.
5. The staff analyzes comment letters, public roundtable discussion, and any other information
obtained through due process activities.
6. The Board redeliberates the proposed provisions, carefully considering the stakeholder input
received, at one or more public meetings.
7. The Board issues an Accounting Standards Update describing amendments to the
Accounting Standards Codification.

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 Public Company Accounting
Oversight Board.
The Sarbanes-Oxley Act of 2002, which created the PCAOB, required
that auditors of U.S. public companies be subject to external and
independent oversight for the first time in history. Previously, the
profession was self-regulated.
The SEC has oversight authority over the PCAOB, including the
approval of the Boards rules, standards, and budget.

The five members of the PCAOB Board, including the Chairman, are
appointed to staggered five-year terms by the Securities and Exchange
Commission (SEC

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 Public Company Accounting
Oversight Board.

The PCAOB is a nonprofit corporation established by Congress to

oversee the audits of public companies in order to protect investors and
the public interest by promoting informative, accurate, and independent
audit reports.

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 It is up to you!
Professor Jose Cintron

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