Long Term Liabilities

Examining US GAAP vs. IFRS

Brett Donner, Nick Ioriatti, Mike Nowaczyk, Mike OHara and James Peters

Definition: Long- Term Liabilities

Probable future sacrifices arising from present obligations

that are not payable within a year or the operating cycle of the company.
Whichever is longer

Examples of Long Term Liabilities

Bonds Payable
Long- Term Notes Payable Mortgages Payable Pension Liabilities Deferred Income Taxes Product Warranties Other Contingencies

Troubled Debt
Impairments of Long- Term Debt:
Probable that the amounts due will not be collected Journal Entry:

(DR) Bad Debt Expense XXX (CR) Allowance for Doubtful Accounting

XXX

Troubled Debt Continued

Restructuring:
Creditor grants concession to the debtor Two Types:
1.

Settling the debt at less than the carrying value

2.

Continuation of the debt with modified terms

Selling Price
Discount-Stated Interest Rate less than Market Interest

Rate
Premium- Stated Interest Rate is greater than Market

Interest Rate
Face Value-Stated Interest Rate equals Market Interest

Rate

IFRS vs GAAP Differences

Definition
IFRS defines as a financial instrument that is requires debt to be

paid with financial asset GAAP defines as financial instrument, except for outstanding shares, for debt to be paid with financial asset

IFRS vs GAAP Differences

Minority Interests
IFRS states its reported in balance sheet with equity GAAP states its reported with non-current liabilities, not with

equity

IFRS vs GAAP Differences

Refinancing
IFRS classifies as non-current if refinanced before balance sheet

date GAAP allots more time to refinance after balance sheet date

IFRS vs GAAP Differences

Breach of Contract
IFRS states no matter what must be considered a current

liability GAAP states in certain cases debt can be considered still noncurrent

Potential Audit Problems

Potential audit problems in regards to long term

liabilities include:
Obtaining information proving that all long-term liabilities are included in the financial statements and are accurately stated. Proving all relevant information in regards to an entitys long term liabilities is properly disclosed within the financial statements. Proving all long term liabilities disclosed by the entity are legitimate obligations.

Off Balance Sheet Financing

Attempt to borrow money in way to prevent the

recording of obligations.
Keeps debt off the Balance sheet.

Allows for previous loan commitments to be

met, while incurring more debt.

In response to the amount of entities using Off

Balance Sheet Financing the FASB has increased disclosure (note) requirements.