IFRS Standards

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IFRS Standards

• Overview
• Reading Chapter 6

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Conceptual Framework

• Very close to the US FASB framework for
  accounting
• Published in 1989

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Conceptual Framework
Fair Presentation
Accruals (and matching) Going Concern
Relevance
Reliability
Faithful representation Economic
substance Neutrality Prudence (conservatism) Compl
eteness
Comparability (and consistency) Timeliness Unders
tandability (and materiality)
Notice relationship Prudence exercise a degree
of caution in front of uncertainty
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Financial Statements

• IAS 1 requires
• Balance sheet
• Income statement
• Statement of Change in Equity
• IAS 8
• Choice of accounting policies
• Accounting for changes in accounting policies
• Dealing with accounting errors

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Key Standards

• IAS 18 Defining Revenues
• Assets
• IAS 16 Property Plant and Equipment
• IAS 40 Investment Property
• Not occupied by the owner
• IAS 38 Intangible Assets
• Research expenses cannot be capitalised
• Internally generated goodwill, brands, etc.
  cannot be capitalised (capitalised only in the
  event of a transaction which provides a reliable
  measure)
• Development expenses can be capitalised under
  certain conditions
• IAS 2 Inventory
• No LIFO!

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Valuation of Assets
Cost Models (Gains deferred or never recognised
as income)
Value Models (Gains and losses to income)
Market Value
Entity-Specific
Value in Use (DCF)
Revalued (Reserves Never in income)
Fair Value
Net Realisable Value
Historical (Gains deferred)
Inventory (IAS 2) PPE (IAS 16) Intangibles (IAS
38) Held-to-Maturity Investments (IAS
39) Investment Property (IAS 40)
PPE (IAS 16) Intangibles (IAS 38)
Impaired Assets (IAS 36)
Other investments (IAS 39) Investment
Property (IAS 40)
Inventories (IAS 2) Impaired Assets (IAS
36) Biological Assets (IAS 41)
Only for a whole class of assets
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Leases

• IAS 17
• Strict distinction between operating and
  capital/finance lease
• Operating lease rental
• Any other -gt should be capitalised
• Frowns upon the 90 rule
• For example, why a difference in accounting
  treatment between 88 and 92 of fair value?
• Recommendation to capitalise

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Financial Instruments

• IAS 32
• Should all be valued at fair value, except
• No reliable fair value (e.g. unlisted share)
• Those intended to be held to maturity
• Non-traded loans originated by the entreprise
  (e.g. loans made by banks)
• In these cases -gt cost
• For fair value accounting
• Gains and losses recognised to income
• Some exceptions
• IAS 39 Give a full fair value system option!

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Mixed Valuations

• Parker and Nobes stress that some assets are
  covered by different standards
• Example of a piece of land that rises in value
• IAS16/40 suggest using a cost basis, gain is
  deferred until sale
• IAS16 revaluation never recognised (reserve)
• IAS40 immediate recognition of fair value
• !!!

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Liabilities

• Provisions
• IAS37
• Need to be a real liability to a third party
• Provision pour risques et charges ok
• Provision pour charge constatee davance no
• Employee benefits
• Bonuses, pensions, etc.
• Should be recorded when likely and measurable
• Complicated when commitment is make on future
  salary levels
• Discounted value of obligation less any fund set
  for that purpose!
• Deferred Tax
• Should be accounted for

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Impact of IFRS

• The European Case

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Impact of IFRS

• Conversion to IFRS is a major issue today in
  Europe
• Consolidated traded group need to publish their
  financial statements according to IFRS
• Key questions
• Impact on bottom line (net income, EPS)?
• Impact of management and financial policies?

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