Liabilities under US Generally Accepted Accounting Principles vs International Financing Reporting Standards Rebecca Fay Julia Makarieva Brenna Palazzo The Fundamental Differences US GAAP ID: 278612
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Slide1
Long Term Liabilities underUS Generally Accepted Accounting Principles vs. International Financing Reporting Standards
Rebecca Fay
Julia
Makarieva
Brenna PalazzoSlide2
The Fundamental DifferencesUS GAAPgenerally rules basedmore conservative
IFRS
generally principles based Slide3
Bonds PayableBonds based on the underlying debt instrumentBonds recorded at present value of future interest and principal paymentsDiscount and premiums are amortized throughout the useful life of the bond using the effective-interest method(440-10, IAS 37)Slide4
Discounts and PremiumsUS GAAPDiscounts recorded separatelyPremiums recorded separately
(440-10)
IFRS
Discounts included directly in carrying value of bond
Premiums included directly in carrying value of bonds
(IAS 37)Slide5
Long Term Notes Payable
US GAAP
IFRS
Notes recorded at present value of Future Interest and Principle Payment
Discounts and premiums
amortized over term of note using
effective interest method
Over one year, long term
discounts
and premiums are included directly in the carrying
amount
(IAS 37)
discounts
and premiums are recorded
separately
(440-10)Slide6
Issue Costs
US GAAP
IFRS
Direct and incremental costs related to the issuance of
debt are
not
expensed
Internal
costs
generally excluded from consideration of capitalization
Transaction Costs
Directly reduce carrying value
(IAS 37)
Recorded as deferred charges
(440-10)Slide7
Debt Modification and ExtinguishmentDebt modified when there is a non-substantial modification of terms Modifications should be accounted for prospectivelyIf modification is substantial or debt is discharged, debt is extinguished and liability derecognizedDifference between reacquisition price and carrying amount should be recognized in income(470-50, IAS 37)Slide8
Debt Modification and ExtinguishmentUS GAAPcosts incurred are expensed as incurred
distinguishes treatment for a significant debt modification when the debtor is
viable
When non-viable,
may be accounted for as a troubled-debt
restructuring
(470-50)
IFRS
costs incurred for debt modification directly reduce the carrying value of the debt and are amortized using effective interest method
troubled
debt
restructuring- not specifically addressed
the
treatment for a substantial modification is the same as an
extinguishment
(IAS 37)Slide9
Troubled debt restructuringDebtor may be relieved for part of all of his obligations due to the financial hardships from the transfer of assets or equity securities to the creditor or through the modification of debtSlide10
Troubled Debt RestructuringUS GAAPTransfer of Assets
gain or loss
recognized to the
extent the
fair value of assets transferred exceeds the amount payable, including accrued interest
Transfer
of equity
securitiesthe difference between the fair value of the equity and the carrying amount of debt is recognized as a gain or loss
(470-60)
IFRS
Transfer of
Assets
no
gain or loss is
recorded
new
effective-interest rate is
computed
Transfer
of equity
securities
no
gain or loss is recorded and
new effective-interest rate is
computed
(IAS 37.72
.
83)Slide11
Potential Audit Problems-GAAPMeasurement of ContingenciesIf a range is given as an estimate…GAAP uses low end of rangeIFRS uses mid-pointGAAP records a lower liabilityConservatism
(450-20)Slide12
Potential Audit Problems-IFRSValuation of Bonds IFRS directly changes the carrying value of bonds for discounts and premiumsDiscounts= understated debtNot full disclosure
(IAS 39, IAS 37)
Recognition of Contingencies
IFRS requires “present obligation”
Delays recognition of liabilities
Not conservative
(IAS 37.86)Slide13
Recent Updates-GAAP July 2010: FASB Exposure Draft, Disclosure of Certain Loss ContingenciesProvide more information to usersProject Postponed
(ASB 450, fasb.com)Slide14
Recent Updates-IFRSJanuary 2010 IASB Exposure Draft, Measurement of Liabilities in IAS 37February 2012: IASB Working Draft of IFRS LiabilitiesCost of restructuringSpecific requirements to measure liabilitiesProject postponed
(
IFRS.com
)Slide15
Sourceshttp://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/ifrs-and-us-gaap-similarities-and-differences-2012.pdfhttp://ec.europa.eu/internal_market/accounting/docs/consolidated/ias37_en.pdf
http://www.ey.com/Publication/vwLUAssets/US_GAAP_v_IFRS:_The_Basics/$FILE/US%20GAAP%20v%20IFRS%20Dec%202011.
pdf
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/IFRS-GAAP-comparisons/Documents/IFRS-compared-to-US-GAAP-2012.
pdf
Academic Research Center: Long Term Liabilities.
Earnst
and Young Foundation.