Case Study

%35

%8

SafeAssign Originality Report CSU SafeAssign Plagiarism Check Tool • SafeAssign Originality Report Generator I

%43Total Score: High risk LaTanya Lester-Hayes

Submission UUID: d037cd63-007f-1ff5-6a8b-2391597b0c23

Total Number of Reports

1 Highest Match

43 % Unit VII IFRS vs GAAP.docx

Average Match

43 % Submitted on

05/11/20 08:18 PM EDT

Average Word Count

988 Highest: Unit VII IFRS vs GA…

%43Attachment 1

Institutional database (9)

Student paper Student paper Student paper

Student paper Student paper Student paper

Student paper Student paper Student paper

Internet (2)

studydaddy fasb

Top sources (3)

Excluded sources (0)

View Originality Report - Old Design

Word Count: 988 Unit VII IFRS vs GAAP.docx

4 6 3

2 9 7

10 8 1

11 5

4 Student paper 11 studydaddy 6 Student paper

Running Head: IFRS vs GAAP 2

IFRS vs GAAP

La Tanya Lester-Hayes

Columbia Southern University

May 09, 2020

All financial ratios that are computed using the company’s assets or liabilities would be directly affected by the adoption of FAS 141R and FAS 160. In particular, the firm’s liquidity ratios that include the current ratio and the acid test ratio will change upon the approval of FAS 141R and FAS 160. While previous calculations revalued assets and liabilities based on the ownership percentage of the parent company, the new approach required firms to undertake such revaluation to fair market value at the date of acquisition (100%revaluation) (James, 2010). This requirement will affect the calculation of other financial ratios such as the total asset turnover that depend on the valuation of assets. Secondly, by adopting FAS 141R and FAS 160, all ratios that depend on the firm’s equity such as the equity ratio will change in value. The firm’s noncontrolling interest would no longer be classified as a liability or between liabilities and equity. The new approach categorizes noncontrolling interest (NCI) exclusively as equi- ty. In addition, the NCI valuation will be carried at fair market value of the net assets of subsidiaries, before the NCI percentage is factored in. This deviates from the previous approach where the NCI valuation was carried to book value. The forthcoming changes will ultimately affect acquisi- tion strategies in terms of in process research and development (R&D). Previously, these costs could be expensed at the time of acquisition. The up- coming changes require such costs to be capitalized at the time of acquisition. Second, the acquisition stages will be affected by the intended changes. In particular, measurement of the previously acquired equity interest will change with the adoption of the new standards. The changes dic- tate that instead of measuring the previously acquired equity interest based on values at time of individual equity acquisition, the acquiring firm

1

2

2

3

4

Source Matches (15)

Student paper 92%

Student paper 100%

Student paper 70%

should remeasure such values when it achieves control.

Losses and gains are recognized in the income statement. Third, when it comes to the cost of business combinations, the adoption of the new stan- dards implies that direct costs would be expensed in the same year of acquisition. This would be a change from the previous approach where the direct costs were taken (capitalized) as part of the acquisition cost (James, 2010). For FASB, the primary objective regarding the issuance of FAS 141R and FAS 160 was to achieve convergence between the IFRS and IASB. In addition, the FASB focus was to improve the way in which information about business combinations was reported. In this process, the FASB worked in collaboration with IASB to ensure that international accounting stan- dards were achieved. By working closely with IASB, it was possible to introduce important variations/changes to improve the scope of financial re- porting and accounting for consolidated entities (Tavakoli, n.d.). Qualifying Special Purpose Entities are defined as off balance sheet, bankruptcy remote entities FASB, 2009). In other words, they comprise of “assets placed presumptively beyond the reach of the bank transferor’s creditors through a true sale” (James, 2010). They may be used by organizations for a number of purposes such as structured management of risk. In elimi- nating the concept of Qualifying SPEs, FAS 166 requires qualifying SPES to evaluate the remote entities for possible consolidation. It also stipulates additional disclosures and changes the criteria for derecognizing assets. FAS 166 also dictates that firms must provide additional information related to the transference of financial assets that include securitization activities, and in instances where the companies face continuing risks emanating from the transferred financial assets (FASB, 2009).

By adopting IFRS, it would be important to understand the various provisions that enhance convergence between GAAP and IFRS. In this case, GAAP rules would still apply to the company’s financial reporting and accounting within the United States while IFRS applies to its international activities. With this in mind, the company must understand the implications of FASB’s FAS 141R and FAS 160. According to James (2010), these relate to; subsidiaries’ assets and liabilities, negative goodwill, balance sheet classification of noncontrolling interest (NCI), Income statement presentation of NCI’s share of income, NCI valuation, Cost of business combinations, acquisition in stages. In the definition of control, firms that use GAAP standards focus on the controlling financial interest that’s understood to be the majority voting interest. On the other hand, IFRS is oriented towards the man- date to govern financial and operating policies with the primary objective of running activities that guarantee benefits for the controlling entity. Sec- ond, when it comes to shares for determining control, GAAP is concerned with only the existing voting rights. The use of IFRS allows for the inclusion of exercisable shares.

4

5

6

Third, in the calculation of NCI, GAAP requires firms to measure interest at fair value of the company’s net assets with an allowance for inclu- sion of share of goodwill (James, 2010). On the other hand, IFRS allows accountants to make a choice between the fair value of the company’s net assets and the proportionate share of fair value. In calculating goodwill at the time of acquisition, GAAP presupposes that if goodwill exists, it includes share attributed to NCI. The IFRS rules imply that if a second choice is taken, goodwill can only be attributed to controlling interest. Lastly, in goodwill impairment test, subscribers of the US GAAP rules adopt a two-step method while IFRS is based on a one step approach.

References

FASB. (2009). FASB Issues Statements 166 and 167 Pertaining to Securitizations and Special Purpose Entities. Retrieved from https://www.- fasb.org/jsp/FASB/FASBContent_C/NewsPage&cid=1176156240834

James, M. L. (2010). Accounting for business combinations and the convergence of International Financial Reporting Standards with U.S. Gener- ally Accepted Accounting Principles: A case study. Journal of the International Academy for Case Studies, 16(1), 95-108. Tavakoli, J. Introduction to Special Purpose Entities. Retrieved from https://www.tavakolistructuredfinance.com/special-purpose-entities/

7 8

9

4 10

11 4

1

Student paper

IFRS vs GAAP 2 IFRS vs GAAP

Original source

IFRS vs GAAP IFRS vs GAAP

2

Student paper

Columbia Southern University

Original source

Columbia Southern University

2

Student paper

All financial ratios that are computed using the company’s assets or liabili- ties would be directly affected by the adoption of FAS 141R and FAS 160.

Original source

There are two main financial ratios that are likely to be directly affected by the adoption of FAS 141R and FAS 160

Student paper 66%

Student paper 73%

Student paper 67%

fasb 62%

Student paper 83%

Student paper 65%

Student paper 71%

Student paper 68%

Student paper 100%

Student paper 100%

studydaddy 100%

Student paper 91%

3

Student paper

While previous calculations revalued assets and liabilities based on the ownership percentage of the parent company, the new approach re- quired firms to undertake such revaluation to fair market value at the date of acquisition (100%revalu- ation) (James, 2010).

Original source

For instance previously the assets and liabilities were revalued based on the parent’s ownership percent- age whereas now all assets and lia- bilities are revalued to fair market value at acquisition date (100% revaluation) (James, 2010)

4

Student paper

In addition, the NCI valuation will be carried at fair market value of the net assets of subsidiaries, before the NCI percentage is factored in.

Original source

Finally, the NCI Valuation will be car- ried at fair market value of sub- sidiaries net assets multiplied by the NCI percentage instead of at book value of subsidiaries

4

Student paper

For FASB, the primary objective re- garding the issuance of FAS 141R and FAS 160 was to achieve conver- gence between the IFRS and IASB.

Original source

The primary reasons for the issuing of FAS 141R and FAS 160 were due to the efforts between the FASB and IASB to bring about convergence be- tween US GAAP and IFRS

5

Student paper

Qualifying Special Purpose Entities are defined as off balance sheet, bankruptcy remote entities FASB, 2009).

Original source

Qualifying special-purpose entities (QSPEs) generally are off-balance- sheet entities that are exempt from consolidation

6

Student paper

subsidiaries’ assets and liabilities, negative goodwill, balance sheet classification of noncontrolling inter- est (NCI), Income statement presen- tation of NCI’s share of income, NCI valuation, Cost of business combina- tions, acquisition in stages.

Original source

Cost of the business combinations, subsidiaries assets/liabilities, Nega- tive Goodwill, Balance Sheet Classifi- cation of Noncontrolling Interest (NCI), Income statement presenta- tion of NCI’s share of the NCI valua- tion (Marianne.J.L.,2010)

7

Student paper

Third, in the calculation of NCI, GAAP requires firms to measure interest at fair value of the company’s net as- sets with an allowance for inclusion of share of goodwill (James, 2010).

Original source

Additionally, with GAAP, “NCI interest is measured at fair value of total net assets and includes share of good- will” (James, 2010, 103)

8

Student paper

On the other hand, IFRS allows ac- countants to make a choice between the fair value of the company’s net assets and the proportionate share of fair value.

Original source

Choice between fair value and pro- portionate share of fair value of identifiable net assets

9

Student paper

In calculating goodwill at the time of acquisition, GAAP presupposes that if goodwill exists, it includes share attributed to NCI. The IFRS rules im- ply that if a second choice is taken, goodwill can only be attributed to controlling interest.

Original source

Under GAAP goodwill (if it exists) also includes share attributed to NCI Under IFRS if a second option is cho- sen, goodwill is only attributed to controlling interest (parent)

4

Student paper

FASB Issues Statements 166 and 167 Pertaining to Securitizations and Special Purpose Entities.

Original source

FASB Issues Statements 166 and 167 Pertaining to Securitizations and Special Purpose Entities

10

Student paper

Retrieved from https://www.fasb.org/jsp/FASB/FAS- BContent_C/NewsPage&cid=117615 6240834

Original source

Retrieved from https://www.fasb.org/jsp/FASB/FAS- BContent_C/NewsPage&cid=117615 6240834

11

Student paper

Accounting for business combina- tions and the convergence of In- ternational Financial Reporting Stan- dards with U.S. Generally Accepted Accounting Principles: A case study. Journal of the International Academy for Case Studies, 16(1), 95-108.

Original source

Accounting for business combina- tions and the convergence of In- ternational Financial Reporting Stan- dards with U.S Generally Accepted Accounting Principles A case study Journal of the International Academy for Case Studies, 16(1), 95-108

4

Student paper

Introduction to Special Purpose Enti- ties. Retrieved from https://www.- tavakolistructuredfinance.com/spe- cial-purpose-entities/

Original source

Special Purpose Entities Retrieved from https://www.tavakolistruc- turedfinance.com/special-purpose- entities/