Team essay

Write a 700- to 1,050-word summary of the team's discussion about IFRS versus GAAP, based on your team collaborative discussions. The essay is an individual assignment; however, team collaboration is worth 30 % of the available points for the essay.  Input regarding the questions for IFRS 8-1, 9-1, 9-2 and 9-3 must be posted during Week 2. Input regarding IFRS 10-2 and 10-3 must be posted during Week 3.   Input posted during Week 4 must relate to the information regarding IFRS at the end of Chapters 12 and 13.  For example, input regarding IFRS 10-2 posted in Week 4 will not be eligible to earn collaboration credit since the topic was related to Week 3.   The summary should be structured in a subject-by-subject format.  An introduction and a conclusion are needed. Your essay should include the answers to the following:

· IFRS 8-1: What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?

· IFRS 9-1: What is component depreciation, and when must it be used?

· IFRS 9-2: What is revaluation of plant assets? When should revaluation be applied?

· IFRS 9-3: Some product development expenditures are recorded as development expenses and others as development costs. Explain the difference between these accounts and how a company decides which classification is appropriate.

· IFRS 10-2: Explain how IFRS defines a contingent liability and provide an example.

· IFRS10-3: Briefly describe some similarities and differences between GAAP and IFRS with respect to the accounting for liabilities.

Format your essay consistent with APA guidelines.  

Use the Financial Accounting text and at least two additional scholarly-reviewed references from the University of Phoenix Online Library. Inclusion of the URLs to take the reader directly to the Library databases is required to be eligible to earn credit for this requirement.  Cite these sources when appropriate as in-text citations and list cited sources on the References page. Listed cited sources on the References page must include a valid URL to take the reader to the electronic copy of each source. The essay will not be supported if cited sources (in-text citations and References page) are omitted.  If the instructor is not able to access the electronic copies by the provided URL links the essay is not supported. 

The essay will include answers to above identified International Financial Reporting Standards (IFRS).  If the team discussions did not cover all of the standards the student will need to complete the required research and include this information in the essay.

IFRS8-1: What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed? 

IFRS and GAAP are similar when it comes to basic accounting and reporting issues that connect. With identification and measurement of allowance accounts, accounts receivables, recording discounts, and the reduction process to account for bad debt and factoring. However, FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) have taken steps to implement fair value measurement to financial instruments. As a result opposing factors, FASB and IASB have adopted a fragmentary approach. The first step the two have taken is disclosing the appropriate use information in the notes. Step two is the adoption of the fair market alternative that allows companies to record some financial instrument at fair value in financial statements (Kimmel, 2013). The third step is acknowledging the complexity and universality of recognizing the area of revenues in fiscal reporting. FASB and IASB have also collaborated in the development of a new single revenue recognition standard. Both FASB and IASB are of the opinion that transparency and comprehension of financial statements can increase if companies record and report all financial instruments at fair value. Some of the criticism on both FASB and IASB is that they represent a split model. The critics claim that some financial instruments state at fair value. Some loans and receivables (reported assets) with remunerated cost can create an illusion two companies. The notion of one business is looking for two results from similar securities accounting for those securities in different methods (Kimmel, 2013). It is being hinted that possibly IFRS 9 would be revised or replaced as the FASB and IASB, to proceed with the best approach for financial tools.

Reference:

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013). Financial accounting: Tools for business decision making. Hoboken, N.J: John Wiley.

By student Joel

IFRS 9-1: What is component depreciation, and when must it be used?

IFRS requires component depreciation, where as this form of depreciation is rarely used with GAAP. Component depreciation occurs if a significant part of a depreciable asset has a different useful life than the rest of the asset. When this occurs, the company reports the depreciation of each part of the asset as a separate entry to record the useful life for each component of the asset.

Reference

Slimmers, P. D. (2013). Financial accounting: Tools for business decision making. Retrieved from University of Phoenix eBook Collection.

By student Jessica

IFRS 9-2: What is revaluation of plant assets? When should revaluation be applied?

Revaluation of plant assets is used to get the most accurate value of a company's assets such as land, buildings, machinery when the assets declines in value because of the age that is tied to it. A revaluation the positive difference between the fair market value and the original cost minus depreciation. The purpose of revaluation is to get fair market values for the fixed assets like when a company wants to sell an asset it gets revalued for negotiations.  Revaluation should be applied to show fair market value of an assets that has appreciated since its purchase like land. Another reason for revaluation is if company would like to get a loan by mortgaging its assets doing a revaluation of the asset would improve the company's chances of getting a higher amount of loan.

By student Neil

IFRS 9-3: Some product development expenditures are recorded as development expenses and others as development costs. Explain the difference between these accounts and how a company decides which classification is appropriate.

Under GAAP, companies are required to expense all development and research in the income statement. On the contrary, IFRS only the reporting research expenses (Shamrock, 2012). In IFRS, development costs incurred prior to capitalization (before the company could viably make money from the technology) are recorded as development expenses. On the other hand, development costs are those expenses recorded after feasible capitalization. The impact on a firm in reporting is that the development costs are not expensed until the resulting asset is used up. In this approach, only the development prior technological viability achieved impacts the income statement. Once technical feasibility has been attained, a firm can choose reporting development costs as capital expenses. Thus, the expenses are depreciated over the useful life provided by the technology. Both GAAP and IFRS require the expensing of development costs in the current period. The preparation of income statement in conformity to IFRS requires companies to choose the classification that is appropriate.

Reference:

Shamrock, S. E. (2012). IFRS and US GAAP: A comprehensive comparison. Hoboken, N.J: John Wiley.

By student Joel

Explain how IFRS 10-3 defines a contingent liability and provide an example.

According to Kimmel (2013), IFRS does not report contingent liabilities on financial statements. Under IFRS rules, what would be considered a contingent liability under GAAP standards is referred to as a provision. IFRS defines a provision to be a "liability of uncertain timing or amount". According to Christodoulou (2010), "IAS 37 [is] an accounting rule which governs how listed companies write-up a range of difficult-to-define liabilities" (p. 4).  In order to be considered a contingent liability under IFRS standards certain criteria must be met. This includes the possible occurrence or nonoccurence of future events that would make the payment of these past liabilities become current obligations.  Another criteria would be that a future liability is created based on a past event. This could be categorized as a contingent liability under IFRS if the likelihood that economic resources will be used to pay this liability is low or there isn't a significant way to measure the amount of the obligation.

Some examples of what IFRS deems as provisions include employee vacation pay and anticipated losses. These same items would be treated as contingent liabilities under GAAP, however they are deemed as provisions under IFRS standards because they do not meet the criteria that has been established to classify contingent liabilities.

References