MILESTONE TWO-----

ACC

November 28, 2016

B. Interim financial reports are prescribed in AS 25 and its objective is to describe the minimal requirements of interim financial reports and the principles of measurement and recognition. Interim financial reports must include the notes to accounting policies used, cash flow statements, profit and loss statement and the company's balance sheet as well as an additional explanatory materials of interest. In the notes to interim reports, the following information should be included as long as it has not been disclosed anywhere else:

· material events subsequent to the end interim period

· explanatory statements about the seasonality of interim operations

· Issuances, repayments, buybacks and restructuring of equity, debt and any potential equity shares.

· The nature and the amount of items that affect assets and the liabilities of the company as well as the net income and cash flow statements.

· In addition, it should disclose the material changes in the contingent liabilities since the last time balance sheet date.

Interim financial statements stipulated guidance under GAAP and IFRS

· The interim report is required to be fulfilled by an officer of the company.

· The report committee should consist of up to six members, directors of the company's

· Financial statements should be in compliance with the IFRS if the complete set of financial statements is published in the interim report

· If the financial statements were consolidated, the statements should be Group financial statements.

· Interim report must have the most recent annual financial statements

C. Hypothetical financial statement

Shown on the excel

D) Differences between the IFRS and the GAAP

GAAP

GAAP views interim periods as integral part of the annual report period. The financial costs occurred in one accounting interim period and affect other accounting periods can be allocated between the affected accounting periods. GAAP requires that accounting entities should use the world wide tax rates when estimating taxes in preparing these reports.

IFRS

The guidance related interim reports under IFRS views each interim period as discrete in reporting with the exception of income taxes.

In IFRS, if there are costs shared by more than one period, the regulations require that such costs should be defined at the end of the reporting period and deferred the subsequent reporting periods. It’s a cost, it would meet the basic definition of an asset while if liabilities, they should be able to represent current liability at the end of each reporting period.

The regulations requires that tax rates used should be unique for each jurisdiction

E)

1. Companies identifies the segments which can be reported after examining their structure and the systems of reporting which they employ. Segmentation is usually based on the products and services offered by the company or the location of its assets. The reports prepared for the company's CEO and CFO should be used as a basis for determining how segmentation would be carried out.

2. Interim financial reports are supposed to reflect transparency in presenting the financial position of the company. Stakeholders must access complete financial information in order to be able to evaluate the financial position of the company and also monitor the performance of the company's management. The main objective of standards of GAAP and IFRS is to ensure that companies and other entities which are accountable to the public are able to present the fair position of the company's financial position for investors and other stakeholders to make informed decisions. In this regard, the regulations stipulates that organizations with different segments must present the financial statements for each segment separate. This is because the performance of each different business is affected by unique factors. Hence, such financial reports which segregate each segment present fair financial information can enable the users of financial reports to predict the future performance of the company accurately.

3. Corporates which have diversified interests must provide the financial information for each segment so as to enable the investors to make accurate and sound investments decisions based on the financial performance of the company as a whole.

1. Foreign exchange rates effects

Basically, the performance of the company is affected in the following ways:

· Exports: When a firm exports products and the sales proceeds are to be realized at a specified date in the future, increase in rates may increase the amount of proceeds while decrease would lead to lower than agreed proceeds being received. Company's tend to lock their loses through financial markets by entering into futures contracts

· Exports: The prices of imports is affected significantly where the company's base currency is not to be used in transactions. If its value of base currency decreases compared to the value of currency which would be used in making settlement, the company gains while strengthening of the base currency against the foreign currency leads to higher payments that agreed being made by the company.

· In addition, expenses incurred by the company which have to be settled in foreign currencies are affected in a similar manner.

· Investment risk: This may occur as a result of errors made in forecasting the future technological changes and costs related to foreign investments

· Default /Credit: The risk inherent to the company which may occur as a result of decreased credit ratings of entities in which the firm holds portfolio or to investors who hold portfolio in foreign entities which suffer lower credit ratings and are in high risk of default

· Financial risk: This is risk inherent due to uncertainties associated with foreign currency exchange rates, liquidity positions, credit ratings and interest rates which have an impact on the financial performance of the firm.

· Interest rate risk: This is the risk inherent to a company as a result of changes in interest rates. Increase in interest rates would affected the performance negatively while decrease in interest rates would have positive impact on the performance of the company.

· Political risk: This is risk inherent to a company which may occur as a result of political turbulence in foreign owned segments. For instance, government revolutions and coup d’état.

· Foreign exchange rates risk: This is risk of losses due to adverse movements in foreign exchange rates for all financial instruments held in foreign currencies.

· Market risk: It refers to the daily fluctuations of the stock market prices which are influenced by many factors pointing to the performance of the firm as perceived by investors.

2. Translation methods

· Currency rate method

This method is used when the local currency is being translated is the same as the foreign currency

· Temporal rate method

It is used when there the local currency is different from the foreign currency.

3.

Hypothetical example: Suppose that Walmart has a subsidiary in South Africa. Walmart is an American chain stores firm and its subsidiary store in South Africa reported the following balance sheet numbers: Numbers are reported in Local currency (South African Rand)

Current assets 500,000.

Fixed assets = 3100000

Total assets = 3600000

Current liabilities = 200000

Long term debt = 1400000

Equity = 2000000

Total liability and equity = 3600000

Here, the USD/Rand is used to translate the items in the balance sheet to USD using the current exchange rate which is 1 South Africa rand = $0.07. However, the equity items are translated using the rates which are applicable during the time the equity was issued. Assuming at the issuance date the exchange rates were 1South African Rand = $0.06, the cumulative balances will be shown as the cumulative translation adjustment.

Now, the balance sheet items in USD will be shown as:

So, current assets in USD will be 500,000*0.07 = $35,000.

Fixed assets = 3,100,000*0.07 = $217,000.

Total assets = $252,000.

Current liability 200,000*0.07 = $14,000.

Long term debt = 1,400,000*0.07 = $98,000.

Equity 2000, 000*0.06 = $120,000.

Total liability and equity = $232,000

Difference = 252,000 - 232,000

= $20,000 (assets – liabilities) is the CTA and it’s shown as such in the balance sheet

Temporal rate of translation

When using this method, the exchange rates at the time of acquisition of assets and liabilities are used.

The exchange rate used is the current exchange rates for the current assets, while for fixed assets, the historical exchange rates are used. The exchange rate at the time when equity was issued is used.

References

FASB/IASB Joint Transition Resource Group for Revenue Recognition. (2016). Fasb.org. Retrieved 2 December 2016, from http://www.fasb.org/jsp/FASB/Page/LandingPage&cid=1176164065747

Interim Financial Reporting. (2016). Iasplus.com. Retrieved 2 December 2016, from http://www.iasplus.com/en/standards/ias/ias34

IFRS and US GAAP: similarities and differences — 2016 edition. (2016). PwC. Retrieved 2 December 2016, from http://www.pwc.com/us/en/cfodirect/publications/accounting-guides/ifrs-and-us-gaap-similarities-and-differences.html

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