BUS 700 Problems in Financial Reporting Final Exam 100 pts

The answers to all questions should be in your own English words. However, I expect you to refer to
authoritative accounting and financial reporting literature (FASB - Accounting Standards Codification and
IASB - Unaccompanied IFRS. For IASB pronouncements you may need to go to Murphy Library or other
sources to read the accompaniments to IFRS. There are 3 copies of IFRS 2009 in on reserve at Murphy.
Most of the information in this edition is still valid. When you refer to authoritative accounting and
reporting literature, you must cite your references within your answers.

The first four questions are compulsory. Choose either question five (Business Combinations) or
question six (Consolidations) as your fifth required question.

Financial Instruments
IAS 32, IAS 39, IFRS 7, IFRS 9 (not yet effective)
ASC 825 - Financial Instruments
ASC 815 - Derivatives and Hedging
Required:
a. There are 4 categories of financial assets under IFRS and 3 categories under ASC 825. Discuss the
amount at which each category is initially recognized and how changes in the initially recognized
amounts are reported in the balance sheet and in the statement of comprehensive income for each
category. Include in your answer your opinion as to the appropriateness of each of these financial
reporting treatments.
b. Consider IAS 39 in responding to this question. An entity controls a portfolio of loans. The entity
seeks to remove (derecognize) the portfolio from its financial statements. IAS 39 includes a
derecognition application chart in the application guidance. Propose to the entity's management how a
transaction could be arranged to achieve derecognition of the portfolio in compliance with IAS 39.

Leases
IAS 17
Joint FASB/IASB Exposure Draft ED/2010/9 - Leases
ASC 840 - Leases
Required:
a. ASC 840 and IAS 17 have similar lease classification criteria, though there are significant differences.
Lease accounting under ASC 840 is sometimes referred to as an example of "bright line" accounting.
Discuss the advantages and disadvantages of such "bright line" accounting as compared with the
substance over form approach used in IAS 17.
b. Comment on the leasing exposure draft, specifically with respect to lease classification.
Share-based Payments
IFRS 2
ASC 718 - Compensation–Stock Compensation
Required:
The long standing debate about how to measure share based payments as a form of employee
compensation should be measured and how those measurements should affect the financial statements
has resulted in both IASB and FASB issuing guidance requiring entities to recognize the fair value of
share based payments to employees and to allocate that fair value to both current earnings and equity
during the vesting period. Discuss the reasons why this required treatment is so controversial.

Earnings Per Share

IAS 33
ASC 260 - Earnings Per Share
Required:
Something like this question appears at the end of IFRS Primer Chapter 27 EPS. Discuss the merits of
allowing companies to choose between an earnings per share presentation based on profit/loss versus
comprehensive income for the period.

Business Combinations
IFRS 3
ASC 805 - Business Combinations
Required:
Both IASB and FASB require that the acquirer measure a business combination at fair value of
consideration transferred compared with fair value of net identifiable assets acquired, with any
difference reported as goodwill if there is excess consideration or in profit/loss if there is excess fair
value acquired. Discuss the alternative reporting treatments that could have been adopted by IASB and
FASB.

Consolidated Financial Statements

IAS 27 and SIC 12
ASC 810 - Consolidation
Required:
The importance of consolidated financial statements revolves around the concept of economic
substance over legal form of a group of entities under the control of a parent. Enron created many
entities known as special purpose entities (SPE) also known as variable interest entities (VIE) and special
purpose vehicles (SPV). Discuss why it is important for all entities over which the parent has the ability
to exercise control to be consolidated with the parent,