INTERNATIONAL

FINANCIAL REPORTING
STANDARDS (IFRS)

PERTEMUAN #4

PROGRAM STUDI AKUNTANSI

AKUNTANSI FAKULTAS EKONOMI DAN BISNIS

INTERNASIONAL
 International Financial Reporting
Standards (IFRSs)
4-2
Chapter Topics
• Basics of recognition and measurement.
• IFRSs: Recognition and measurement of
assets.
• IFRS / U.S. GAAP differences: Recognition and
measurement.
• IFRS / U.S. GAAP differences: Presentation
and disclosure.
 International Financial Reporting
Standards (IFRSs)
4-3
Learning Objectives
1. Describe the requirements of IFRSs on the
recognition and measurement of assets.
2. Explain the differences between IFRSs and
U.S. GAAP on recognition and measurement
issues.
3. Describe the requirements of IFRSs related to
the disclosure of financial information.
 International Financial Reporting
Standards (IFRSs)
4-4
Learning Objectives
4. Explain the differences between IFRSs and
U.S. GAAP on disclosure issues.
5. Use numerical examples to highlight the
differences between IFRSs and U.S. GAAP.
 RECOGNITION AND MEASUREMENT:
SOME BACKGROUND
4-5
Review of important terminology
Assets – resources controlled by the enterprise from
which future economic benefits are expected to flow to
the enterprise.
Recognition – inclusion of items (e.g., assets,
liabilities) into the financial statements with the
amount included in statement totals.

Learning Objective 1
 RECOGNITION AND MEASUREMENT:
SOME BACKGROUND
4-6
Measurement – choice of the attribute by which to
quantify a recognized item. The most commonly used
attributes:
• Historical cost
• Net realizable value
• Current (replacement) cost
• Current market value
• Present value of future cash flows

Learning Objective 1
 RECOGNITION AND MEASUREMENT:
SOME BACKGROUND
4-7
• Historical cost – amount paid to acquire an asset or,
for liabilities, the amount received when the
obligation is incurred.
• Net realizable value – amount of cash (sometimes
the present value) minus collection and other costs
incurred.

Learning Objective 1
 RECOGNITION AND MEASUREMENT:
SOME BACKGROUND
4-8
• Current (replacement) cost – amount needed to acquire
an equivalent asset.
• Current market value – amount of cash received from
an immediate sale of the asset.
• Present value of future cash flows – amount of cash to
be received, discounted at the appropriate interest rate.

Learning Objective 1
 RECOGNITION AND MEASUREMENT: IFRSS

4-9
IFRSs
• Substantially similar to U.S. GAAP.
• However, significant differences do exist.
• An effective way to understand IFRSs is to compare
to U.S. GAAP.
• Describe IFRSs in terms of significant differences
from U.S. GAAP.

Learning Objective 1
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
10 of Differences
Types
• Definitions
• Recognition
• Measurement
• Alternatives
• Lack of requirements or guidance
• Presentation
• Disclosure

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
11 20-F
Form
• Some firms filing Form 20-F initially use IFRSs to
prepare financial statements.
• The Form 20-F of some of these firms can be used
to gain an understanding of IFRS / U.S. GAAP
differences.

Learning Objectives 2 and 4

 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
12 with significant differences
Areas
• Inventory (IAS 2)
• Property, Plant, and Equipment (PP&E) (IAS 16)
• Intangible Assets (IAS 38)
• Impairment of Assets (IAS 36)
• Borrowing Costs (IAS 23)
• Leases (IAS 17)

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
13 2, Inventories – compared to U.S. GAAP
• Requires lower of cost or net realizable value (U.S.
GAAP uses lower of cost or market).
• IAS 2 does not allow use of last-in, first-out (LIFO).
• IFRSs would tend to lead to
• Higher inventory balances.
• Lower cost of goods sold.
• Higher net income compared to U.S. GAAP if LIFO is used.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
14 2, Inventories – compared to U.S. GAAP
IAS
• Allows for capitalization of interest on borrowings
for some inventories.
• Capitalization of interest on inventories will lead to
• Higher inventory balances.
• Lower cost of goods sold.
• Higher net income compared to U.S. GAAP.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS15
2, Inventories – numerical comparison to U.S.
GAAP
Application of lower of cost of net realizable value.
Assume the following:
Historical cost $500
Replacement cost 400
Estimated sales price 450
Estimated disposal costs 25
Normal profit margin 20% of sales price

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
16 2, Inventories – numerical comparison to U.S.
GAAP
Lower of cost or net realizable value using IAS 2
Historical cost = $500

Net realizable value (NRV)

= estimated sales price – estimated selling costs
= $450 - $25 = $425 (lower of cost or NRV)

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
17 2, Inventories – numerical comparison to U.S.
GAAP
Lower of cost or market under U.S. GAAP
Historical cost = $500

Designated market is middle value of NRV ($425), Replacement cost ($400), and NRV –
normal profit margin ($425 - $90 = $335). Designated market is $400 and lower of cost or
market = $400

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
18 2, Inventories – numerical comparison to U.S.
GAAP
The recognized inventory amount under IAS 2 is $425
and under U.S. GAAP is $400.

Note: under U.S. GAAP the $400 now represents historical cost. Under IAS 2, historical
cost remains at $500 which might be used as lower of cost or NRV in future years.

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
19 16, PP&E – compared to U.S. GAAP
IAS
• Subsequent to initial measurement, IAS 16 allows
the two different measurement approaches.
• Historical cost -- (the benchmark treatment)
recognizes the asset at cost less accumulated
depreciation, required by U.S. GAAP.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
20 16, PP&E – compared to U.S. GAAP
IAS
• Revaluation -- (the alternative treatment) requires
that all assets within a class be revalued periodically
• A major difference between IFRSs and U.S. GAAP as fixed assets are often
substantial.
• Revaluation is generally not allowed under U.S. GAAP.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
21 16, PP&E – compared to U.S. GAAP
Accounting for revaluations
• Revaluation increases require a journal entry to
increase the asset to fair value:
Property, plant, and equipment xxxx
Revaluation surplus xxxx

Note: The revaluation surplus is an equity account.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
22 16, PP&E – compared to U.S. GAAP
Accounting for revaluations
• Revaluation decreases require a journal entry to
decrease the asset to fair value:
Expense xxxx
Property, plant, and equipment xxxx

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
23 16, PP&E – numerical comparison to U.S.
GAAP
• Accounting for accumulated depreciation at time of
revaluation. Assume the following as of 12/31/X2:
Historical cost $10,000
Accumulated depreciation 2,000
Current market value 18,000
Ratio of carrying value to cost 80%

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
24 16, PP&E – numerical comparison to U.S.
GAAP, Revaluation adjustment to accumulated
depreciation: Treatment 1

• Asset and accumulated depreciation are restated.

• Restated carrying amount equals current market value.
• The ratio of carrying value to gross carrying amount is
maintained.

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
25 16, PP&E – numerical comparison to U.S.
GAAP: Treatment 1
Original Revaluation Total
Cost
Gross carrying amount $10,000 + 12,500 = $22,500
Accumulated depreciation 2,000 + 2,500 = $4,500
Carrying value $ 8,000 + 10,000 = $18,000

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
26 16, PP&E – numerical comparison to U.S.
GAAP, Revaluation adjustment to
accumulated depreciation: Treatment 2
• Asset is first decreased by the amount of
accumulated depreciation.
• Asset account is then increased by the amount of the
revaluation (current market value – carrying value).

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
27 16, PP&E – numerical comparison to U.S.
GAAP: Treatment 2

Accumulated Depreciation 2,000

Asset 2,000
Asset 10,000
Revaluation surplus 10,000

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
28 38, Intangible Assets
IAS
• Purchased intangibles.
• Intangibles acquired in a business combination.
• Internally generated intangibles.
• Does not address Goodwill (see IAS 3).

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
29 38, Intangible Assets – compared to U.S.
GAAP
• Purchased intangibles – consistent with U.S. GAAP
except that fair value is used in some cases.
• Intangibles acquired in a business combination –
consistent with U.S. GAAP except that in-process
development costs are capitalized.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
30 38, Intangible Assets – compared to U.S.
GAAP internally generated intangibles
• Major difference with U.S. GAAP.
• U.S. GAAP (SFAS 2) requires expensing of almost
all Research and Development (R&D) costs.
• IAS 38 allows capitalization, also called deferral, of
many development costs.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
31 38, Intangible Assets – numerical comparison
to U.S. GAAP
Internally generated intangibles – Development
Costs. Assume the following:
• Development costs of $100,000 during 2005
• 70% of costs qualify for capitalization
• Product sales begin on January 2, 2006
• Five years of sales expected
• Capitalized costs amortized on a straight-line basis

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
32 38, Intangible Assets – numerical comparison to
U.S. GAAP
Internally generated intangibles – Development
Costs
2005: Accounting treatment under IAS 38
Development expense 30,000
Deferred development costs 70,000
Cash, payables, etc. 100,000

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS33
38, Intangible Assets – numerical comparison to U.S.
GAAP
Internally generated intangibles – Development Costs
2006: Accounting treatment under IAS 38
Amortization expense 14,000
Deferred development costs 14,000

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
3438, Intangible Assets – numerical comparison to
U.S. GAAP
Internally generated intangibles – Development Costs
2005: Accounting treatment under U.S. GAAP
Development expense 100,000
Cash, payables, etc. 100,000
2006: Accounting treatment under U.S. GAAP
No entry

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
3536, Impairment of Assets – compared to
U.S. GAAP
• Has lower threshold for impairments, sometimes results in
impairments when U.S. GAAP does not.
• For assets considered impaired under U.S. GAAP,
impairment is carrying amount minus fair value.
• Impairment is carrying amount minus the greater of net
selling price or value in use. This is likely to differ from fair
value.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
3636, Impairment of Assets – compared to
U.S. GAAP
• Allows for reversal of impairment loss in subsequent
periods when recoverable amount exceeds carrying value.
• U.S. GAAP prohibits such reversals.
• Impairment test for goodwill requires both a bottom-up
and top-down test.
• U.S. GAAP requires only a bottom-up test.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
37 36, Impairment of Assets – numerical
comparison to U.S. GAAP
Assume the following:
Carrying value $440
Selling price 400
Cost of disposal 25
Expected future cash flows 450
Present value of expected future cash flows 380

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
38 36, Impairment of Assets – numerical
comparison to U.S. GAAP
Impairment under IAS 36
Value in use $380
Net selling price 375
Recoverable amount $380 (greater of these two)
Impairment loss = carrying amount – recoverable amount =
$440 – 380 = $60

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IAS
39 36, Impairment of Assets – numerical
comparison to U.S. GAAP
• Impairment under U.S. GAAP
• Carrying amount of $440 is less than expected future
(undiscounted) cash flows of $450.
• No impairment.

Learning Objective 5
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
40 23, Borrowing Costs
IAS
• U.S. GAAP (SFAS 34) requires capitalization of
interest on borrowings attributable to construction,
acquisition, or production of qualifying assets.
• Capitalization of interest is the benchmark treatment
under IAS 23. However, an alternative treatment
allows for expensing of all interest.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
41 23, Borrowing Costs
IAS
• Explicitly allows for capitalization of interest on
borrowing for the production of some inventories.
• U.S. GAAP explicitly prohibits the capitalization of
interest on borrowings for production of most
inventories.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
4217, Leases
IAS
• Distinguishes between operating and finance (capital)
leases in much the same way as U.S. GAAP (SFAS 13).
• The criteria for classifying a lease as either operating or
finance is less detailed than U.S. GAAP
• Leases is often used as an example in arguing that U.S.
GAAP is rules-based and IFRSs are principles-based.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
• 43 lease criteria, IAS 17
Finance • Capital lease criteria, SFAS 13
• Lease transfers ownership. • Lease transfers ownership.
• Bargain purchase option. • Bargain purchase option.
• Lease term is for the major part of • Lease term is for 75 percent of the
the leased asset’s economic life. leased asset’s economic life.
• Present value of minimum lease • Present value of minimum lease
payments equals substantially all of payments equals 90 percent of the
the fair value of the asset. fair value of the asset.
• The leased asset is specialized so that
only the lessee can use it.

Learning Objective 2
 RECOGNITION AND MEASUREMENT: IFRSS AND U.S.
GAAP COMPARED
4-
IFRSs
44 and U.S. GAAP differ somewhat in each
of the following areas
• Cash Flow Statements (IAS 7) – Classification of dividends
and interest paid is more flexible under IFRS.
• Segment Reporting (IAS 14) – U.S. GAAP requires
management approach, IFRS is more flexible as of March
2005. This item is part of short-term convergence project.
• Interim Financial Reporting (IAS 34) – U.S. GAAP treats
interim periods as integral part of the full year.

Learning Objectives 2 and 3

45
SEKIAN
DAN
TERIMA KASIH