Bài giảng môn Kế toán, kiểm toán - Chapter 9: Additional financial reporting issues

Chapter 9:Additional Financial Reporting IssuesLearning ObjectivesExplain the concepts underlying two methods of accounting for changing prices (inflation)—general purchasing power accounting and current cost accountingDescribe attempts to account for inflation in different countries, as well as the rules found in International Financial Reporting Standards (IFRS) related to this issueDiscuss the various issues related to the accounting for business combinations and the preparation of consolidated financial statements (group accounting)Present the approaches used internationally to address the issues related to group accounting, focusing on IFRSDescribe IFRS segment reporting requirements9-2Inflation Accounting – Impact on financial statementsImpact of inflation on financial statementsUnderstated asset valuesOverstated income and overpayment of taxesDiffering rate of inflationDiffering impacts across companies Lack of comparability9-3Purchasing Power Gains and LossesHistorical cost ignores Purchasing power gains and lossesDuring inflation Holding cash and receivablesPurchasing power losses Holding monetary liabilitiesPurchasing power gainsTwo approaches to inflation accounting General purchasing power accounting Current cost accounting9-4Approaches to inflation accounting General purchasing powerAdjusts historical costs of assets Updates currency purchasing power changesReferred as General price-level-adjusted historical cost (GPLAHC) accounting Purchasing power gains and losses included in net income9-5Approaches to inflation accounting Current cost accounting Accounts specific price changes Updates assets valueFrom historical cost to the current cost Referred as Current Replacement Cost Accounting (CRC)Nonmonetary assets restated To current replacement costs Expense items based on restated costsHolding gains and losses included in equity9-6Inflation Accounting InternationallyUnited StatesIn 1979, (FASB)SFAS 33, Financial Reporting and Changing Prices Required large U.S. companies Provide GPP and CC accounting disclosuresIn 1984, (FASB)Discontinued supplemental GPP informationTwo years laterInformation is optional (SFAS 89) Few companies provide Since the 1980s Experienced low rates of inflationInflation accounting lifted9-7Inflation Accounting InternationallyUnited KingdomIntroduced in 1980Statement of Standard Accounting Practice (SSAP) 16Required current cost information RescindedSince the 1980s Experienced low rates of inflationInflation accounting lifted9-8Inflation Accounting InternationallyLatin AmericaLong history of inflationBrazil, Chile, and MexicoSophisticated standardsBrazil abandoned9-9Inflation Accounting InternationallyMexico – Bulletin B-10Restatement of nonmonetary assets and liabilities Central bank’s general price level indexException Option to use replacement cost For inventory and related cost of goods soldImported machinery and equipmentCombination of Country of origin price index Exchange rate between Mexico and country of originBulletin B-10 abandoned in 20079-10Inflation Accounting InternationallyNetherlands – Replacement Cost AccountingAllowed companies to use replacement cost accountingIn 2005, IFRS introduced in Europe9-11Inflation Accounting InternationallyInternational Financial Reporting StandardsIAS 15, Information Reflecting the Effects of Changing PricesIssued in 1981Standard withdrawn Lack of supportRelevant standard now IAS 29, Financial Reporting in Hyperinflationary EconomiesIAS 29 required by companiesLocated in highly inflationary environmentsIAS 21, The effects of Changes in Foreign Exchange RatesRequires restatement of foreign operationsLocated in highly inflationary environments9-12Inflation Accounting InternationallyInternational Financial Reporting StandardsIAS 29 – determines the environmentsRestatement using a general price index Nonmonetary assets Nonmonetary liabilities Stockholders’ equity Income statement items from the time of the transactionPurchasing power gains and losses Included in net incomeComparative InformationRestated previous period informationAdjusted for change in general price index9-13Business Combinations and Consolidated Financial StatementsBusiness Combinations is Acquisition of one business by anotherReferred as Mergers and acquisitions activity Primary expansion mechanism of MNCsDifferent ways Acquired company Ceases to existMerged into acquiring companyMerging companies Legally dissolveNew company formedGroup accountingAccounting for The parent One or more subsidiaries9-14Business Combinations and Consolidated Financial StatementsDetermination of controlLegal control Ownership of more than 50 percent Shares and voting rightsContract Two companiesLegal control of one by other companyEffective control Widely distributed stock ownershipRepresentation on the board of directors9-15Business Combinations and Consolidated Financial StatementsScope of ConsolidationIAS 27, Consolidated and Separate Financial StatementsRequires consolidationParent and subsidiariesNo consolidationSubsidiary intended to be disposed in 12 monthsManagement seeking a buyerSubsidiary is dormantInsignificant operationsU.S. GAAPExclusion of subsidiary not allowedAlthough subsidiary held for sale 9-16Business Combinations and Consolidated Financial StatementsFull consolidationSubsidiary’s financial statement Line-by-line aggregation 100% of the elementsMinority interest A separate item Subsidiary not 100 percent ownedThe non-owned portion MethodsPurchase method or Pooling of interests methodIFRS 3, issued in 2004, Purchase method onlyPooling of interests is no longer acceptable under IFRS, or in the U.S., Canada, Brazil or Mexico9-17Business Combinations and Consolidated Financial StatementsFull Consolidation – Purchase MethodAcquisition of majority of voting shares Assets and liabilities revaluedFair value used for revaluationGoodwillPurchase price minus fair valueIFRS 3, Business CombinationsPurchase method referred as acquisition method9-18Business Combinations and Consolidated Financial StatementsFull Consolidation – GoodwillAccounting for goodwill Significant variation internationallyU.S., IFRS, and most other countries Goodwill capitalized Amortization Over five to 40 yearsIFRS 3Prohibits amortization over useful lifeRequire annual impairment testJapan allows immediate expensing of goodwill9-19Business Combinations and Consolidated Financial StatementsProject for Convergence of U.S. GAAP and IFRSIFRS 3, Business CombinationsSFAS 141(R), Business CombinationsUnifies M&A accounting across capital marketsRemoval from IFRSAccounting of step and partial acquisitionsGoodwill measured asOn acquisition date Difference inValue of investment held plus considerationNet asset acquired9-20Business Combinations and Consolidated Financial StatementsGroup Accounting – Equity MethodThe equity method is used by investors that Do not controlHave significant influence over an investee20% or more ownership of the voting sharesOne-line consolidationRelevant standardsIAS 28, Investment in Associates and Joint VenturesIFRS 11, Joint Arrangements9-21Segment ReportingFacilitatesAnalysis Evaluation of financial statementsIn November 2006 IASB issued IFRS 8, Operating SegmentsConverges IFRS with U.S. GAAPIASB adopted Management approachSegments defined by Line-of-business Geographic area9-22Segment ReportingAn operating segment Earns revenues and incurs expensesOperating results reviewed forPerformance Resource allocationDiscrete financial information availableSignificant ifMeets revenue testMeets profit and loss testMeets asset test 9-23Segment ReportingDifferences between IFRS 8 and U.S. GAAPU.S. GAAP– no disclosure of segment liabilitiesIFRS 8–intangibles included in Long-lived assets For geographic area disclosuresBasis of operating segmentsIFRS 8 allows Products or services or geographic areas U.S. GAAP allows Products or services basis9-24Segment Reporting—DisclosuresGeneral information Segment profit or loss and the following line items:Revenues from external customersIntersegment revenuesInterest revenue and expenseDepreciation, depletion and amortizationSignificant noncash items in segment profit or lossUnusual items (e.g. discontinued operations and extraordinary items)Income tax expense or benefit9-25Segment Reporting—DisclosuresTotal segment assets (and liabilities for IFRS)Investment in equity method affiliatesExpenditures for additions to Long-lived assets (U.S. GAAP) Noncurrent assets (IFRS 8)9-26Entity Reporting—IFRS and U.S. GAAPIFRS and U.S. GAAP require Entity-Wide Disclosures aboutProducts and servicesMajor customers (if 10% or more of total entity revenue)Geographic areas9-27End of Chapter 99-28