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HaNoi National
University h tp:
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INTERNATIONAL ACCOUNTING

International Financial Reporting

Standards: Part II

Hanoi, 2023
 International Financial Reporting
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Standards—Part II

Chapter Topics
• Current Liabilities
• Provisions, Contingent Liabilities, and Contingent Assets –
IAS 37
• Revenue Recognition IFRS 15
• Financial instruments IFRS 9, IAS 32, IFRS 7
• Leases - IFRS 16
• Employee Benefits- IAS 19
• Share-Based Payment – IFRS 2
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• Income Taxes IAS 12

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 International Financial Reporting
Standards—Part II
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Learning Objectives
1. Describe and apply the requirements of IFRS related to
the financial reporting of current liabilities, provisions,
employee benefits, share-based payment, income
taxes, revenue, and financial instruments.

2. Explain and analyze the effect of major differences

between IFRS and U.S. GAAP related to the reporting
of current liabilities, provisions, employee benefits,
share-based payment, income taxes, revenue, and
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financial instruments.

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 1. Current Liabilities
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IAS 1, Presentation of Financial Statements:

• Requires liabilities to be classified as current or
noncurrent
• Current liabilities:
– Expects to settle in its normal business cycle
– Holds primarily for the purpose of trading
– Expects to settle within 12 months of the balance
sheet date
– Does not have the right to defer until 12 months after the
balance sheet date
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 1. Current liabilities
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Classification and accounting for current liabilities under IFRS is

similar to US GAAP, but there are still differences relate to:
• Refinanced short-term debt– Under IFRS, may be reclassified as
long-term debt only if refinancing is completed prior to the
balance sheet date. Under U.S. GAAP, a refinancing
agreement must be reached, but the refinancing need not be
completed by the balance sheet date
• Accounts payable on demand due to violation of debt covenants—
must be current unless lender issues waiver of at least 12 months
by balance sheet date. The waiver must be obtained, under U.S.
GAAP, by annual report issuance date.
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• Bank overdrafts—IFRS: netted against cash if the overdrafts form an

integral part of cash management—otherwise current liabilities. Under
U.S. GAAP, bank overdrafts are always classified as current liabilities.
 2. IAS 37 Provisions, Contingent Liabilities,
and Contingent Assets
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Provisions and contingent liabilities

• A provision is a liability of uncertain timing or amount.
• A liability is a current obligation to transfer an economic resource
as a result of past event.
• A provision should be recognized when ALL 3 recognition criteria
are satisfied:
– An entity has a present obligation (legal or constructive) as a
result of a past event.
– It is probable (more likely than not) that an outflow of economic
resources will be required to settle the obligation.
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– A reliable estimate can be made of the amount of the obligation.

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 2. IAS 37 Provisions, Contingent Liabilities,
and Contingent Assets
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Provisions and contingent liabilities

•An obligation can be legal or constructive:
– A legal obligation derives from a contract or legislation.
– A constructive obligation derives from the actions of an entity where:
• An established pattern of past practice, published policies or a
specific statement has indicated to other parties that the entity
will accept certain responsibilities
• The entity has created a valid expectation on the part of those
other parties that it will discharge those responsibilities
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 2. IAS 37 Provisions, Contingent Liabilities,
and Contingent Assets
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A contingent liability is:

• A possible obligation that arises from past events whose existence will
be confirmed only by the occurrence of one or more future events not
wholly within the control of the entity; or
• A present obligation that arises from past events but which is not
recognized because:
– It is not probable that an outflow of economic benefits will be required
to settle the obligation; or
– The amount of the obligation cannot be measured with significant
reliability.
• Contingent liabilities are not liabilities and are not recognized in the
FSs. They are disclosed in the notes, unless the possibility of resource
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outflow is remote.

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2. IAS 37 Provisions, Contingent
Liabilities, and Contingent Assets
Example: Litigation provision

Former employees of Dreams Unlimited Inc. filed a

lawsuit against the company in Year 1 for alleged age
discrimination. At December 31, Year 1, external legal
counsel provided an opinion that it was 60% probable
that the company would be found liable, which would
result in a total payment to the former employees
between $1,000,000 and $1,500,000, with all amounts
in that range being equally likely.
 2. IAS 37 Provisions, Contingent Liabilities,
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and Contingent Assets

Onerous Contract
• An onerous contract is a contract in which the
unavoidable costs of meeting the obligation of the
contract exceed the economic benefits expected to be
received from it
• If onerous from entity's own action--no recognition until
that action happens.
• Where an onerous contract exists, the entity should
provide for the net loss which is the lower of cost of
fulfillment or penalty from non-fulfillment.
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 2. IAS 37 Provisions, Contingent Liabilities,
and Contingent Assets
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Onerous Contract
Example: Delicious Chocolate Company produces chocolate candies. It
has a noncancelable lease on a building in Ridgeway, South Carolina, that
it uses for production. The lease expires on December 31, Year 2, and is
classified as an operating lease for accounting purposes. The annual lease
payment is $120,000. In October, Year 1, the company closed its South
Carolina facility and moved production to Mexico. The company does not
believe it will be possible to sublease the building located in South
Carolina. Because there is no future economic benefit expected from the
lease, it is an onerous contract.
(1) Is there a present obligation at the year end of 31 Dec Year 1?
(2) What will appear in respect of the contract in financial statements
for the year ended 31 Dec Year 1?
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 2. IAS 37 Provisions, Contingent Liabilities,
and Contingent Assets
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Restructuring
• A program planned and controlled by management that materially
changes either scope of business or manner in which business is
conducted.

• Such as sale or termination of line of business, closure of location,

change in management structure, material reorganization which
changes nature and focus of operations.

• IAS 37 allows to provide restructuring provision when an entity has a

detailed formal plan and it has raised a valid expectation by
affected parties. The cost of the restructuring must be reasonably
estimable and the plan must be carried out within a reasonable period
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of time
• U.S. GAAP doesn’t allow restructuring provision until liability incurred,
so may occur later than under IFRS. INTERNATIONALSCHO
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 2. IAS 37, Provisions, Contingent Liabilities,
and Contingent Assets
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Contingent Assets
• A contingent assets is a probable asset arising from past events whose
existence will be confirmed by occurrence or non-occurrence of future
event.
• Don’t recognize in balance sheet—disclose in the notes when probable
inflow of economic benefits.
• Recognize as asset when virtually certain.
• Earlier recognition of contingent asset and related gain than U.S. GAAP,
which generally requires realization before recognition.
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 Contingent asset & liability

Probability Economic resource inflow Economic resource

(asset) outflow
(Liability)
Virtually Balance sheet (as a receivables) Balance sheet (provision)
certain
(90%)
Probable Disclose in the Notes Balance sheet (provision)
(50%)

Possible No disclosure Disclose in the Notes

(20- less
50%)
Remote No disclosure No disclosure
(less than
20%)
 3. IFRS 15 Revenue from
contracts with customers
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• IAS 18 and its American equivalent accounting standard

codification (ASC 606) represent one of significant examples
of accounting convergence. They are closely aligned and
come into force from 2018 fiscal years.

• U.S. GAAP has over 200 different authoritative pronouncements,

so difficult to compare IAS 18 and U.S. GAAP .
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 3. IFRS 15 Revenue from
contracts with customers
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5 Steps model in the recognition of revenue:

1. Identify the contract with a customer:
A contract is within the scope of IFRS 15 only when:
- Written, verbal or implied contract: For example: food order in a restaurant
- Contract must be approved => signed/confirmed verbally
- Commercial substance: some gain or loss.
- Payment term and each party right can be identified
- Probable that the entity will collect the economic benefit
2. Identify the separate performance obligations (PO) in the contract.
A performance obligation is a promise in a contract with a customer to
transfer a good or service to the customer.
The entity must evaluate all of promised goods and services to determine
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whether they are separte POs?

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 3. IFRS 15 Revenue from
contracts with customers
5 Steps model in the recognition of revenue:
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3. Determine the transaction price

Transaction price: The amount of consideration to which an entity expects
to be entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties.
Note:
1. Discount to present value if material
2. If consideration include variable or contingent consideration, the
transaction price should be determined using expected value.
4. Allocate the transaction price to each separate PO.
Transaction price should be allocated to all separate POs in proportion to
the standard-alone selling price of the goods or service underlying each
PO.
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5. Recognize the revenue allocated to each performance obligation

when the entity satisfies each POs.
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 3. IFRS 15 Revenue from
contracts with customers
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Example:
Eg. FPT has a financial year end 31 March. On 1 Jan, they secured a
contract with a multinational bank to supply smart phone to many employees
of the bank and give them one year of unlimited access to the network. The
contract price per unit is $432 per unit. This is payable in full 30 days after
the contract commences. At the end of the contract, the phone will not be
returned. The company normally charges a monthly fee of $20 per month per
unit for unlimited access to the network and $240 for a smart phone.
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 3. IFRS 15 Revenue from
contracts with customers
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Variable consideration example: Sale of goods with a right

of return
Lighten is an US company which manufacture lighting fixtures enters into a
contract with a Mexican company that will distribute Lighten’s products
locally. In Jan, year 1, Lighten ships $2,000,000 of lighting fixtures to the
Mexican distributor. The distributor has the right to return products to Lighten
over the subsequent 3 months if they cannot be sold.
Suppose that initially, Lighten’s accountants estimate that 10% of the goods
sold will be returned.
After that, until 31 Mar, the Mexican distributor returned 8% of fixtures and
Lighten has returned the money back to the distributor.
Required: Prepare journal entries for this transaction.
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 3. IFRS 15 Revenue from
contracts with customers
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Customer Loyalty Programs

Redjet Airways, a regional air carrier, has a frequent-flyer program in
which customers receive one point for each mile flown on Redjet
flights. Frequent-flyer program members can redeem 30,000 points
for a free domestic flight, which, on average, would otherwise cost
$600. During Year 1, Redjet awarded 1,000,000 points to its customers
on flights with total ticket sales of $600,000. Frequent-flyer points
expire two years after they are awarded. Redjet expects that only 10
percent of points will expire unredeemed.

By the end of Year 1, frequent-flyer program members had redeemed

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300,000 points for free tickets.

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 4. Financial Instruments
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Three Standards
• IAS 32, Financial Instruments: Presentation.
• IFRS 7, Financial Instruments: Disclosure
• IAS 39, Financial Instruments: Recognition and Measurement
(IFRS 9, Financial Instruments, in November 2009 to begin
the process of replacing IAS 39; IFRS 9 becomes effective in
2015)
Definitions
• IAS 32 says a financial instrument is any contract that
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gives rise to both a financial asset of one entity and a

financial liability or equity instrument of another entity.
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 4. Financial Instruments
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Definitions (continued)
• Financial asset is any asset that is:
– Cash
– An equity instrument of another entity.
– Contractual right to:
• Receive cash or other financial asset
• Exchange financial assets or financial liabilities under
potentially favorable conditions
Examples of financial assets include cash, receivables, loans
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made to other entities, investments in bonds and other debt

instruments, and investments in equity instruments of other
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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: 4. Financial Instruments

Definitions (continued)
• Financial liability is any liability that is:
– A contractual obligation to:
• Deliver cash or another financial asset
• Exchange financial assets or financial liabilities under
potentially unfavorable conditions
– A contract that will or may be settled in the entity’s own equity
instruments.
Examples of financial liabilities include payables, loans from other entities
(including banks), issued bonds and other debt instruments, and obligations
to deliver the entity’s own shares for a fixed amount of cash
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• Equity instrument—any contract that evidences a residual

interest in the assets of an entity after deducting all its
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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: 4. Financial Instruments

Financial liability or equity

• IAS 32 requires financial instruments to be classified
as financial liabilities or equity or both based on the
substance of the contractual agreement.
• Redeemable preferred shares
Example: On 29 Oct, Griglia Company issued $1,000,000
of 5 percent preferred shares at par value. The preferred
shareholders have the right to force the com- pany to
redeem the shares at par value if the Federal Reserve
Bank interest rate rises above 5 percent. On December
10, Year 3, the Federal Reserve Bank interest rate
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reaches that level.

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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: 4. Financial Instruments

Financial liability or equity

• Compound financial instruments
• A compound financial instrument contains both a liability
element and an equity element. It should be split into two
components that are reported separately – split accounting.
• Eg. Sharma issued $2 million of 4% convertible bonds at par
value. The bonds have a 5 year life with interest payable
annually. Each bond has a face value of $1,000 and is
convertible at any time up to maturity into 250 shares of
common stock. At the date of issue, the interest rate for
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similar debt without a conversion feature is 6%.

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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: 4. Financial Instruments

Financial liability or equity

• Compound financial instruments
Yr Cash flows $ 6% Present value $
1 80,000 0.9434 75,472
2 80,000 0.89 71,200
3 80,000 0.8396 67,168
4 80,000 0.7921 63,368
5 2,080,000 0.7473 1,554,384
Liability element 1,831,592
Equity element 2,000,000 – 1,831,592 168,408

• Dr Cash: $2,000,000
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• Cr Bond payable (liability) 1,831,592

• Cr Paid-in capital (equity) 168,408
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 4. Financial Instruments
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Classification and measurement of Financial Assets

and Liabilities (IFRS 9)
• Initial—fair value (normally = amount paid or received).
• Subsequently measured according to the rules of category
into which they are classified.
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 4. Financial Instruments
Financial asset

FVTPL Amortised Cost FVTOCI

- Initial measurement:
Fair value of the - Initial measurement: fair - Initial measurement: fair
consideration given value of the consideration value of the consideration
given or received + given or received +
- Transaction cost goes transaction cost transaction cost
directly to PL

-Subsequence Subsequence measurement: Subsequence

measurement: All changes - Amortised cost adjustment measurement:
in FV will go to PL using effective interest rate. - Changes in FV will go to
- Gains and losses are OCI.
recognized in PL as a result of - Dividend income for
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the amortisation process and equity Linstrument will go
when the asset is to PL.
derecognized.
 4. Financial Instruments

Financial liabilities

FVTPL Amortised cost

- Initial recognition: - Initial recognition:

Proceed received Proceed received
- Transaction cost less trading cost
goes directly to PL

- Subsequent
- Subsequent measurement: Amortised
measurement: All cost adjustment using
changes in FV will go
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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: 4. Financial Instruments
Example: financial liabilities measured at amortized
cost
• On 1 Jan, year 1 Keane issued $1,000,000 of 5% bonds at face value.
The bonds pay interest annually and mature on 31 Dec Year 2. The
company incurred bank and legal fees of $70,000 in conjunction with
issuing the bonds. The bonds are measured at amortized cost. Effective
interest rate is 8.9781%.
• Required: Prepare journal entries related to the bonds

Year Beginning balance Interest expense Interest paid Closing balance

(8.9781%)
1 930,000 83,496 50,000 963,496
2 963,496 86,504 50,000 1,000,000

• 1 Jan Year 1:
Dr Cash: 1,000,000
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Cr Bond payables: 1,000,000

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 4. Financial Instruments
Example: financial liabilities measured at amortized
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cost
• 31 Dec Year 1:
• Interest expense:
Dr Interest expense (930,000*8.9781%) $83,496
Cr Bonds payable: $83,496
• Interest paid:
Dr Bonds payable (1,000,000 * 5%) 50,000
Cr Cash 50,000
• 31 Dec Year 2:
• Interest expense:
Dr Interest expense (963,496*8.9781%) $86,504
Cr Bonds payable: $86,504
• Interest paid:
Dr Bonds payable (1,000,000 * 5%) 50,000
Cr Cash 50,000
• Principle paid:
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Dr Bonds payable: 1,000,000

Cr Cash: 1,000,000
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 4. Financial Instruments
Example: Financial assets at FVOCI
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Porfirio purchases marketable equity securities for $20,000 on 15 Oct, Year

1. At the time of purchase, Porfirio makes an election for accounting the
investment using FVOCI. On Dec 31, the end of Porfirio’s fiscal year, the
securities have risen in value to $22,000. Porfirio sells the securities on 1
Feb year 2 for $23,000.
Required: how will the company account for this investment?
- 15 Oct Year 1:
Dr equity investment – FVTOCI: 20,000
Cr Cash: 20,000
- 31 Dec Year 1:
Dr equity investment – FVTOCI: 2,000
Cr OCI: 2,000
- 1 Feb Year 2:
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Dr Cash: 23,000
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Cr OCI: 1,000
 5. Leases
Lease contracts are previously ruled by IAS 17. From 2019, IFRS 16 takes
effect and surpass IAS 17.
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Under IAS 17
Both lessor and lessee need to classify the lease as either
finance or operating.
A finance lease is a lease that transfers substantially all the
risks and rewards incidental to ownership of an asset. Legal
title may or may not eventually be transferred.
An operating lease is a lease other than a finance lease.
Leasor Leasee
Operating - Recognize the leased asset in the - Do not show the leased asset
lease BS. and liability in the BS
- Recognize lease income as an - Recognize lease payments as an
income in PL over the lease term expense in PL
Finance - Remove the leased asset from BS - Recognize an asset and a lease
lease and recognized a lease receivable, liability in the BS.
instead. - Recognize the depreciation
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- Recognize finance income in the PL expense & finance expense in

the PL

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 5. Leases
Example: Speedy signs a 3 year lease contract for 10 new delivery vans on
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1 Jan Year 1. The market value of a new vans is $30,000 and its useful life is
8 years. According to lease contract, Speedy has to pay annual lease
payments of $60,000 at the end of each year of the lease. Assume that
Speedy’s borrowing rate is 8%.
Required: Accounting for the above transactions under IAS 17 and IFRS 16

Answer: Under IAS 17

Leasor Leasee
1 Jan year 1: no entries No entries
31 Dec Year 1: 31 Dec Yr 1:
Dr Cash: 60,000 Dr rent expenses: 60,000
Cr Rent revenue: 60,000 Cr Cash: 60,000
Dr Depn expense (300,000/8) 37,500
Cr Acc. Depn 37,500
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Year 2, 3: the same as year 1 Year 2,3: the same as year 1

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 5. Leases
IFRS 16
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IFRS 16 introduces a single lessee accounting model and requires a lessee

to recognize a right-of-use asset and a lease liability for all leases except
for:
- Short-term leases of 12 months or less.
- Low value leases: Underlying assets has a low value when new.
Meanwhile IFRS 16 maintain dual model for lessor accounting (financial vs.
operating) lease. signs a 3 year lease contract for 10 new delivery vans on
Example: Speedy
1 Jan Year 1. The market value of a new vans is $30,000 and its useful life is
8 years. According to lease contract, Speedy has to pay annual lease
payments of $60,000 at the end of each year of the lease. Assume that
Speedy’s borrowing rate is 8%.
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Required: Accounting for the above transactions under IAS 17 and IFRS 16

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 5. Leases
Under IFRS 16: Leasor accounting is the same as under IAS 17.
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Leasee accounting:
1 Jan Year 1: present value of lease payment
Year Payment Discount factors 8% Present value
1 60,000 0.9259 55,554
2 60,000 0.8573 51,438
3 60,000 0.7938 47,628
Total 154,620

Dr Right of use asset: 154,620

Cr Lease liability: 154,620
31 Dec Year 1:
- Depreciation of right of use asset: 154,620/3 =51,540
Dr Depn expense: 51,540
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Cr Acc. Depn: 51,540

- Unwinding of lease liability: 154,620*8% = 12,370
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Dr Interest expense: 12,370 L

Cr Lease liability: 12,370

 5. Leases
Under IFRS 16: Leasor accounting is the same as under IAS 17.
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Leasee accounting:
1 Jan Year 1: present value of lease payment
31 Dec Year 1:
Lease payment:
Dr Lease liability: 60,000
Cr Cash: 60,000
=> Lease liability at 31 Dec Y1: 154,620+12,370 – 60,000 = 106,990
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 6. IAS 19, Employee Benefits
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• Covers all forms of employee compensation and benefits

other than share-based compensation (e.g. stock options).
Share-based payment is covered in IFRS 2.
• Four types of employee benefit:
– Short-term (compensated absences and bonuses): employee benefits
expected to be settled wholly within 12 months after reporting date.
– Post-employment ( pensions, medical benefits, etc.): employee
benefits (other than termination benefits) payable after the completion
of employment.
– Other long-term benefits (deferred compensation and disability). all
employee benefits other than short-term employee benefits, post-
employment benefits and termination benefits.
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– Termination benefits (severance and early retirement). employee

benefits provided in exchange for the termination of an employee’s
employment
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 6. IAS 19, Employee Benefits
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Short-term benefits
• General rules: an employer recognizes expense and
liability at time services provided—undiscounted.

• Accrue compensated absences (sick/vacation pay) only if

accumulate over time and can be carried forward to future
periods— otherwise expense as incurred.

• Profit sharing and bonus plans—accrue only if the company

has a present legal or constructive obligation from past
events and the amount can be reliably estimated.
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 6. IAS 19, Employee Benefits
Post-employment benefits
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• Distinguishes between defined benefit and defined

contribution plans.
• Defined contribution plans:
− post-employment benefit plans under which an entity pays fixed
contributions into a separate entity (a fund) and will have no legal or
constructive obligation to pay further contributions.
− accrue an expense and a liability when services rendered for
amount required to be contributed and reduce liability when
contributions are made.
• Defined benefit plans:
− post-employment benefit plans other than defined contribution
plans
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− Accounting for both defined benefit pension plans and other

defined post-employment benefit plans is basically the same and
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 6. IAS 19, Employee Benefits
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Defined post-employment benefit plans—Income statement

recognition and measurement
• Net pension expense (revenue) recognized in net income
comprised of up to 6 components:
+ Current service cost
+ interest cost
– expected return on plan assets
+/- actuarial gains and losses (recognized in current period)
+ past service cost (recognized in current period)
+/- curtailment of settlement gains or losses.
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 6. IAS 19, Employee Benefits
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Post-employment benefits—Income statement

recognition and measurement
• Actuarial gains/losses—corridor approach used to smooth impact
—recognize currently if > 10% of greater of present value of
previous year end defined benefit obligation or fair value of
previous year end plan assets.
• Current actuarial g/l is recognizable amount divided by average
remaining working lives of covered employees.
• Actuarial g/l re: inactive or retired employees expensed immediately.
• Similar corridor approach under U.S. GAAP except amortize
expense of inactive/retired employees over life expectancy
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 6. IAS 19, Employee Benefits
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Post-employment benefits—Income statement

recognition and measurement
• Also permitted– any systematic method of amortization
resulting in faster recognition of actuarial g/l (even
immediate) if applied to both g/l consistently each period.
• If recognize immediately—either in net income or
separate component of shareholders’ equity (U.S. GAAP
must report only in net income).
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 IAS 19, Employee Benefits
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Post-employment benefits—Income statement

recognition and measurement
• Past service cost—from improvement to benefits from defined
benefit plan. PSC to retired employees and vested
employees expensed immediately .
• PSC to non-vested employees amortized straight-line over
remaining vesting period.
• U.S. GAAP says past service cost (called prior service cost)
for retired employees amortized over remaining life
expectancy while active employees amortized over remaining
service period.
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 IAS 19, Employee Benefits
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Post-employment benefits—Income statement

recognition and measurement
• Curtailments and settlements—when material reduction in covered
employees (e.g. from closure or restructuring) or when future
service by current employees will no longer qualify for pension
benefits or only qualify for reduced pension benefits.

• Gains/losses recognized in income when entity is demonstrably

committed and curtailment or settlement is announced.

• U.S. GAAP is different—losses generally recognized earlier than

gains and curtailment gain not recognized until related employees
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terminate or the plan has been adopted.

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 IAS 19, Employee Benefits
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Post-employment benefits—Balance sheet

recognition and limitation re: defined benefit
pension plan
• Can either be net liability or asset.
+ Present value of defined benefit obligation (PVDBO)
– fair value of plan assets
+/- unrecognized actuarial gains and losses
– unrecognized past service cost.
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 IAS 19, Employee Benefits
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Post-employment benefits—Balance sheet

recognition and limitation re: defined benefit
pension plan
• If result is negative (i.e. net asset) report the
lesser of:
• PVDBO +/- unrecognized actuarial gains/losses –
unrecognized past service costs – fair value of plan
assets or
• Sum of unrecognized actuarial losses and past
service cost and the present value of available plan
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refunds and available future reductions in

employer contributions.
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 IAS 19, Employee Benefits
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• PVDBO assumptions re: turnover, life expectancy and

future salary levels.
• Discount rate refers to end of period yield on high-
quality corporate bonds.
• U.S. GAAP recognizes difference between PVDBO and
fair value of plan assets (i.e. “funded status”)—no
adjustment for unrecognized actuarial g/l and psc—also
no limitation on recognized amount of pension asset.
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 IAS 19, Employee Benefits
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Other post-employment benefits

• No separate guidance provided for medical and life insurance
benefits.
• U.S. GAAP provides much more guidance with regard to
assumptions and measurement for post-employment medical
benefits.
• IFRS allows reference to U.S. GAAP guidance for post-
employment measurement for other post-employment
benefit plans than pension plans.

Other long-term employee benefits

• IFRS says liability should be recognized for difference between
present value of defined benefit obligation and fair value of any
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plan assets.

INTERNATIONALSCHO
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 IAS 19, Employee Benefits
Termination benefits
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• Recognize as expense and liability when demonstrable commitment to

either terminating the employee or group of employees or providing
termination benefits as a result of an offer to encourage voluntary
termination
• An offer made to encourage voluntary termination: based on number of
affected employees expected to accept the offer, discounted to present
value if benefits to be paid more than 12 months after balance sheet
date (U.S. GAAP based on actual number who accept and no
discounting required).

• U.S. GAAP—3 types of termination benefits—different timing

recognition criteria for each:
– Special termination benefits: recognize when accepted.
– Contractual obligations: recognize when employees’ entitlement is
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probable.
– Termination benefits under restructuring recognized: recognize when
management approves plan.
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 7. IFRS 2, Share-based Payment
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• IASB and FASB worked closely on standards.

• A number of minor differences, but both standards

substantially similar

• IFRS 2 sets out measurement principles and specific

guidance for three types of transactions:
– Equity-settled—entity receives goods or services in exchange for
equity instruments (e.g. stock options).
– Cash-settled—entity receives goods or services by incurring
liability to supplier based on price or value of shares or other
equity instruments (e.g. share appreciation rights).
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– Choice of settlement of above two options.

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 7. IFRS 2, Share-based Payment
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(i) Equity-settled
Typically, a debit is made to either an asset (goods acquired) or expense
(service received), and a credit is made to paid-in capital.
• Share-based payments to Non-employees
− IFRS 2: Share-based payments to non-employees are measured at FV
of goods or services received. If fair value of goods or services can’t be
determined—use fair value of the equity instrument. Measurement date
is the date the entity obtains the goods or services.
− U.S. GAAP: when fair value of equity instrument is used, measurement
date is the earlier of either performance commitment date or
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performance completed date.

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HT P: /[Link]-HT P: /[Link]-HT P: /[Link]-HT P: IFRS 2, Share-based Payment
(i) Equity-settled
• Share-based payments to Employees

• use fair value of instrument since fair value of services not

reliably measurable.
• FV of stock options must be determined at grant date. The
company need to estimate number of options expected to vest
multiplied by fair value to determine compensation expense
over vesting period (offset is paid-in capital).
– If single vesting date (cliff vesting)—straight-line over service
period.
– If installments (graded vesting)—amortize each installment
(tranche) over their vesting period.
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– U.S. GAAP re: graded vesting—choice of accelerated or straight-line

recognition.
Learning Objective 1, 2 INTERNATIONALSCHO
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 IFRS 2, Share-based Payment
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(i) Equity-settled
• Modification of stock option plans that make changes to FV
of stock options—eg: length of vesting period or exercise
price—IFRS 2 requires to recognize, at minimum, original
compensation cost at grant date.
– If fair value reduced---no change in compensation deduction.
– If fair value increased—increase compensation by the like
amount.

• U.S. GAAP—if modifications—fair value at modification date

determines compensation expense---no minimum
compensation as under IFRS.
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 IFRS 2, Share-based Payment
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(ii) Cash-settled
• Eg: Stock appreciation rights in which employees are entitled to receive
a cash payment when the entity’s stock price increases above a
predetermined level
• Should recognize a liability and an expense. Liability is measured at fair
value of appreciation rights using an option pricing model.

• Until liability is settled, ti must be remeasured at each balance sheet

date.

• U.S. GAAP—certain cash-settled payments classified as equity, whereas

liability under IFRS.
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 IFRS 2, Share-based Payment
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(iii) Choice-of-settlement
• If entity can choose: Treat as cash-settled only if the company has
present obligation to settle in cash—otherwise, treat as equity-settled.
• If supplier can choose—entity has issued a compound financial
instrument with debt and equity components. FV of it should be split into
debt and equity components:
– Debt component must be remeasured at FV at each
balance sheet date (recognize changes in income).
– Equity component remains in equity and if supplier chooses debt
settlement in equity—transfer debt to equity.
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INTERNATIONALSCHO
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 8. IAS 12, Income Taxes
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• IAS 12 takes similar approach with U.S. GAAP.

• Both have deferred tax assets and liabilities related to timing

differences and operating loss and tax credit carryovers.

• March 2009 IASB exposure draft “Income Tax” intended to

eliminate differences with U.S. GAAP.

• Final standard replacing IAS 12 still not published as of

Spring 2011.
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 8. IAS 12, Income Taxes
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Tax Laws and Rates

• Current and deferred taxes based on tax laws and tax rates
enacted or substantively enacted (when future steps
can’t change outcome) by balance sheet date.

• U.S. GAAP must use actually enacted tax laws and tax
rates.

• To minimize double taxation some countries apply lower rate

to distributed profits vs. retained profits.
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 IAS 12, Income Taxes
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Recognition of Deferred Tax Asset

• If future realization probable (undefined) vs. U.S. GAAP
where realization takes place if more likely than not --- IAS
12 is more stringent if probability interpreted to mean greater
than “more likely than not”.

Disclosures
• IAS 12 requires extensive disclosures, including current
and deferred components of tax expense and relationship
between hypothetical expense based on statutory vs.
effective tax rates using 2 approaches (statutory rate in
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home country or weighted average statutory rate between

jurisdictions).
INTERNATIONALSCHO
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 IAS 12, Income Taxes
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IFRS vs. U.S. GAAP

• IFRS can cause temporary differences not existing under U.S.
GAAP (e.g. revaluation model for PPE under IAS 16).

• Other differences between IFRS and US GAAP can create different

temporary differences. Eg. Different definition of impairment.

Financial Statement Presentation

• Under U.S. GAAP—deferred tax assets and liabilities are classified
as current or non-current based on classification of underlying
asset or liability.
• IAS 1, Presentation of Financial Statements”—only
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noncurrent.

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 9. Disclosure and Presentation Standards
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(1) IAS 7 Statement of Cash Flows:

• Classified as operating, investing or financing.

• Operating cash flows may use direct or indirect method
(indirect method: can reconcile to operating income or
any measure of income).
• Interest, dividends and income taxes must be reported
separately.
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 Disclosure and Presentation Standards
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IAS 7, Statement of Cash Flows:

• Interest and dividends paid may be classified operating

or financing.
• Interest and dividends received may be classified
operating or investing.
• Income taxes are operating unless specifically identified
with investing or financing activities.
• Can only disclose noncash investing and financing
activities outside of this statement.
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 Disclosure and
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Presentation Standards

IAS 7, Statement of Cash Flows (continued):

• Must disclose and reconcile components of cash and
cash equivalents with amounts reported on balance
sheet (need not agree with a single line item on the
balance sheet).
• Bank overdrafts can reduce cash/cash equivalents if an
integral part of cash management—otherwise
classified as financing activity.
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 Disclosure and Presentation Standards
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IFRS/U.S. GAAP differences in statement

of cash flows:
• Interest paid and received and dividends
received all operating cash flows
• Dividends paid are financing cash flows
• Indirect method—reconciliation must begin
with net income
• Direct method—must reconcile operating cash
flows to net income
• Cash/cash equivalents line must reconcile with same
line on balance sheet.
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 Disclosure and
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Presentation Standards

IAS 10, Events After Reporting Period:

• Known under U.S. GAAP as “subsequent events”.
• Covers events between balance sheet date and authorized
date of issuance of financial statements (U.S. GAAP—through
date of issuance).
There are two types of after-the-reporting-period events that are
treated differently:
- Adjusting events: existed at balance sheet date, such as
estimated legal settlement—finalized before authorized date of
issuance—must adjust as of balance sheet date!
- Non-adjusting events: events arose after balance sheet date
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but before issuance authorized—disclose nature of event and

estimate of financial effect or that estimate can’t be made.
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 Disclosure and Presentation Standards
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IAS 8, Accounting Policies, Changes

in Accounting Estimates, and Errors:
• Hierarchy of authoritative pronouncements:
– IASB Standard or Interpretation specific to to the
event or transaction
– IASB Standard or Interpretation dealing with similar
and related issues
– Definitions, recognition criteria and measurement
concepts in the IASB Framework
– Most recent pronouncements of other standards
setting bodies that use similar framework (like FASB)
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 Disclosure and
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Presentation Standards

IAS 8, Accounting Policies, Changes in

Accounting Estimates, and Errors (continued):
Related Party Disclosures:
• Similar to U.S. GAAP
• Must disclose transactions in notes if one party has
ability to significantly influence or control another party
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 Disclosure and Presentation Standards
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IAS 33, Earnings per Share:

• Basic and diluted EPS must be on face of income
statement
• U.S. GAAP has more detailed guidance re: diluted EPS,
but appears consistent with IAS 33
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 Disclosure and Presentation Standards
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IAS 34, Interim Financial Reporting:

• Treat interim periods fundamentally as discrete reporting
periods vs. U.S. GAAP which treats interim periods as
integral part of full year
• No guidance as to who should prepare, how often and
how soon after end of the period
• Describes minimum content and accounting principles
applied
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 Disclosure and Presentation Standards
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Noncurrent Assets Held for Sale and Discontinued

Operations:
• Report separately on balance sheet at lower of carrying
value or fair value less costs to sell—similar to U.S.
GAAP.
• Not depreciable.
• Discontinued operations:
– After-tax profit or loss and after-tax gain on disposal of
assets shown as single amount on face of income
statement.
– Disclose details in notes or on the face of the income
statement.
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– Similar to U.S. GAAP except for U.S. GAAP need to show pre
and post tax profit or loss on the income statement.
– Objectives
Learning Definition of 5what constitutes discontinued operation INTERNA
4 and narrower
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under IFRS.
 Disclosure and Presentation Standards
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IFRS 8, Operating Segments (issued in 2006—

replaced IAS 14):
• Part of short-term convergence project with FASB.
• Extensive disclosures required.
• Must meet any of three quantitative tests—revenue, profit or
loss, asset.
• Disclosures similar to U.S. GAAP except the latter doesn’t
require disclosure of liabilities.
• If revenue reporting by operating segments less than 75% of
total revenues, then report additional segments otherwise not
required under the three quantitative tests, until 75% reached.
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 Homeworks
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Exercises: 1-4, 9, 17, 18, 19, 27, 31, 32, 35, 38, 39 in textbook
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