Floriculture du Suroît inc.*

Floriculture du Suroît inc. is a SME in the horticulture field. It cultivates and sells geraniums, but a new subsidiary, Les Roses de Caroline, recently start the culture of roses. Floriculture has just obtained a governmental subsidy and, for the first time, the company will have to produce audited financial statements prepared in accordance with GAAP. Thus, the two owners will have to choose between two accounting frameworks, that is, International Financial Reporting Standards (IFRS) or Canadian Accounting Standards for Private Enterprises (ASPE). Many differences exist between these two frameworks. More specifically, IFRS provide specific standards related to agricultural activity and investment properties, while ASPE do not. In addition, ASPE permit many choices between accounting treatments, which should be carefully analyzed. The owners are neophytes in accounting matter. Thus, they need help for accounting issues.     

IFRS Conversion: The Case of a Marine Defence Company

This case is based on a privately held company that had implemented Accounting Standards for Private Enterprises (ASPE) but has now, in anticipation of a public offering, voluntarily decided to change from ASPE to Canadian IFRS for its December 31, 2013 fiscal year‐end. This case demonstrates that the fear associated with implementation of new accounting standards is often blown out of proportion, with the result that companies incur significant and unnecessary financial costs and employees experience undue stress. Although businesses can have complex IFRS issues, the approach of training staff, extensive planning, and preparing the board of directors and owners for the implications on the bottom line can be utilized by both large and small organizations to reduce the stress of IFRS implementation. Students are required to prepare a report to identify the accounts that will require changes, to analyze and recommend a course of action for those accounts for which IFRS provide options, to develop an implementation plan for parallel tracking for a 12‐month period, as well as make recommendations for project team members, budget, and timeline.     

Regroupements d'entreprises et IFRS: le cas de GlobeCom Corporation et Synthetics Inc.

This case addresses the accounting for mergers and acquisitions in Canada. Since January 1, 2011, any new transactions from mergers and acquisitions made by a public company must be recorded in accordance with the International Financial Reporting Standards (IFRS). In the case of a partial acquisitions, two theoretical approaches to accounting is allowed under IFRS 3: the approach of a separate entity and the modified approach of the parent entity. For mergers and acquisitions that occurred before this date, firms could either be early adopters to IFRS or firms could apply the Canadian standards that were allowed at the time of reunification. Under Canadian GAAP (CICA, Chap. 1581), partial acquisitions are accounted for using the approach of the parent entity. Canadian public companies that have chosen to recognize their business combinations which occurred before January 1, 2011, according to the approach of the parent entity, may continue to do so even after the enforcement of IFRS. Thus for years to come, we can see in the financial statements of various Canadian public companies business combinations presented in three different ways: according to the separate entity approach, the parent entity approach and, the modified approach of the parent entity. We also include in the case the U.S. GAAP for mergers and acquisitions. In this case, we strongly draw on an acquisition that actually happened, which we adapted to illustrate the three theoretical approaches to account for mergers and acquisitions. In particular, we have changed the name of the company.     

XBRL for Financial Reporting: Evidence on Italian GAAP versus IFRS

The systematic adoption of the eXtensible Business Reporting Language (XBRL) for financial reporting represents a great challenge. Worldwide, a large number of regulators are making an effort to promote the adoption of this standard to simplify and enhance the communication of financial information. This requires the definition of well‐structured taxonomies that can standardize and accommodate the content of financial reports prepared by firms. This study aims to analyze the regulator‐led adoption of XBRL for financial reporting. It examines the XBRL taxonomies used by Italian firms to reflect their financial reporting under rule‐based Italian GAAP and principles‐based International Financial Reporting Standards (IFRS). We compare the alignment of the Italian GAAP taxonomy and the IFRS taxonomy with Italian companies' financial statements and find two different levels of fit. The results offer useful insights for regulators and policy makers in prescribing or establishing appropriate taxonomies. We illustrate the potential impacts of the different taxonomies on the quality of financial reporting in terms of comparability and potential loss of information.     

Canada Generators Limited*

This case depicts an armchair situation involving a newly formed small private Canadian company that has recently begun operations in Western Canada. Of concern to the owners is their understanding that Canadian generally accepted accounting principles (GAAP) are about to be replaced by International Financial Reporting Standards (IFRS) at the end of 2010, and so the statements in their present form will have to be conformed to the new standards if the company decides to go public with a share offering, which is an option it is considering. Other issues facing the company concern the appropriate accounting and reporting requirements that will be required in order to allow the company to secure additional financing and engage in some necessary research and development. This case is suitable for students who have progressed beyond the introductory financial accounting level; it involves adjustments to inventory and capital asset accounts as well as income effects including taxation, and it draws out some of the more important nontransitional differences between GAAP and IFRS.     

Trabeck prepares for IFRS: An IFRS case study

The growing acceptance of International Financial Reporting Standards (IFRSs) as a basis for US financial reporting represents a fundamental change for the US accounting profession. IFRS and US generally accepted accounting principles (GAAPs) both are based on principles; however, US GAAP largely uses rules to apply the principles. In contrast, IFRS relies heavily on the use of judgment in deciding how transactions should be recorded. This fictional case is designed to help students identify some fundamental differences between US GAAP and IFRS and apply this knowledge to general-purpose financial statements.     

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from the Netherlands

Abstract

Dutch law (B2T9) is positive towards IFRS. IFRS may be used by all entities, there is a specific option for entities using IFRS in the consolidated financial statements to apply an IFRS-friendly version of B2T9 in its separate financial statements, and IFRS for SMEs can be used by non-listed and non-regulated companies in combination with B2T9. In the process of adoption of the 2013 EU Accounting Directive only limited references have been made to IFRS. This is not an indication of a reduced interest in IFRS, but is a result of limiting the changes of B2T9 to those that are necessary as a result of changes at the EU level. The Dutch Accounting Standards Board, issuing Dutch Accounting Standards (DAS), considers IFRS when developing and changing its standards. In addition to the IFRS option DAS often include one or more additional optional treatments that are considered suitable for non-listed companies. The Dutch regulatory authority AFM is also positive towards IFRS and even advocates elimination of non-IFRS options from Dutch GAAP as much as possible. The number of major differences between Dutch GAAP and IFRS is relatively limited, with only a few differences that cannot be avoided by an entity when preparing financial statements under Dutch GAAP.     

Raleigh building products: A teaching case that highlights the differences between IFRS and US GAAP

Within 5 years, the United States will join the rest of the world’s industrialized countries and many emerging economies in adopting International Financial Reporting Standards (IFRS). However, many educational programs have not yet developed full curricula or integrated case studies in existing programs to compare and contrast how US GAAP and IFRS would record and present major accounting transactions.Based on events that reflect real world scenarios, this study presents a series of three Raleigh Building Products cases as an instrument to fill the current IFRS education void. The first case in the series discusses US GAAP acquisition and consolidation activities, the second case examines asset and intangible impairment under US GAAP and IFRS, and the last case adds components that differ significantly between US GAAP and IFRS. The series of cases can be used stand alone or build upon each other throughout the semester. The combined cases focus on the following key concepts: (1) calculating acquisition price; (2) preparing combination financial statements including deleting LIFO reserves; (3) measuring goodwill and other intangibles; (4) determining the impairment of goodwill due to economic declines; and (5) comparing fundamental differences between US GAAP to IFRS. The attached teaching notes detail these matters and discuss the statements of cash flows under US GAAP and IFRS.Results from classroom use indicate that this case will benefit accounting students and practitioners as IFRSs become effective in the US.     

Are IFRS value-relevant for separate financial statements? Evidence from the Italian stock market

Using a sample of Italian firms, this paper investigates whether separate financial statements are useful to capital market investors, and whether International Financial Reporting Standards (IFRS) are more value-relevant than domestic generally accepted accounting principles (GAAP). These issues are key in evaluating the decision made by some states in the European Union to extend the use of IFRS to separate financial statements. The study provides evidence that separate financial statements are value-relevant, regardless of the accounting standard set. However, contrary to expectations, separate financial statements under IFRS do not have incremental information content beyond domestic GAAP. There is even some evidence that domestic GAAP financial statements are more value-relevant than IFRS. Finally, this paper documents the important role of model specification in value-relevance studies.     

IFRS framework-based case study: DaimlerChrysler – Adopting IFRS accounting policies

This instructional case applies a framework-based approach to explore the concept of comparability in financial reporting and retrospective application of new accounting policies. The DaimlerChrysler (DC) case provides an opportunity for you to research key financial reporting concepts, analyze accounting policy differences between U.S. GAAP and IFRS, determine adjustments necessary to convert financial statements from U.S. GAAP to IFRS, and compute and discuss key ratio impacts following financial statement conversion. This case demonstrates that transitioning to IFRS is more than an accounting issue; it provides opportunities for financial restructuring (e.g., Daimler’s amendments to pension plans and its 2007 sale of Chrysler). It also illustrates the importance of professional judgment when initially adopting IFRS accounting policies. Also, despite FASB and IASB convergence efforts, you learn that most of the key differences between U.S. GAAP and IFRS identified in DC’s reconciliations continue today. This case helps you to: (1) develop skills to interpret and apply the requirements on first-time adoption of IFRS to a real-world setting; (2) research key differences between U.S. GAAP and IFRS and their effects on the financial statements and ratios; and (3) understand significant impacts of the transition to IFRS on businesses and financial statements. Completing the case develops your critical thinking and research/technological skills.     

Has Adoption of IFRS Increased Non–North American Institutional Investment in the Canadian Stock Markets?

We investigate whether non–North American (non‐NA) institutional investment in firms listed on the Canadian stock markets increased between the pre‐ and post‐IFRS adoption periods relative to such investment in firms listed on the U.S. stock markets. Prior to IFRS adoption, Canada had high‐quality financial reporting standards that were similar to the U.S. standards. As consequences of IFRS adoption, Canadian financial statements became more comparable with European and other IFRS country financial statements and less comparable with neighboring U.S. financial statements. Thus, a question of interest is whether the enhanced comparability with non‐NA companies was beneficial in terms of attracting non‐NA investment to Canadian companies versus U.S. companies. We find that there was no significant change in non‐NA institutional investment in Canadian firms relative to U.S. firms for the very largest (fifth quintile) and for smaller (first, second, and third quintiles) Canadian companies. However, intermediate‐sized Canadian companies in the fourth size quintile lost non‐NA institutional investment relative to their U.S. peer companies, suggesting that non‐NA investors cared more about comparability with U.S. peer companies than non‐NA peer companies for companies in this size quintile.     

Gemini Communications: A case applying revenue recognition standards

Gemini Communications (Gemini) is a case study on revenue recognition criteria. You will take on the role of an audit manager for the public accounting firm that audits Gemini. Your client, Gemini, is a US company that recently expanded operations into China through the acquisition of Apollo Man. Gemini prepares its financial statements in accordance with US Generally Accepted Accounting Principles (US GAAP) while Apollo Man prepares its financial statements in accordance with International Financial Reporting Standards (IFRS GAAP). Your assignment is to research, compare and contrast the technical criteria for revenue recognition under US GAAP, IFRS GAAP, and the proposed revenue standard. You will apply the various criteria to an Apollo Man sales transaction to determine the timing and amount of revenue Apollo Man should recognize. The case is designed to develop your research and written communication skills.     

Examining dual accounting systems in Europe

After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European-listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high-quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high-quality financial reporting.     

Value Relevance of Comprehensive Income for the Canadian Market*

The value relevance of comprehensive income (CI) compared to net income (NI) remains unresolved. We look at this issue in the Canadian market, using association methods to determine the value relevance of reporting CI and other comprehensive income (OCI) components for stock prices and returns. The sample consists of all the firms in the S&P/TSX Composite Index that prepared their financial statements according to Canadian standards or International Financial Reporting Standards (IFRS) over the 2008–2016 period. Although we find no evidence that CI is more value relevant than NI for stock prices and returns, we note that some OCI components are incrementally value relevant beyond NI for both amounts. In addition, financial services firms differ from other companies in terms of the relationships between some of their OCI components and prices or returns, with such firms even driving some relationships. Relationships between OCI components and prices or returns are also affected when data from the financial crisis period are excluded, with some relationships even changing after IFRS adoption. These results inform Canadian standard setters and financial statement users that OCI components are decision useful for the Canadian market.     

IFRS and U.S. GAAP: Assessing the impact of reporting incentives on firm restatements in foreign and U.S. markets

This study examines the impact of reporting incentives on firm restatements in foreign and U.S. markets. We investigate whether financial reporting, using International Financial Reporting Standards (IFRS) results in quality disclosures, given differences in institutional and market forces. This study examines the quality of financial statements prepared in accordance with IFRS and U.S. GAAP by concentrating on firm restatements as a measure of earnings management. Our results indicate that there is no significant difference in the value of restatements due to differences in accounting standards when the rule of law is high in the international market. Furthermore, firms with better law enforcement and higher traditions of law and order, tend to have smaller restatement amounts or less earnings manipulation. This study contributes to the literature by providing evidence of the quality of financial information prepared under IFRS and its dependency on the institutional factors and market forces of a country.     

IFRS Adoption and the Choice Between Public and Private Debt: Evidence from South Korea

This article examines the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate choice between public debt and private debt. If IFRS adoption increases the quality of lenders’ information environment provided on financial statements, firms are more likely to access the public debt market. Using a sample of public and private debts financing firms from 2000 to 2014 in Korea, we find that firms that file financial reports under the IFRS are less likely to finance from public debt markets, implying that the mandatory IFRS adoption has exacerbated the information environment of the public debt market in Korea.     

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence on Cyprus

Abstract

The case of Cyprus with respect to the adoption of International Financial Reporting Standards (IFRS) is unique given the country’s strong reliance on international business and accounting-related services. As such, Cyprus has required the use of IFRS since 1981 not only for publicly listed firms but also for private companies regardless of their size. Cyprus’ reluctance to fully transpose Directive 2013/34/EU into national law cannot be unrelated to its long-standing requirement of financial statements that are not only prepared under IFRS but are also audited for all types of corporations registered in the Republic. We conclude that transposing the new Accounting Directive in its entirety into national law could have adverse effects on the Government tax revenue, the GDP of the services sector and the credibility of Cyprus as an international business and financial services center.     

Financial Reporting in Europe: Future Challenges

Abstract

A roundtable at the 11th workshop of the European Financial Reporting Research Group (EUFIN) on Friday 4 September 2015 in Paris brought together leading participants in the development and enforcement of International Financial Reporting Standards (IFRS) and the use of IFRS financial statements to debate the future challenges in European financial reporting. The panellists were Philippe Danjou, a board member of the International Accounting Standards Board (IASB), Roxana Damianov, team leader for corporate reporting at the European Securities and Markets Authority (ESMA) and Jacques de Greling, senior equity analyst at Natixis, vice-chairman of the European Federation of Financial Analysts Societies (EFFAS) financial accounting commission, member of the IASB's capital markets advisory group and member of the user panel of the European Financial Reporting Advisory Group (EFRAG). The panel was chaired by David Cairns. None of the panellists presented formal papers but instead spoke and debated freely about a range of current and future challenges. Not surprisingly, they focussed on the challenges arising from the use of IFRS in the consolidated financial statements by EU companies listed on EU regulated markets rather than the challenges that might arise from the use of EU or national requirements in non-IFRS financial statements.

This paper provides a synthesis of the panel discussions in the context of the European Commission's evaluation of the International Accounting Standards (IAS) Regulation, the International Financial Reporting Standards Foundation's (IFRSF) review of its own and the IASB's structure and effectiveness, and the ongoing work of the IASB and ESMA.     

An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation

International Financial Reporting Standards (IFRS) have been adopted by most of the G20 countries. Given the broad worldwide acceptance of IFRS and significance of attaining comparability to facilitate free flow of capital, the US standard setter, the Financial Accounting Standards Board (FASB) made a commitment to jointly work with the International Accounting Standards Board (IASB) to explore the possibilities of convergence of US Generally Accepted Accounting Principles (GAAP) with IFRS. In 2007, the US Securities and Exchange Commission (SEC) eliminated the requirement that foreign companies listed on the US stock exchanges reconcile their IFRS‐based financial statements with the US GAAP. In the same year the US SEC issued a concept release to the public requesting comments on a proposal to allow US issuers to prepare financial statements in accordance with IFRS. Following these initiatives by the FASB and SEC, the aim of the present study is to investigate the implications of a potential full adoption of IFRS by the US. The present study details the challenges and benefits of adoption and outlines the steps required for a successful outcome of this process.     

Transitioning to IFRS in Japan: Corporate Perceptions of Costs and Benefits

This paper examines the ongoing transition to International Financial Reporting Standards (IFRS) in Japan with a particular focus on recent institutional developments and corporate concerns. While Japan has committed to the convergence of Japanese generally accepted accounting principles (J‐GAAP) with IFRS it has not as yet formally adopted IFRS. This paper reports on Japanese corporate perceptions of the likely costs and benefits of adopting and implementing IFRS using survey data collected from senior financial executives of 292 Japanese listed companies in 2013–14. Our findings reveal that Japanese companies identify a number of major areas of general concern with the adoption and implementation of IFRS. Most importantly, uncertainty regarding the interpretation of standards followed by staff training, IT systems, technical knowledge and differences between J‐GAAP and IFRS were reported as major concerns. Our survey also highlights that revenue recognition, depreciation, consolidated financial statements, financial statement presentation and the retrospective application of IFRS were viewed as key IFRS accounting issues. While the large majority of companies expected a moderate degree of benefits to arise from IFRS, substantial benefits were perceived more likely to apply to large and overseas listed companies mainly arising from improvements in the international comparability of financial statements.