45. Why does each country have its own unique set of financial reporting
practices?
46. What are the two major types of legal systems used around the world?
47. The major providers of financing in some countries are stockholders, while
other countries predominantly use banks as the main financing source. What
difference does it make to accounting disclosures in comparing a company from
one of each of those countries?
48. What problems are caused by diverse accounting practices?
49. What is meant by
harmonization of accounting standards
?
50. How did the early International Accounting Standards (IAS) obtain support
from a sufficient number of board members?
51. What is the IOSCO?
52. What were the major objectives of the Treaty of Rome?
53. Which two EU directives have helped harmonize accounting standards?
54. What are the three authoritative pronouncements that make up the
International Financial Reporting Standards (IFRS)?
55. What are the four different ways IFRS can be used by a country?
56. What are the six key FASB initiatives to further convergence?
57. What accounting topics were covered under the FASB short-term
convergence project?
58. What are recognition differences in international reporting and what would
be an example of a difference?
59. What are measurement differences in international reporting and what
would be an example of a difference?
60. Principal Company is a U.S.-based company that prepares its consolidated
financial statements in accordance with U.S. GAAP. Principal reported net
income of $2,600,000 in 2011 and stockholders’ equity of $12,000,000 at
December 31, 2011. Principal wants to determine the reporting impact of
switching to IFRS. The following three items would create differences in financial
reporting:
1) At December 31, 2011, inventory had a historical cost of $850,000, a
replacement cost of $700,000, and a net realizable value of $800,000. The normal
profit margin was 10%.
2) Principal acquired a building at the beginning of 2009 at a cost of $5,000,000.
The building has an estimated useful life of 20 years, an estimated residual value
of $1,000,000, and is being depreciated on a straight-line basis. On January 1,
2011, the building has a fair value of $5,500,000. There is no change in the
estimated useful life or residual value. In a switch to IFRS, Principal would use
the revaluation model in
IAS 16
to determine the carrying value of property, plant,
and equipment subsequent to acquisition.
3) In 2011, Principal incurred $800,000 of research and development for a new
product, of which 35% relates to development activities subsequent to the point
at which criteria indicating the creation of an intangible asset had been met. As
of the end of 2011, development of the new product had not been completed.
Required
:
1) Prepare a schedule reconciling net income under U.S. GAAP to net income
under IFRS for the year ended December 31, 2011.
2) Prepare a schedule reconciling stockholders’ equity under U.S. GAAP to
stockholders’ equity under IFRS at December 31, 2011.
