These differences in are in addition to the Level-1 differences that I have posted earlier from my notes. My observation in level-2 questions in text book and schweser is that they do not ask the differences directly, instead we should be doing our calculations keeping in mind if the company is using IFRS or GAAP. Such questions are usually found in Intercorporate investments and Pension problems. We also need them while converting from IFRS to GAAP and viceversa.
1. Though care has been taken please note this notes may contain some mistakes and I may have missed out some differences. Request you to please validate once while going through the points. You cannot afford to do silly mistakes in FRA given its weightage in the exam. Each question in item set carries weightage of (1/120 = 0.83% approx)
2. The notes I prepared is for June-2013 exam.
Please do feedback in case any errors found or to add anything.
GAAP IFRS Intercorporate Investments Joint Venture Equity Method Proportionate Consolidation Preferred.
(But Equity also allowed)
Unrealized Gains and Losses
(Available for sale)
When UNrealized, Reported in Other comprehensive income. When realized, moved into income statement Same as GAAP, except for unrealized gains and losses on Foreign exchange, where they are recorded on Income statements only. Reclassification of investment for Held For trading Allowed Not Allowed Impairment of financial assets In Both, AFS and HTM securities to be evaluated for impairment at end of reach reporting period. We do not do it for HFT as we recognized both realized and unrealized as and when Impaired if decline in value not temporary. Write down in treated as loss in i/c statement
Reversal Not allowed
Impaired if at least one loss event occurred and its effect of future cash flows can be reliably measured.
For Debt security: Events include default on interest or
principal, bankruptcy or reorganization (credit downgrade’ Lack of liquid market
is not loss event)
Reversal allowed in Debt securities
For Equity: When experienced substantial decline or facing big
problems In Equity Reversal not allowed
Goodwill 2 steps
1. If carrying value of reporting unit (including goodwill) exceeds fair value,
2. Impairment measurement = CV-implied fairvalue Implied Fair
Value = Fair Value – fair value of net assets
Impairment Loss=Initial Good will – 2
Impairment and Loss=CV-Fairvalue QSPE Allowed Not allowed Full and partial Good will Requires full goodwill method Both
partial and full goodwill allowed
Employee Benefits B/S Presentation B/S asset(liability)=funded status Past service costs OCI, Amortized over time into income statement Immediately expensed. Current service cost Income statement Income statement Interest cost Income statement Income statement Expected Return Income statement Income statement Actuarial Gain/Loss OCI, Amortized over time into income statement (Corridor
All in OCI Presentation Aggregated and presented as single item. Components
may be presented separately
Net Pension expense Net pension expense including interest expense is
included as operating expense
Components of periodic pension cost can be
included in various line items
Shared based compensation Stock options:
Allocated over time if vested period is over time to income statement. If
immediately exercised, declared full in i/c statement.
Fair Value: Determined by option-pricing or BSM model.
Multinational Operations Deciding functional currency Similar under both
1. Currency that influences sales prices of goods and services
2. Currency of country whose competitive forces and regulations mainly determine the sale price of goods and services
3. Currency that labor, material and other costs
4. Currency from which funds are generated
5. Currency in which receipts from operating activities are usually retrieved.
When subsidiary in hyperinflation environment Do not adjust for inflation. Use temporal method (Treat functional currency same as presentation currency) Adjust for inflation and use current rate method
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