CFA CFA General IFRS vs GAAP for Level-2

IFRS vs GAAP for Level-2

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    • Avatar of RaviVoodaRaviVooda
      Participant
        • CFA Level 3
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        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.

        Please Note:
        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,
        impairment exists

        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
        approach)
        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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        Amazing share! 🙂
        Do we have to remember Level-1 differences for Level-2?

      • Avatar of Zee TanZee Tan
        Keymaster
          • CFA Charterholder
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          Awesome share – have a promote 🙂

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          I don’t think so @indogination5

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          Thanks @Sophie

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