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Statement of Financial Position
Transcript of Statement of Financial Position
Implications on the Accounting Profession
More possible manipulation because of principal based instead of rule based
Current or Non Current Asset?
An entity owns a machine with which it manufactures goods for sale. It also owns
the building in which it carries out its commercial activities.
Statement of Financial Position
Specific changes include:
Splitting into business, financing and investing sections
Key change on ratios
Distinction between current and non current
Clear concise titles of the categories
Objectives of Financial Statement Presentation
Liquidity and Financial Flexibility
Includes operating activities
Property Plant and Equipment
Broken into short term/long term assets and liabilities
Short term and long term liabilities
Taxes and Equity
The machine and the building are non-current assets—they are not cash or cash equivalents; they are not expected to be realized or consumed in the entity’s normal operating cycle; they are not held for the purpose of trading; and they are not expected to be realized within twelve months of the end of the reporting period. (IFRS.org Training module)
Advantages of the switch
Possible elimination of book to tax differences
Raise capital abroad, clearer reporting for multinational companies
More transparent financial statements
May help investors determine financial strength better
Goal that disaggregation will help catch fraud and discourage it
More flexibility- principal based not rule based
Will have the EU to look after
"To present a cohesive set of financial statements, an entity should align the line items, their descriptions, and the order in which information is presented in the statements of financial position, comprehensive income, and cash flows."
Shows Items and Effects of Items in Same Section Among Different Statements
Liquidity And Financial Flexibility
Ability To Meet Obligations
Ability To Generate Returns
Ability To Fund Growth
Ability To Alter Amount and Timing of Cashflows
Operating Activities From Investing
Debt From Equity Financing
Continuing From Discontinuing Operations
Ford is still a consolidated US GAAP SEC Registrant, but found it for more cost effective to convert from one global standard (IFRS) to US GAAP in the corporate office, than to convert form US GAAP to IFRS in 60 different international jurisdictions for complying with local reporting requirements.
Susan Callahan, Ford’s Global Accounting Policy and Special Studies Manager
Software companies and businesses would have to adopt new ways of collecting data to determine if it is business, financing, or investing activities
Forcing of accounting procedures- LIFO not allowed in IFRS
Complete software overhaul
Need for a very concise definition for all activities
Proposals are also likely to impact Financial Ratios
The FASB/IASB Changes Related to Leasing
CFOs will need to take a closer look at real estate
CFOs will begin to apply ratios related to utilization and return on assets
Traditional Balance sheet
Underlying the proposal Approach for Offsetting Eligible Assets and Eligible liabilities
a.. assets and liabilities are reported separately from each other consistently with their characteristics or obligations
b. offsetting of recognized assets and recognized liabilities detracts from the ability of users both to understand the transactions
The ASB/FASB proposed standard would alter companies 'key financial ratios by changing their reported assets and liabilities.
Liquidity will decrease the current ratio
Debt to equity ratio