Transparency & Global Markets Exam 2

fair value, historical cost

in general, pp&e and investments are recorded at their ____________ under IFRS and ____________ under GAAP

loss contingency

an existing, uncertain situation involving potential loss depending on whether some future event occurs (ex. impairment)

• it is probable that an asset has been impaired

• amount of the loss can be reasonable estimated

under US GAAP, what are the conditions necessary to record a loss contingency?

companies take the minimum amount if the best estimate isn’t available

why are loss contingencies so rare in US GAAP?

• it is likely that an asset has been impaired

under IFRS, what are the conditions necessary to record a loss contingency?

they record the midpoint instead of the minimum like US GAAP

why are loss contingencies more common under IFRS?

• useful lives

• historical cost vs. fair value

• impairment reversals

• denominator effect

why do the accounting principles for long term asset policies matter?

True, it can be reversed up to the original bv

T or F: impairment reversals are allowed under IFRS

bv - fv or pv of future cfs

under US GAAP, impairment is recognized as _________________ (formula)

recoverability test

compares undiscounted expected future cf with carrying value of asset → if cf are lower, it is impaired → US GAAP only

bv - higher of fv or pv of future cf

under IFRS, impairment is recognized as _________________ (formula)

1. calculate the recovery (fv - bv)

2. calculate difference between bv and bv without impairment

3. take smaller of 2

*remember depreciation must be recalculated

what are the steps to calculate an impairment reversal under IFRS?

expensed, research is expensed and development is capitalized

under US GAAP, research and development is always _____________ while under IFRS it is _____________

technological feasibility, technological feasibility, ability to sell/use and measurability

under US GAAP, software costs are capitalized once _____________ is met and _____________ under IFRS

denominator effect

the illusion that ratios such as return on assets are smaller due to larger denominators for ratios using total assets or stockholders’s equity resulting from the use of fair value

biological assets

assets that are living organisms such as agriculture, recorded at fair value

False, the opposite is true

T or F: under IFRS, PP&E cannot be revaluated, but it can under US GAAP

1. find amount of recovery (bv - fv)

2. find difference between maximum bv and actual bv

3. take lesser of the two

what tactic is used to find teh amount of recovery on assets under IFRS?

use fair value without overcrowding the income statement

IFRS revaluation is most used for what purpose?

revaluation reserve

an AOCI account similar to the fair value adjustment account which stores positive changes in fair value resulting from fair value revaluations under IFRS

• revenue growth

• cost reduction

• risk reduction

what are the big 3 company incentives to sustainability?

ESG

consideration of environmental, social, and governance factors alongside financial factors in the decision making process

ESG integration

assess risks and opportunities related to ESG issues for the purpose of improving risk adjusted financial returns

false

T or F: sustainability ratings across platforms tend to be relatively similar

corperate social responsibility (CSR)

an older form of ESG that focuses on a company’s efforts to have a positive impact on various stakeholder groups, focusing on society at large

international sustainability standards board (ISSB)

an investor focused sustainability regulatory body that is voluntary

global reporting initiative (GRI)

an employee/society focused sustainability regulatory body that is voluntary

sustainability accounting standards board (SASB)

a sustainability governing body recommended by the IFRS which identifies ESG factors that are reasonably likely to affect the financial condition or operating performance of companies within an industry → investor focused and quantitative

double materiality

a concept we discussed in reference to the CSRD which are matters that have materiality from both the impact and financial perspectives

material

a sustainability buzz word meaning that something has high impact on a specific element of ESG

• direct

• indirect from organization

• all other indirect

what are the 3 scopes of GHG emissions?