Introduction and the Framework

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  • Restructuring includes termination of a line of business, closure or relocation of business, changes in management structure, and fundamental reorganizations
  • As a general rule, a restructuring provision should be recognized when the criteria for recognizing a provision is met:
    • • The entity has a present obligation (legal or constructive) as a result of a past event
    • • It is probable that an outflow of resources will be necessary to settle the obligation and
    • • The restructuring is measurable (a reliable estimate can be made)

Additionally, the following criteria must also be met in order to argue that a constructive obligation exists:

  • IAS 37 – Application of the Recognition and Measurement Rules
  • Additionally, the following criteria must also be met in order to argue that a constructive obligation exists:
  • (a) [The entity] has a detailed formal plan for the restructuring, identifying at least
  • (i) The business or part of a business concerned
  • (ii) The principal locations affected
  • (iii) The location, function, and approximate number of employees who will be compensated for terminating their services
  • (iv) The expenditures that will be undertaken and
  • (v) When the plan will be implemented and
  • (b) [The entity] has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it
  • The provision under the standard includes only direct costs that meet both of the following criteria:
  • • The costs are necessarily entailed by the restructuring, and
  • • They are not associated with the ongoing activities of the entity

Appropriate detail regarding the nature of the provisions and uncertainties should be disclosed

  • IAS 37 – Disclosures
  • Appropriate detail regarding the nature of the provisions and uncertainties should be disclosed
  • In rare cases where the information to be disclosed may prejudice the outcome of a dispute with other parties, there is not a requirement to disclose, other than the general nature of the dispute and the reason why full disclosure is not being made
  • Current GAAP Comparisons
  • Pages 90 & 100 of
  • Looking Ahead
  • The IASB originally decided to review IAS 37 as part of its short-term convergence project with FASB
    • It became apparent that the issues being discussed were quite foundational in terms of the entire body of knowledge
  • The IASB issued an Exposure Draft in 2005 and plans to issue a new standard in 2009
  • The standard proposes that all liabilities be recognized unless they cannot be reliably measured, and that uncertainty relating to the amount and timing of cash flows be reflected in the measurement of the liability
  • Looking Ahead
  • Some of the items being proposed/clarified are as follows:
  • 1. Scope: Performance obligations will not be covered by the standard
  • 2. Definitions:
    • Provision will not be a defined term due to its ambiguity
    • The terms contingent liability and assets will be deleted
    • Differentiation of a business risk from a present obligation will be more explicit
  • 3. Recognition: Probability recognition criteria will be deleted
  • 4. Measurement: More guidance on measuring expected values and reimbursement rights will be included
  • End-of-Chapter Practice
  • 5-1 The concept of contingency is different under IFRS.
  • Instructions
  • Contrast and compare the definitions of contingencies and contingent liabilities under both IFRS and U.S. GAAP. How does the accounting differ? Start by looking up the respective definitions under the respective standards.
  • End-of-Chapter Practice
  • End-of-Chapter Practice
  • End-of-Chapter Practice
  • Copyright © 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Inc., 111 River Street, Hoboken, NJ 07030-5774, (201) 748-6011, fax (201) 748-6008, website The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.
  • Revenue: IAS 18
  • Wiecek and Young
  • IFRS Primer
  • Chapter 6

Related standards

  • Revenue
  • Related standards
  • IAS 18
  • Current GAAP comparisons
  • IFRS financial statement disclosures
  • Looking ahead
  • End-of-chapter practice

SAB 104 Revenue Recognition

  • Related Standards
  • SAB 104 Revenue Recognition
  • SOP 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts
  • SOP 97-2 Software Revenue Recognition
  • SOP 98-9 Software Revenue Recognition, with Respect to Certain Transactions
  • FAS 45 Accounting for Franchise Fee Revenue
  • FAS 48 Revenue Recognition When Right of Return Exists
  • FAS 49 Accounting for Product Financing Arrangements
  • FAS 66 Accounting for Sales of Real Estate
  • EITF 99-19 Reporting Revenue Gross as a Principal Versus Net as an Agent
  • EITF 00-21 Revenue Arrangements with Multiple Deliverables
  • EITF 00-22 Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future
  • EITF 01-9 Accounting for Consideration Given by a Vendor to a Customer
  • CON 5 Recognition and Measurement in Financial Statements of Business Enterprises
  • CON 6 Elements of Financial Statements

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