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A one-stop resource for understanding current International Financial Reporting Standards
As the International Accounting Standards Board (IASB) makes significant strides in achieving global convergence of accounting standards worldwide, the International Financial Reporting Standards (IFRS) become extremely important to the accounting world. Wiley IFRS 2011 provides the necessary tools for understanding the IASB standards and offers practical guidance and expertise on how to use and implement them.

  • Covers the most recent International Financial Reporting Standards (IFRS) and IFRIC interpretations
  • An indispensable guide to IFRS compliance
  • Provides a complete explanation of all IFRS requirements, coupled with copious illustrations of how to apply the rules in complex, real-world situations

Written by two well-known international experts on the subject with hands-on experience in applying these standards, this book is an indispensable guide to IFRS compliance.  

From the Back Cover

International Financial Reporting Standards (IFRS®) have received increased attention since such signal events as endorsements by the International Organization of Securities Commissions (IOSCO) in 2000, by the European Union (2002, mandating universal adoption by publicly held companies in 2005), and by the SEC (waiving reconciliation requirements for foreign private issuers using IFRS® beginning in 2007, and establishing a “road map” for adoption by U.S. public companies by 2016).With further refinements to IFRS® continuing to be made by the International Accounting Standards Board (IASB)—aided by work being performed pursuant to the “convergence” commitment made by the U.S. standard-setter, FASB—and given the now virtually unstoppable momentum worldwide to adopt (or, in some cases, adapt) IFRS®, mastery of this knowledge is becoming a necessity for all preparers of financial statements. Although only publicly held U.S. companies are facing an impending near-term mandate to convert to IFRS®, many private companies already are encountering requests or demands from their major customers, suppliers, joint venture partners, and affiliates to provide financial reports prepared under IFRS®. In all likelihood, replacement of U.S. GAAP by IFRS® will become a reality for even privately held enterprises within the foreseeable term. 

Experience from EU-based companies that implemented IFRS® financial reporting by 2005 suggests that such an undertaking may require a multi-year effort. Wiley IFRS® 2011 provides a complete explanation of all IFRS® requirements, coupled with copious illustrations of how to apply the rules in complex, real-world fact situations, and can be used both in training accounting staff and serving as a reference guide during actual implementation of IFRS® and preparation of IFRS®-based financial statements. Wiley IFRS® 2011 is equally valuable for preparers, auditors, and users of financial reports.To optimize the reader’s understanding, both examples created to explain particular IFRS® requirements and selections from actual published financial statements are provided throughout the book, illustrating all key concepts. Also included in this edition are a revised, comprehensive disclosure checklist; an updated, detailed comparison between U.S. GAAP and IFRS® , keyed to chapter topics; and integrated discussions of major ongoing IASB projects that may have significant impact on readers’ responsibilities over the coming year. 

Product Details

  • Paperback: 1128 pages
  • Publisher: Wiley (February 8, 2011)
  • Language: English
  • ISBN-10: 0470554428
  • ISBN-13: 978-0470554425
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India to go ahead with IFRS implementation plans as scheduled

The Indian government will stick to its April 1, 2011 deadline for 300 large companies to align their accounts with global financial reporting norms as per the report appearing in Economic Times dated 5th Jan 2011. This is inspite of the concerns raised by an industry lobby. Earlier the government sought fresh comments from the top 300 companies that will converge their accounts with international financial reporting standards (IFRS) from the next financial year before rolling out the new norms.

Indian companies will be asked to follow the norms, which will be rolled out in a phased manner. All BSE-Sensex 30 and NSE-Nifty 50 companies will start following IFRS from April 1 along with all listed companies having a net worth of INR 1,000 crore and above. The Indian government had made a commitment at the G20 summit in 2009 to converge to IFRS from April 1, 2011. Accounting experts welcomed the government’s decision to go ahead with the April 1 deadline.

Full report: Economic Times

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Please find below the summary of the Exposure Draft on hedge accounting under IAS 39 issued by IASB on 9th December 2010.

We are all aware that IFRS is principle based while US GAAP is rule based. However, the hedge accounting portions of IAS 39 do contain certain rule based criteria for testing hedge effectiveness. The proposals in the ED seeks to move away from this by making this principle based.

The main objective of ‘hedge accounting’ under the current standards is to mitigate the recognition and measurement anomalies between the accounting for hedged items and to manage the timing of the recognition of gains or losses on derivative hedging instruments used to mitigate cash flow risk. As per the ED the objective is to represent in the financial statements the effect of managing exposures arising from particular risks that affect profit or loss.

So long ‘hedge accounting’ is considered to be a privilege and the entity is supposed to earn such privilege by fulfilling several rigourous conditions. Considering the fact that the new proposal are aimed at the entities to show the effect of managing risks in the financial statements, it will not be surprising if this is made mandatory soon.

Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard
Objective To mitigate the recognition and measurement anomalies between the accounting for hedged items and to manage the timing of the recognition of gains or losses on derivative hedging instruments used to mitigate cash flow risk To represent in the financial statements the effect of managing exposures arising from particular risks that affect profit or loss
Hedging instruments A non-derivative financial asset/liability measured at fair value through profit or loss is not eligible for designation as a hedging instrument A non-derivative financial asset/liability measured at fair value through profit or loss may be eligible for designation as a hedging instrument
Hedged items An aggregated exposure that is a combination of an exposure and a derivative cannot be designated as a hedged item An aggregated exposure that is a combination of an exposure and a derivative may be designated as a hedged item
Non-financial items Risk component separately identifiable and reliably measureable may be designated as  the hedged item in a hedging relationship but only for financial items  Risk component separately identifiable and reliably measureable may be designated as the hedged item in a hedging relationship for non-financial items also 
Hedge effectiveness testing Rule-based: The offset is within the range of 80-125 % a hedge is effective and only then it qualifies for hedge accounting Principle-based: The hedging relationship should meet the objective of the hedge effectiveness assessment as laid down in the risk management policy of the entity
Retrospective testing On an ongoing basis an entity should assess the effeictiveness of the hedge by retrospective testing The assessment relates to expectations about hedge infectiveness and offsetting and therefore is only forward looking.  
No retrospective testing 
Rebalancing of a hedging relationship There is no such thing as rebalancing. When a hedge effectiveness assessment objective fails an entity can modify the hedge ratio to meet the objective of hedge effectiveness assessment, so long as the risk management objective remains unaltered
Modifying the hedge ratio is not permitted 
Discontinuing hedge accounting If the effectiveness testing fails either prospectively or retrospectively hedge should be discontinued Hedge accounting shall be discontinued prospectively only when the hedging relationship ceases to meet the qualifying criteria affecting the risk management activities 
Fair value hedges The effective and ineffective portions are taken to the profit and loss The gain or loss on the hedging instrument and the hedged item should be recognized in other comprehensive income. The ineffective portion should be transferred to profit and loss
Time value of options The entire fair value of an option including the time value is treated as held for trading and is accounted for at fair value through profit or loss When designated, entity should follow specific accounting requirements for accounting the time value of an option
Net position hedging  IAS 39 does not allow net positions to be hedged  Extend the use of hedge accounting to net positions, improving the link to risk management 
Credit derivatives as hedging instrument  Under the current standards entities using credit derivatives do not achieve hedge accounting as it is operationally difficult if not impossible  Three alternative approaches of accounting proposed where credit risk is hedged by credit derivatives with separate qualification and discontinuation criteria 
Hedges resulting in non-financial asset/ liability  Option to either basis-adjust or to route the hedge gain/loss directly in profit or loss from other comprehensive income  Proposal withdraws the choice and the hedge gain/loss should be subject to basis-adjustment 
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Weather derivatives covered by IAS 39?

Are weather derivatives covered by IAS 39 or are they insurance contracts?

Contracts that require payment only if a particular level of the underlying climatic, geological or other physical variables adversely affects the contract holder are insurance contracts and as such are outside the scope of IAS 39.

However contracts that require a payment based on a climatic, geological or other physical variable that is not specific to a party to the contract are commonly described as weather derivatives and by virtue of IFRS 4 these contracts are not insurance contract. Hence the weather derivatives are within the scope of IAS 39.

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Cash Flow Hedge for a Foreign Currency debt

As per US GAAP, Cash flow hedge accounting for a foreign currency debt is permissible using a FX forward contract to cover the Foreign Exchange risk . Section 815-20-25-28 is quoted below:

“If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure:
a. A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale security)
b. A cash flow hedge of any of the following:
1. A forecasted transaction
2. An unrecognized firm commitment
3. The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability
4. A forecasted intra-entity transaction.
c. A hedge of a net investment in a foreign operation.”

Such a cash flow hedge is specifically permitted by virtue of Section 815-20-25-29 which is quoted below:

“The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency spot rate is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs 815-20-25-15(d) and 815-20-25-43(c).

Thus, those criteria are not impediments to either of the following:
a. A foreign currency fair value or cash flow hedge of such a foreign-currency- denominated asset or liability
b. A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph 830-20-35-1.

Is this type of a transaction eligible as a Cash Flow hedge under IAS 39 of IFRS? …read more on Forum

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Wiley CPA Exam Review Test Bank Online (CD-ROM)

Product Details

  • CD-ROM
  • Publisher: Wiley (May 20, 2010)
  • Language: English
  • ISBN-10: 0470621907
  • ISBN-13: 978-0470621905
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Product Description

A wide-ranging source of information for the practicing accountant, The Ultimate Accountants’ Reference, Third Edition covers accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department, including best practices, control systems, and the fast close. It also addresses financing options, pension plans, and taxation options. The perfect daily answer book, accountants and accounting managers will turn to The Ultimate Accountants’ Reference, Third Edition time and again for answers to the largest possible number of accounting issues that are likely to arise.

From the Back Cover

The Ultimate Accountants’ Reference offers a single-source tool of best practices and control systems related to accounting regulations for all aspects of financial statements, accounting management reports, and management of the accounting department. The perfect daily answer book for the practicing accountant, it also addresses financing options, risk management, mergers and acquisitions, and taxation topics.

This revised and updated edition of Accounting Reference Desktop offers a concentrated, everyday reference manual to help financial professionals become much more efficient in researching accounting topics. New features of this improved resource tool include:

  • Up-to-date information on GAAP, IRS regulations, and new SEC regulations
  • New material on leases and options
  • More examples than the previous edition
  • The latest coverage of control systems, including twice as many controls as the previous edition
  • Double the amount of journal entries as the previous edition

Accountants, accounting managers, and finance personnel will turn to The Ultimate Accountants’ Reference time and again for quick, reliable answers to everyday issues. –This text refers to an out of print or unavailable edition of this title.

Product Details

  • Hardcover: 816 pages
  • Publisher: Wiley; 3 edition (March 8, 2010)
  • Language: English
  • ISBN-10: 047057254X
  • ISBN-13: 978-0470572542
  • Product Dimensions: 10 x 7.1 x 1.7 inches
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Accounting of repurchase agreements comes under scanner

The Securities and Exchange Commission has started an inquiry into about two dozen financial companies to determine whether they followed accounting practices similar to those recently disclosed in an investigation of Lehman Brothers.

Repurchase agreements, which are a common way that investment banks provide funds for trading activities. The commission wants to know whether other Wall Street players used tactics like those that Lehman used to mask their debt levels from investors.

This inquiry is part of its duties to review the financial filings of public companies and any irregularities will be sent to its enforcement wing to eventually bring charges on such errant companies.

As per the news item appearing in New York Times, “Since Lehman was accused of using a transaction known as Repo 105 in 2008 to hide about $50 billion in debt, analysts have said there should be a widespread inquiry of accounting on wall Street before the financial crisis.

The commission is focusing on all sorts of repurchase agreements, not just those Lehman used. The commission asked the companies if they had classified the transactions, which are often considered loans, as sales. The commission also asked whether those transactions affected data provided to investors, analysts, regulators or ratings agencies.”

See the full report here: http://www.nytimes.com/2010/03/30/business/30sec.html

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Product Details

  • Paperback: 1328 pages
  • Publisher: Wiley; Pap/Cdr edition (March 22, 2010)
  • Language: English
  • ISBN-10: 0470453249
  • ISBN-13: 978-0470453247
  • Product Dimensions: 9.4 x 7.4 x 3 inches
  • Shipping Weight: 3.9 pounds

Product Description

Your one-stop resource for understanding current International Financial Reporting Standards

With widespread acceptance and use of the IASB standards around the globe, the need to understand the IASB standards greatly increases. Wiley IFRS 2010 provides the necessary tools for understanding the IASB standards and offers practical guidance and expertise on how to use and implement them. The Wiley IFRS 2010 Book and CD-ROM set covers the most recent International Financial Reporting Standards (IFRS) and IFRIC interpretations. In addition, it is an indispensable guide to IFRS compliance.

  • Detailed coverage of all previously issued IAS and IFRS standards and Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC)
  • Equally valuable for preparers, auditors, and users of financial reports
  • Provides a complete explanation of all IFRS requirements, coupled with copious illustrations of how to apply the rules in complex, real-world fact situations
  • Serves as a reference guide during actual implementation of IFRS and preparation of IFRS-based financial statements

To optimize your understanding, both examples created to explain particular IFRS requirements and selections from actual published financial statements are provided throughout the book, illustrating all key concepts.

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FII income from hedging not liable to tax, rules AAR

Income of foreign institutional investors (FIIs) from derivatives trading will not be liable to tax in India, the Authority for Advance Rulings has said, clearing the air on taxability of the income of foreign investors trading in Indian securities.

The ruling will help FIIs undertaking similar transactions subject to the provisions of the tax treaties with their respective countries, say tax experts. The AAR’s ruling comes in response to a plea by Royal Bank of Canada, registered with market regulator Securities and Exchange Board of India as a FII, seeking clarity on whether profit or loss from trading in securities, including derivatives, will be treated as business income and be liable to tax in respect of India-Canada Double Taxation Avoidance Agreement.

“Its been a long pending debate between tax authorities and tax payers, especially foreign investors whether the income arising in respect of securities derivative transactions is in the nature of business income or capital gains…lots of cases have been filed on these issues and the current judgement clarifies, based on the facts of Royal Bank of Canada, that in the absence of a permanent establishment the income arising from such transaction will not be subject to tax,” said Vikas Vasal, partner, KPMG.

The revenue department’s contention that the income from such activities was capital gains and hence liable to tax in India was rejected by the Authority. The authority said the profit and loss was earned by the applicant out of trading activity.

Also, the Royal Bank of Canada does not have a permanent establishment or fixed place of business in India and as per the provisions of the India-Canada tax treaty its income could not be taxed here.

It may be pointed that most FIIs in India invest via Mauritius route to enjoy the capital gains tax exemption available under Indo-Mauritius tax treaty. In such a case profits and loss from such trading are treated as capital gains or loss. However, when an entity comes from any other country the provisions of the tax treaty with that country comes into play and investors usually treat income from such activity as business income which does not have to face tax if there is no PE.

Therefore facts of each case need to be examined in detail in order to determine whether the activity per se is to be treated as a business transaction or an investment transaction. In case its is determined that these are in nature of business income the next issue to be examined is whether the foreign investor has a business connection or a permanent establishment in India for taxability of the same. If it is established that there is now PE in India then generally the business income arising there from would not be subject to tax subject to provision of relevant tax treaty. If it the PE exists then profit attributed to such PE only will be subject to tax in India.

The AAR is a quasi-judicial body, set up to give opinion to guide companies on their potential tax liabilities. While rulings by the AAR are case-specific, they have a persuasive impact on tax assessment in cases of other firms under similar circumstances.

Source: Economic Times

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