International Financial Reporting - Essay Example

International Financial Reporting International Financial Reporting The IASB proposed a revision of the IAS 19 standard for worker benefits in 2011. This paper discusses and analyzes the impact of the revision of IAS 19 on American companies locally, and in the United Kingdom and China based on existing American GAAP. Among the most substantial changes made during the revision of IAS 19 on American companies are the definition of employee benefits packages, retirement benefits, employment termination benefits plans, and several other kinds of employee benefits. Introduction Before January 2013, IAS 19 under GAAP set off bookkeeping requirements for diverse kinds of benefits offered by an employer, often a company, to its staff members. These benefits extended to employment termination and retirement contexts. These benefits significantly affected employer’s fiscal positions and output because they attract the distinct attention of the users of fiscal statements. This paper further discusses the similarities and differences between IFRS and American GAAP for revising IAS 19 to analyze this issue extensively. The IAS 19 Standard Revision The rationale surrounding the revision of IAS 19 by the IASB is its main requirements. First, IAS 19 acknowledges both legal and positive commitments made to workers by their employers. The logic for amending this requirement is the delayed acknowledgement of profits and losses by the above acknowledgement. A revision of IAS 19 made sure the funded position of a given company will never be similar to the one reflected on its IASB balance sheet requirement (Price Water House Coopers, 2013). Second, IAS 19 requires the practice of Projected Unit Credit as just an actuarial costing technique. Adopting a change in IAS 19 resulted in the company acknowledging an asset for unfinanced packages and an obligation for excessively financed packages. Third, IAS 19 needed demographic and fiscal actuarial presumptions to be objective and mutually matched. A revision of IAS 19 assured the decrease of the comparability of options available today, as well as the limitation of their effectiveness to fiscal reports. Fourth, IAS 19 based fiscal presumptions on market anticipations. Revising this requirement made it hard to compare the impacts of the DB packages of various organizations. The fifth main requirement of IAS 19 was carrying package assets at “fair value” (Price Water House Coopers, 2013). Adopting a change in IAS 19 led to the adequate emphasis on risks emerging from DB packages by existing exposure drafts. However, IASB extended this requirement half a decade ago under US GAAP. Impact of the IAS 19 Standard Revision American companies on current GAAP first experienced substantial changes in administration expenses. This standard revision needs the subtraction of expenses affiliated with the oversight of package assets from the profits made on package assets. American companies under GAAP will also have to acknowledge other costs like accounting expenses or actuarial estimate charges in gain or loss after receiving the services (Bouvier, 2013). This transition means American companies no longer have the opportunity to add costs in the valuation of the described benefits liability or the actual and projected profit on plan assets. Where expenses except investment management are present in the anticipated and actual profit statements on assets are examples of the impact of this revision on American companies under GAAP. The revision involves a policy amendment that makes it essential to reevaluate the benefits liability, gains on assets, and worker benefits cost. American companies based on current US GAAP can alter the way they invest pension finance assets. Pension organizations venture into equities with the notion that they can ease gains and losses over the lives of their workers if the company decides to so. Revising IAS 19 removed the corridor strategy, which means that companies analyzed whether investing heavily in equity plans will have an impact on shareholder value. This analysis was essential since leaving equity and entering bonds often stabilized major output indicators. Furthermore, the revised IAS 19 resulted in more transparency in fiscal statements by raising the exposure of the expenses and risks related to plan assets (U.S. Securities and Exchange Commission, 2011). As a result, it is now easier for American companies under GAAP to compare the effect of pension expenses on recorded returns between companies. Similarities and Differences The revision of IAS 19 caused more differences between IFRS and the US GAAP for the amended IASB standard than similarities. The net quarterly benefits expense remained similar to American organizations under US GAAP and those reporting under IFRS after the revision of IAS 19 (Grant Thornton LLP, 2012). Under the US GAAP, previous service expenses emerge from package changes that raise or lower benefits to plan participants. Revising the IAS 19 Standard for previous service expenses led to additional differences between the net quarterly benefit expenses recognized under both the US GAAP and IFRS. Active plan members under the US GAAP reported previous service expenses originally in OCI and afterwards acknowledged them in their net income statements largely over the remainder duration of service. The revision of the IAS 19 standard will see the same recognition and reporting pattern under the IFRS. The first key difference exists in the acknowledgement of actuarial profits and losses. Before the revision, IAS 19 standard allowed three alternatives for acknowledging actuarial profits and losses. The alternative were the instant acknowledgement in net income, delayed acknowledgement in the net income, and instant acknowledgement in OCI (Other Comprehensive Income). The changes to IAS 19 get rid of the first two alternatives, thereby making actuarial profits and losses acknowledged instantly in OCI and never in net income. Many American companies delay acknowledgement although several employers have lately been chosen to speed up the acknowledgement of actuarial profits and losses. The US GAAP today allows either instant or delayed acknowledgement of actuarial profits and losses in net income by using a systematic strategy that they implement regularly (Hartwell, 2012). The second key difference is the presentation of net quarterly benefits expenses. The US GAAP previously needs the collective presentation of all aspects of the nets quarterly benefits expense in the income statement as a single cost amount (Grant Thornton LLP, 2012). Today, US GAAP needs the reflection of just service and net interest expenses in the income statement because of a revised IAS 19. Currently, companies under IFRS add profits and losses in the statement of comprehensive income and cannot reuse them in net income statements. The project return on plan assets for companies under IFRS might be less than the longstanding rate of profit for companies under US GAAP. Companies under the US GAAP have to acknowledge any difference between interest incomes and assets valued at the start of a financial year, and the actual profit on plan assets determined at the end of the same period in the OCI. Twenty percent of American companies doing business in the United Kingdom have had their distributable assets and bank agreements affected. The UK’s FSA (Financial Services Authority) regulates the capital of these companies. The FSA now requires these companies to acknowledge instantly all actuarial profits and losses on their overall financial statements (Lokhandwala, 2012). For American companies operating in China, they cannot be praised for the over-performance of projected equity investments over AA corporate products. Chinese financial regulation institutions ensured the rise in pension costs recorded in the overall financial statements after the IAS 19 revision came into effect (Hartwell, 2012). Conclusion Current GAAP offer auditing options for the acknowledgement of actuarial profits and losses relative to distinct benefits packages and deviating interpretations of a number of descriptions lead to the absence of comparability between companies. This absence is a serious problem for companies operating under both US GAAP and IFRS. The IASB proposed this revision as a compulsory change set to take effect in early 2013. This proposition came into effect in January 1, 2013 and has since then caused some significant effects on the operations of American companies locally and in overseas markets and economies. References Bouvier, S. (2013). IFRS IC recommends IASB finalize IAS 19, negative-benefits amendments. Accounting Policy & Practice Report, 9(19), 761-762. Grant Thornton LLP. (2012). Comparison between U.S. GAAP and International Financial Reporting Standards. Grant Thornton, pp. 185. Hartwell, C. L. (2012). The potential implications of revised IAS 19. The CPA Journal, 82(9), 30-35. Lokhandwala, T. (2012). Revised IAS 19 slipping under the radar. Professional Pensions, 1. Price Water House Coopers. (2013). Practical guide to IFRS: IAS 19 (revised) significantly affects the reporting of employee benefits. PWC Employee benefits, pp. 14. U.S. Securities and Exchange Commission. (2011). Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers: A Comparison of U.S. GAAP and IFRS. Chief Accountant United States Securities and Exchange Commission, pp. 49. Read More