STANDARDS: IAS 40 INVESTMENT PROPERTY (PART 3)

Resousec : iasplus

Disclosure

Both Fair Value Model and Cost Model [IAS 40.75]

• whether the fair value or the cost model is used;
• if the fair value model is used, whether property interests held under operating leases are classified and accounted for as investment property;
• if classification is difficult, the criteria to distinguish investment property from owner-occupied property and from property held for sale.
• the methods and significant assumptions applied in determining the fair value of investment property.
• the extent to which the fair value of investment property is based on a valuation by a qualified independent valuer; if there has been no such valuation, that fact must be disclosed.
• the amounts recognised in profit or loss for:

- rental income from investment property;
- direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period; and
- direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.

• restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
• contractual obligations to purchase, construct, or develop investment property or for repairs, maintenance or enhancements.
  

Additional Disclosures for the Fair Value Model [IAS 40.76]

• a reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing additions, disposals, fair value adjustments, net foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes.
• significant adjustments to an outside valuation (if any)
• if an entity that otherwise uses the fair value model measures an item of investment property using the cost model, certain additional disclosures are required.
  

Additional Disclosures for the Cost Model [IAS 40.79]

• the depreciation methods used;
• the useful lives or the depreciation rates used;
• the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period;
• a reconciliation of the carrying amount of investment property at the beginning and end of the period, showing additions, disposals, depreciation, impairment recognised or reversed, foreign exchange differences, transfers to and from inventories and owner-occupied property, and other changes;
• the fair value of investment property. If the fair value of an item of investment property cannot be measured reliably, additional disclosures are required, including, if possible, the range of estimates within which fair value is highly likely to lie.

IAS 40 INVESTMENT PROPERTY PART 2

STANDARDS: IAS 40 INVESTMENT PROPERTY (PART 2)

Resource : iasplus

Measurement subsequent to initial recognition

IAS 40 permits enterprises to choose between: [IAS 40.30]

• a fair value model; and
• a cost model.
  

One method must be adopted for all of an entity's investment property. Change is permitted only if this results in a more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a fair value model to a cost model.

Fair value model
Investment property is remeasured at fair value, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction. Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. [IAS 40.35]

Fair value should reflect the actual market state and circumstances as of the balance sheet date. [IAS 40.38] The best evidence of fair value is normally given by current prices on an active market for similar property in the same location and condition and subject to similar lease and other contracts. [IAS 40.45] In the absence of such information, the entity may consider current prices for properties of a different nature or subject to different conditions, recent prices on less active markets with adjustments to reflect changes in economic conditions, and discounted cash flow projections based on reliable estimates of future cash flows. [IAS 40.46]

There is a rebuttable presumption that the enterprise will be able to determine the fair value of an investment property reliably on a continuing basis. However, if, in exceptional circumstances, an entity follows the fair value model but at acquisition concludes that a property's fair value is not expected to be reliably measurable on a continuing basis, the property is accounted for in accordance with the benchmark treatment under IAS 16, Property, Plant and Equipment (cost less accumulated depreciation less accumulated impairment losses). [IAS 40.53]
Where a property has previously been measured at fair value, it should continue to be measured at fair value until disposal, even if comparable market transactions become less frequent or market prices become less readily available. [IAS 40.55]

Cost Model
After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16, Property, Plant and Equipment – cost less accumulated depreciation and less accumulated impairment losses. [IAS 40.56]

Transfers to or from Investment Property Classification

Transfers to, or from, investment property should only be made when there is a change in use, evidenced by: [IAS 40.57]

• commencement of owner-occupation (transfer from investment property to owner-occupied property);
• commencement of development with a view to sale (transfer from investment property to inventories);
• end of owner-occupation (transfer from owner-occupied property to investment property);
• commencement of an operating lease to another party (transfer from inventories to investment property); or
• end of construction or development (transfer from property in the course of construction/development to investment property.
  

When an enterprise decides to sell an investment property without development, the property is not reclassified as investment property but is dealt with as investment property until it is disposed of.

The following rules apply for accounting for transfers between categories:

• for a transfer from investment property carried at fair value to owner-occupied property or inventories, the fair value at the change of use is the 'cost' of the property under its new classification; [IAS 40.60]
• for a transfer from owner-occupied property to investment property carried at fair value, IAS 16 should be applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16; [IAS 40.61]
• for a transfer from inventories to investment property at fair value, any difference between the fair value at the date of transfer and it previous carrying amount should be recognised in net profit or loss for the period; [IAS 40.63] and
• when an entity completes construction/development of an investment property that will be carried at fair value, any difference between the fair value at the date of transfer and the previous carrying amount should be recognised in net profit or loss for the period. [IAS 40.65]
  

When an entity uses the cost model for investment property, transfers between categories do not change the carrying amount of the property transferred, and they do not change the cost of the property for measurement or disclosure purposes.

Disposal
An investment property should be derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and the carrying amount of the asset and should be recognised as income or expense in the income statement. [IAS 40.66 and 40.69] Compensation from third parties is recognised when it becomes receivable. [IAS 40.72]

IAS 40 INVESTMENT PROPERTY PART 2

Next IAS 40 INVESTMENT PROPERTY PART 3

STANDARDS: IAS 40 INVESTMENT PROPERTY (PART 1)

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Definition of Investment Property

Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. [IAS 40.5]

Examples of investment property: [IAS 40.8]

• Land held for long-term capital appreciation
• Land held for undecided future use
• Building leased out under an operating lease
• Vacant building held to be leased out under an operating lease

The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and 40.9]

• property held for use in the production or supply of goods or services or for administrative purposes;
• property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories);
• property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts);
• owner-occupied property (IAS 16 Property, Plant and Equipment), including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal;
• property that is being constructed of developed for use as an investment property (IAS 16 applies to such property until construction or development is complete). However, IAS 40 does apply to existing investment property that is being redeveloped for continuing use as investment property; and
• property leased to another entity under an finance lease.
  

Other Classification Issues

Property held under an operating lease. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property provided that: [IAS 40.6]

• the rest of the definition of investment property is met;
• the operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases; and
• the lessee uses the fair value model set out in this Standard for the asset recognised.
• An entity may make the foregoing classification on a property-by-property basis.

Partial own use. If the owner uses part of the property for its own use, and part to earn rentals or for capital appreciation, and the portions can be sold or leased out separately, they are accounted for separately. Therefore the part that is rented out is investment property. If the portions cannot be sold or leased out separately, the property is investment property only if the owner-occupied portion is insignificant. [IAS 40.10]

Ancillary services. If the enterprise provides ancillary services to the occupants of a property held by the enterprise, the appropriateness of classification as investment property is determined by the significance of the services provided. If those services are a relatively insignificant component of the arrangement as a whole (for instance, the building owner supplies security and maintenance services to the lessees), then the enterprise may treat the property as investment property. Where the services provided are more significant (such as in the case of an owner-managed hotel), the property should be classified as owner-occupied. [IAS 40.11]

Intracompany rentals. Property rented to a parent, subsidiary, or fellow subsidiary is not investment property in consolidated financial statements that include both the lessor and the lessee, because the property is owner-occupied from the perspective of the group. However, such property could qualify as investment property in the separate financial statements of the lessor, if the definition of investment property is otherwise met. [IAS 40.15]

Recognition

Investment property should be recognised as an asset when it is probable that the future economic benefits that are associated with the property will flow to the enterprise, and the cost of the property can be reliably measured. [IAS 40.16]

Initial measurement

Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy. [IAS 40.20 and 40.23]

IAS 40 Accounting Property PART 2>>>

Key Concepts of Internal Control

COSO Definition of Internal Control


Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

• Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with applicable laws and regulations
  

Key Concepts

• Internal control is a process. It is a means to an end, not an end in itself.
• Internal control is effected by people. It’s not merely policy manuals and forms, but people at every level of an organization.
• Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entity’s management and board.
• Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

Resorce : InternalControl Key Concepts

IASB publishes draft IFRS for SMEs

The International Accounting Standards Board (IASB) is today publishing for public comment the Exposure Draft of its International Financial Reporting Standard for Small and Medium-sized Entities ( IFRS for SMEs ).

The aim of the proposed standard is to provide a simplified, self-contained set of accounting principles that are appropriate for smaller, non-listed companies and are based on full International Financial Reporting Standards (IFRSs), developed primarily for listed companies. By removing choices for accounting treatment, eliminating topics that are not generally relevant to SMEs and simplifying methods for recognition and measurement, the resulting draft standard reduces the volume of accounting guidance applicable to SMEs by more than 85 per cent when compared with the full set of IFRSs. As a result, the Exposure Draft offers a workable, self-contained set of accounting standards that would allow investors for the first time to compare SMEs’ financial performance across international boundaries on a like for like basis.

In order to assist companies in preparing accounts based on the proposed IFRS for SMEs , the requirements of IFRSs have been simplified and redrafted using plain English where possible. However, SMEs that decide to upgrade to using full IFRSs would find the transition eased because both sets of standards are based on the same underlying principles.

Introducing the Exposure Draft, Sir David Tweedie, IASB Chairman, said:

Our goal has been to produce a standard for use by smaller and unlisted companies that offers the comparability of full IFRSs while reducing the burden on the preparing company. When completed, the SME standard will make the accounting requirements more accessible to smaller preparers in both developed and emerging markets. With this publication, we are now actively seeking the views of companies, banks, the audit profession, and other interested parties as part of a broad consultation to see if we’ve taken out too much or not enough or if we’ve got it about right.

The adoption of the IFRSs for SMEs will be a matter for each country or adopting jurisdiction to decide. For example, the EU requires listed companies to comply with International Financial Reporting Standards (IFRSs), but will leave it to Member States to decide which standards SMEs should follow. The IASB proposes that listed companies, however small, would not be eligible to use the IFRS for SMEs .

The Exposure Draft is available for e IFRS subscribers from today and will be freely available on the Website from 26 February 2007. The IASB invites comments on the Exposure Draft by 1 October 2007. As a step to facilitate broader consultation, the IASB will for the first time publish a proposed standard in translation. The Exposure Draft will be published in French, German and Spanish in April 2007: see the IASB Website for more details.

FASB Lunched Statement 133

Statement 133 Implementation (Derivatives)

Statement 133 Implementation Issues provide guidance on questions that companies may face when implementing Statement 133. Implementation issues are authored by the FASB staff and represent the staff's views, although the Board has discussed the issues at a public meeting and chosen not to object to dissemination of that response. Official positions of the FASB are determined only after extensive due process and deliberation. Prior to April 2001 these issues were prepared with the assistance of the Derivatives Implementation Group, as described below.
When considering future Statement 133 Implementation Issues the FASB staff expects to follow procedures consistent with the issuance of FASB Staff Positions.
Implementation issues finalized before March 2004 are incorporated in the updated edition of Accounting for Derivative Instruments and Hedging Activities, which can be purchased from the FASB (Purchase Information). Issues finalized subsequent to this date are available on this website (Guidance on Statement 133 Implementation Issues).
The Derivatives Implementation Group was a task force created in 1998 concurrent with the issuance of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to assist the FASB in providing guidance on questions that companies would face when they began implementing Statement 133. The FASB's objective in forming the group was to establish a mechanism to identify and resolve significant implementation questions in advance of the implementation of Statement 133 by many companies.
The role of the Derivatives Implementation Group was different from that of other task forces previously assembled by the FASB because it was established to address issues related to a new Statement that had not yet been implemented by most companies. The responsibilities of the Derivatives Implementation Group were to identify practice issues that arose from applying the requirements of Statement 133 and to advise the FASB on how to resolve those issues. In addition to members of the implementation group, any constituent or organization could have submitted questions to be debated by the group by sending a detailed letter to the group chairman, which has been either the FASB Vice Chairman or the Director of Research and Technical Activities. The FASB staff also sought input from the implementation group on selected technical inquiries that it resolved.
The model for the Derivatives Implementation Group was the Emerging Issues Task Force (EITF) with the key difference being that the Derivatives Implementation Group did not formally vote on issues to reach a consensus. Instead, the Chairman had the responsibility to identify an agreed-upon resolution that emerged based upon the group's debate. Implementation group members were free to submit written objections to any issue where the group had reached an agreed-upon resolution. In instances where no clear resolution of an issue had emerged, the issue would be discussed further at a future meeting or handled by the FASB staff.
After each meeting of the Derivatives Implementation Group, the FASB staff had the responsibility of documenting tentative conclusions for each issue. Those tentative conclusions were publicly available on the FASB web site typically several weeks after a meeting of the Derivatives Implementation Group. Those conclusions remained tentative until they were formally cleared by the FASB and became part of an FASB staff implementation guide (Q&A). The Board was typically not asked to formally clear the staff's tentative conclusions at a public Board meeting until those conclusions had been publicly available on the website for a 35-day period. That delay provided constituents the opportunity to study those conclusions and submit any comments before the Board considered formal clearance. The cleared Implementation Issues as well as any tentative conclusions are available for reference on this FASB website.
Meetings of the Derivatives Implementation Group were held at the FASB offices in Norwalk, CT and were open to public observation. The group met bimonthly from Mid-1998 through March 2001 when companies were planning for transition to the new accounting requirements. (Statement 133 was effective for all fiscal quarters of fiscal years beginning after June 15, 2000.) The Derivatives Implementation Group no longer meets.
The members of the Derivatives Implementation Group and their affiliations are:

Chairman

Members

Mr. Philip D. Ameen, Vice President and Comptroller,
General Electric Company

Mr. Tim Bridges, Vice President Derivative Products,
Goldman, Sachs & Co.
Mr. Michael Joseph, Partner, Ernst & Young
LLP

Mr. Ira Kawaller, President, Kawaller & Company,
LLC
Mr. Carlos Mello, Managing Director, Olson Mobeck Investment Advisors (a subsidiary of People's Bank Connecticut)

Ms. Deidre Schiela, Partner,
PricewaterhouseCoopers

Mr. David H. Sidwell, Chief Financial Officer, Morgan Stanley

Mr. John T. Smith, Partner, Deloitte & Touche
LLP (part-time Board Member, International Accounting Standards Board)

Mr. John E. Stewart, Managing Director, Financial Reporting Advisors, LLC
Mr. Enrique M. Tejerina, Partner, KPMG LLP

Observers

Mr. Scott Taub, Deputy Chief Accountant, Securities
and Exchange Commission

Mr. Robert Storch, Chief, Accounting Section,
Division of Supervision, Federal Deposit Insurance Corporation-->

Resource : FASB Official Website

More About Statement 133 Implementation See Guidance on Statement 133 Implementation Issues

About Thai Accounting Standard

Transparency (Accounting Standards)

Even though Thailand does not adopt the US GAAP (General Accepted Accounting Principle) or the IAS (International Accounting Standard) in its entirety in the financial reports of listed companies, companies listed on the Stock Exchange of Thailand (SET) have to follow the Thai GAAP which implements 21 out of 34 standards set out by the IAS. Moreover, it is the policy and goal of the Institute of Certified Accountants and Auditors of Thailand (ICAAT) that within four years all the IAS that are applicable to Thailand will be adopted by the Thai GAAP. The complete list of Thai GAAP that has adopted the IAS is shown in Standard Adopted as Thai GAAP.

In addition to compliance with the Thai GAAP, companies that are listed on the SET are subjected to rigorous disclosure requirements. Their financial statements have to be reviewed by external and independent auditors and disclosed to the public on a quarterly basis. Their annual financial statements have to be audited by independent auditors and a majority of listed companies have the 5 international audit firms as their external auditors. These auditors apart from having to be licensed by the ICAAT, they also have to be registered with the Thai SEC and their work and standards of auditing are reviewed by the Thai SEC and the ICAAT on a regular basis.

The Thai SEC also requires listed companies to file their annual disclosure statements (Form 56-1) (see Appendix B). Contained in those statements must be extensive information on risk factors that the companies are facing, management discussion and analysis on past performance, and financial position as reflected in the financial statements. In case where there is any negative effect on performance of the companies, discussion in the annual statement should also provide detailed description of plans to avert the problems. The annual statement must also provide information of related parties transactions during the year; the significant ones of which are required by the SET to be approved by shareholder meetings. Discussions on the level of internal control and management control over the companies through audit committees, whose composition includes independent directors, must also be disclosed. The Thai SEC conducts random reviews of approximately a quarter of total number of such disclosure documents. Any company that fails to disclose such information are subjected to sanction by the Thai SEC.

Resource : Thailandoutlook.com

Generally Accepted Accounting Principles

Generally Accepted Accounting Principles
Resource : http://www.e-articles.info/e/a/title/Generally-Accepted-Accounting-Principles/

The Financial Accounting Standards Board (FASB) is a research organization, made up primarily of accountants. The FASB, along with the entire accounting profession, has, over time, developed a series of rules called generally accepted accounting principles (GAAP). In addition, the FASB publishes what are called FASB Bulletins. These are a series of more than one hundred publications that describe what corporate reporting methodologies should be. Most of these methodologies have been adopted and are now incorporated into accounting practice. A broad analogy is that the GAAP rules are the basic constitution and the bulletins are proposed amendments. Here are some of the GAAP rules.

1. The Fiscal Period
All reporting is done for predetermined periods of time. Reports may be issued for months or quarters and certain reports are issued annually. Accounting fiscal periods usually coincide with calendar periods, although not necessarily with the calendar year. For example, a company’s fiscal year may be July 1 to June 30 or February 1 to January 31.
2. The Going Concern Concept
When accountants are keeping the books and preparing the financial statements, they presume that the company will continue to be in existence for the foreseeable future. If there is serious doubt about this, or if the company’s ceasing operations is a certainty, the financial statements (essentially the balance sheet) will be presented at estimated liquidation value.
3. Historical Monetary Unit
Accounting is the recording of past business events in dollars. Financial statements, and in fact all financial accounting, report only in dollars. While units of inventory, market share, and employee efficiency are critical business issues, reporting on them is not within the realm of financial accounting responsibility. Financial statements depicting past years are presented as they occurred. The selling prices of the products and the value of assets may very well be different today, but reports of past periods are not adjusted.
The principle of conservatism requires that ‘‘bad news’’ be recognized when the condition becomes possible and the amount can be estimated, whereas ‘‘good news’’ is recognized only when the event (transaction) has actually occurred. One example of this is the allowance for bad debts on the balance sheet, which is recorded before the losses are actually incurred. Another example is reserves for inventory writedowns, which are recorded before the dated or out of style products are actually put up for sale at distress prices. Revenue, however, is not recorded, no matter how certain it is from a business point Generally Accepted Accounting Principles: A Review 53 of view, until the product is actually delivered or the service is actually provided. Payment in advance, while assuring the certainty of the sale in a business sense, does not change the accounting rule. Revenue is recorded only when it is earned.
4. Quantifiable Items or Transactions
The value of the company’s workforce and the knowledge the workers possess may in a business sense be the company’s critical competitive advantage. However, because that value cannot be quantified and expressed in dollars, accounting does not recognize it as an asset. The value of trademarks and franchise names is also generally not included. Coke, Windows, and Disney are certainly franchise brand names with worldwide recognition. While the business value of a franchise name can be almost infinite if it is maintained, franchise names are not assets on the balance sheet because that value cannot be quantified.
5. Consistency
Accountants make many decisions when they are preparing the company’s financial statements. These include but are not limited to the choice of depreciation method for fixed assets and the choice of LIFO or FIFO accounting for inventory. Once these decisions have been made, however, later successive financial statements must employ the same methodology. When a major change is made in accounting methodology, the accountants must highlight that change and redo past financial statements (the reference points) to reflect that change. Only then can comparative analysis and trends be valid.
6. Full Disclosure
When a major change in methodology occurs, accountants must take steps to be certain that readers of the financial statement 54 Understanding Financial Information are fully aware of that change and how it affected the financial results.
7. Materiality
An event that is material, or significant, is one that may affect the judgment, analysis, or perception of the reader of the information. Events that are perceived as material must be disclosed separately and highlighted accordingly. This is a relative concept. Something that is significant in a company with annual revenues of $20 million might be largely irrelevant in a multibillion-dollar enterprise.