Last week’s conversation was pretty interesting, wasn’t it? First, we took an initial glance at the dramatic differences between the GAAP approach and the IFRS approach to quantifying Fair Value.

Then? We took a second glance at those differences. And we couldn’t help but notice that those differences weren’t so dramatic after all! Although the standard setting bodies stake out different positions on a “general principle or rule” basis, they utilize their interpretive guidance to nudge accountants to converge on similar approaches.

That shouldn’t strike you as a stunning surprise. After all, the professional teams at FASB and the IFRS have been discussing the goal of convergence for many years. Their extensive conversations have inevitably moved the standards of the two organizations closer to each other.

What else did we learn last week? For starters, it’s always helpful to compare the American and international standards to glean a balanced perspective. Indeed, we should always read the text of the original standards very carefully, and not merely the professional summaries.

It’s also useful to review the interpretive guidance that is promulgated by the standard setting bodies. Finally, we can glean insights into the standards by applying our knowledge to recent sets of financial statements.

So where do we go from here? Next week, we’ll take a Grand Tour of the major balance sheet assets. Our textbook reviews this content in Chapter 4.

How shall we meet this challenge? After taking a brief quiz on the content that we discussed last week, we’ll review the textbook material for Chapter 4. Then, as an illustrative example, we’ll focus on a discussion of Goodwill, and we’ll utilize the most recent annual financial statements of Anadarko to apply our knowledge to a contemporary firm.

And how should you prepare for class? Please skim the entire chapter, and then read the section on Goodwill in detail. Afterwards, please review the relevant IFRS and FASB standards (and relevant interpretive guidance) that affect Goodwill. Finally, please review the Anadarko statements, and ask yourself how an investor would perceive Anadarko if it had utilized IFRS instead of GAAP.

Finally, please keep in mind that the fundamental purpose of the financial statements is to assist users who are endeavoring to estimate the value of the entity. Does GAAP accounting for Goodwill optimally help the user do so? Or does IFRS accounting?

We will continue to explore these themes throughout our course. By the time we conclude the semester, we’ll possess an extremely thorough “grounding” in the principle of enterprise value, and in the methods that are promulgated by GAAP and the IFRS to support this essential principle.

If you have any questions about this content as you navigate through it, please let me know. And by the way, if you have not yet sent me your Gmail address so that I can invite you to access your term project folder … now would be a very good time to do so!

IFRS vs. GAAP: Fair Value Measurements

Reminder: Click here for the course materials.

Did you enjoy Hybrid Class Week? It was certainly a change of pace, wasn’t it?

This week, we have a few more “firsts” to experience together. Let’s proceed through our plans, step by step:

1. Prior to our class session on Tuesday, please send me your Gmail address. I’ll respond by sending you an Invitation to a Google Drive folder; you’ll use it to upload your Term Project materials.

2. During the first ten minutes of our session, we’ll take our first quiz together. It will cover the essential principles of the IFRS and GAAP standards regarding fair value.

3. We’ll then spend the bulk of the remaining session on a discussion of your “jotted thoughts” from Hybrid Class Week. The learning goal will be to understand why an organization might prefer one set of standards over the other, and how industry-specific risks impact this preference.

As we advance into mid-September, we’ll plan to pick up the pace a bit! But please don’t worry; now that we’ve gotten to know each other, the semester should be fairly manageable.

Hybrid Class Week

Reminder: Click here for the course materials.

Please note that we are NOT meeting in the classroom on Tuesday this week. Instead, we are engaging in an online activity.

Hello again, International Accounting students! I hope you’re enjoying the weekend.

First and foremost, I apologize for the (relatively) late posting of this weekly announcement. As you know, we are about to initiate our first online session. I delayed the posting of this announcement until I was certain about our plans, and now I can communicate them to you.

Last week, we reviewed the financial statements of Anadarko Petroleum Corporation. We discussed how their financial statement presentation format significantly impacts the analytical perception of shareholder value. Then we discussed the IFRS approach to valuing fixed assets, i.e. the largest asset class of most industrial manufacturing organizations.

We also touched upon the existence of FASB Statement 157. It establishes a hierarchy of three “Levels” of assets and liabilities for fair value accounting purposes. However, we did not delve into the details of Statement 157, and we did not compare the American definition fair value to the International definition. Furthermore, we did not discuss how the differences between the two standards would impact a firm like Anadarko.

These are the questions that will enrich our online activity. Here are our plans regarding this activity:

1. On Tuesday, we will NOT meet in the classroom. Instead, we will re-allocate those 150 minutes of classroom activity to online learning activities over the remainder of the semester.

2. So what must you do this week? First, please open a free Gmail account. If you already have one and do not wish to use it for our upcoming online discussion, you are welcome to open a second account.

3. Then use your free IFRS account to download and review the IFRS Standard regarding fair value. We identified the online location of this standard in the classroom last week.

4. Then obtain a copy of FASB Statement 157. Our HBU library has a data base that permits you to download a free copy of this standard. If you need instructions about accessing the data base, please access our course materials and review the document entitled HBU Library Instructions.

5. Skim the IFRS and FASB Statements to obtain a very “high level” understanding of their similarities and differences. Then jot down your thoughts to these two questions:

(a) Is it possible that the Chief Financial Officer of Anadarko might prefer one Statement over the other Statement?

(b) To what extent do the Statements require fair value estimates to be modified in order to address risks like catastrophic oil spills?

Because this is very dense material, I do not expect you to hand in your “jotted thoughts”this week. In fact, you might find the content to be slow reading, and you might experience a little difficulty getting through it.

If this occurs, please don’t worry! Simply dedicate an hour to obtaining the information, skimming the Standards, and then jotting down your thoughts. And please prepare to bring your jottings to the classroom on Tuesday, September 18th, when we will continue our conversation.

Good luck! If you have any difficulty with this assignment, please let me know.