Intermediate Accounting

1646 Pages·2011·112.93 MB·English

by  Donald E. Kieso

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Relevant and reliable financial information
INTERNATIONAL ACCOUNTING STANDARDS is a necessity for viable capital markets.
Unfortunately, companies outside the
United States often prepare financial state-
ments using standards different from U.S. GAAP (or simply GAAP). As a result, interna-
tional companies, such as Coca-Cola, Microsoft, and IBM, have to develop financial
information in different ways. Beyond the additional costs these companies incur, users
of the financial statements often must understand at least two sets of accounting
standards (understanding one set is hard enough!). It is not surprising, therefore, that
there is a growing demand for one set of high-quality international standards.
Presently, there are two sets of rules accepted for international use—GAAPand the
International Financial Reporting Standards (IFRS), issued by the London-based
International Accounting Standards Board (IASB). U.S. companies that list overseas
are still permitted to use GAAP, and foreign companies listed on U.S. exchanges
are permitted to use IFRS. As you will learn, there are many similarities between GAAP
and IFRS.
Already, over 115 countries have adopted IFRS, plus the European Union now
requires all listed companies in Europe (over 7,000 companies) to use it. The SEC laid
out a roadmap, shown below, by which all U.S. companies might be required to use
IFRS by 2015.
Foreign issuers SEC issues
U.S. companies, investors,
allowed to file in U.S. Roadmap SEC Policy Required use of IFRS
auditors, and regulators prepare
without reconciliation Statement
for use of IFRS
2008 2009 2010 2011 2012 2013 2014 2015
SEC Staff
Work Plan
SEC decides
on required use of IFRS
by U.S. companies
Most parties recognize that global markets will best be
CONVERGENCE OF GAAP AND IFRS served if only one set of accounting standards is used.
For example, the FASB and the IASB formalized their
commitment to the convergence of GAAP and IFRS by
issuing a memorandum of understanding (often referred to as the Norwalk agreement).
The two boards agreed to use their best efforts to:
• Make their existing financial reporting standards fully compatible as soon as
practicable, and
• Coordinate their future work programs to ensure that once achieved, compatibility
is maintained.
As a result of this agreement, the two Boards identified a number of short-term and
long-term projects that would lead to convergence.
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Because convergence is such an important issue, we provide a discussion of inter-
national accounting standards at the end of each chapter called IFRS Insights. This
feature will help you understand the changes that are taking place in the financial
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shown here, consists of four sections.
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An introductiontypically lists the
IFRS
international accounting pronouncements Insights
related to the chapter topic.
The basic accounting and reporting issues related to recognition and measurement of
receivables, such as the use of allowance accounts, how to record discounts, use of the
allowance method to account for bad debts, and factoring, are similar for both IFRS and
GAAP. IAS 1 (“Presentation of Financial Statements”) is the only standard that dis-
cusses issues specifically related to cash. IFRS 7 (“Financial Instruments: Disclosure”)
Relevant Factsexplain similarities and differences
RELEVANT FACTS
of GAAP and IFRS.
• The accounting and reporting related to cash is essentially the same under both IFRS
and GAAP. In addition, the definition used for cash equivalents is the same. One dif-
ference is that, in general, IFRS classifies bank overdrafts as cash.
About the Numbersgenerally discusses
ABOUT THE NUMBERS
and provides examples of IFRS applications Impairment Evaluation Process
(in many cases, using real international IFRS provides detailed guidelines to assess whether receivables should be consid-
ered uncollectible (often referred to as impaired). GAAP does not identify a specifi c
companies). approach. Under IFRS, companies assess their receivables for impairment each report-
ing period and start the impairment assessment by considering whether objective
On the Horizondiscusses convergence progress and plans
ON THE HORIZON
The question of recording fair values for financial instruments will continue to be an related to the accounting topics presented in the chapter.
important issue to resolve as the Boards work toward convergence. Both the IASB and
the FASB have indicated that they believe that financial statements would be more
transparent and understandable if companies recorded and reported all fi nancial
instruments at fair value. That said, in IFRS 9, which was issued in 2009, the IASB
IFRS Insights also includes IFRS Self-Test Questions, as well as IFRS Concepts and
Application, so students can test their understanding of the material. An International
Financial Reporting Problem, based on Marks and Spencer plc, offers students an
opportunity to analyze IFRS-based financial statements.
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Having a basic understanding of international
accounting is becoming ever more important as the pro- OTHER INTERNATIONAL COVERAGE
fession moves toward convergence of GAAP and inter-
national standards. Thus, in addition to the IFRS Insights
pages discussed above, we continue to include marginal International
INTERNATIONAL
Perspectives, marked with the icon shown here, which we updated throughout PERSPECTIVE
to reflect changes in international accounting. These notes describe or compare
IFRS as well as accounting practices in other countries with GAAP. This feature helps
you to understand that other countries sometimes use different recognition and
measurement principles to report financial information.
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The Wiley Accounting Team for Success is ready when you
are to help prepare you and your students for the integration of IFRS into your courses.
No matter where you are in this transition, Wiley Accounting is here to provide the tools you
need to fully incorporate IFRS into your accounting courses. We offer the most extensive
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to prepare you and your students for success!
Innovative Products: New IFRS Editions of Kieso, Intermediate Accounting
and Weygandt, Financial Accounting are the most current and only textbooks available based
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Exclusive Content: Our accounting publications feature more quality and
current coverage of IFRS topics than any other textbook available today! The Wiley Accounting
Team for Success authors integrate IFRS content within each chapter through features like
A Look at IFRS, which demonstrates how international standards apply to each
U.S. GAAP topic, as well as provides an opportunity for practical application. International
Insights also provide an international perspective of the accounting topic discussed in the text.
Support & Services: Wiley Accounting features a dedicated IFRS website
(at www.wileyifrs.com) and an Accounting Weekly Updates website (at www.
wileyaccountingupdates.com) to make sure you have the most current resources available.
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FMTOC.qxd 2/3/11 11:25 AM Page i
Intermediate
Accounting
14th edition
Donald E. Kieso PhD, CPA
Northern Illinois University
DeKalb, Illinois
Jerry J. Weygandt PhD, CPA
University of Wisconsin—Madison
Madison, Wisconsin
Terry D. Warfield, PhD
John Wiley & Sons, Inc.
University of Wisconsin—Madison
Madison, Wisconsin
FMTOC.qxd 2/10/11 9:46 AM Page ii
Dedicated to
our wives, Donna,Enid,and Mary,
for their love,
support, and encouragement
Vice President & Publisher George Hoffman
Associate Publisher Christopher DeJohn
Senior Acquisitions Editor Michael McDonald
Project Editor Brian Kamins
Development Editor Terry Ann Tatro
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1980, 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, 1990, 1991, 1992, and 1993 by the American Institute of Certified Public Accountants, Inc., is adapted with permission.
This book contains quotations from Accounting Research Bulletins, Accounting Principles Board Opinions, AccountingPrinciples Board Statements, Accounting Interpretations, and
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Reprinted with permission. Copies of complete documents are available from Financial Accounting Standards Board.
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Author
Commitment
Kieso Weygandt Warfield
Don Jerry Terry
Donald E. Kieso, PhD, CPA, received his Jerry J. Weygandt, PhD, CPA, is Arthur Terry D. Warfield, PhD, is the Robert and
bachelor’s degree from Aurora University Andersen Alumni Emeritus Professor Monica Beyer Professor of Accounting at
and his doctorate in accounting from the of Accounting at the University of the University of Wisconsin—Madison. He
University of Illinois. He has served as Wisconsin—Madison. He holds a Ph.D. received a B.S. and M.B.A. from Indiana
chairman of the Department of Accountancy in accounting from the University of University and a Ph.D. in accounting from
and is currently the KPMG Emeritus Illinois. Articles by Professor Weygandt the University of Iowa. Professor Warfield’s
Professor of Accountancy at Northern have appeared in the Accounting Review, area of expertise is financial reporting, and
Illinois University.He has public accounting Journal of Accounting Research, Accounting prior to his academic career, he worked
experience with Price Waterhouse & Co. Horizons, Journal of Accountancy,and for five years in the banking industry. He
(San Francisco and Chicago) and Arthur other academic and professional journals. served as the Academic Accounting Fellow
Andersen & Co. (Chicago)and research These articles have examined such in the Office of the Chief Accountant at the
experience with the Research Division of financial reporting issues as accounting U.S. Securities and Exchange Commission
the American Institute of Certified Public for price-level adjustments, pensions, in Washington, D.C. from 1995–1996.
Accountants (New York). He has done convertible securities, stock option ProfessorWarfield’s primary research
post-doctorate work as a Visiting Scholar contracts, and interim reports. Professor interests concern financial accounting
at the University of California at Berkeley Weygandt is author of other accounting standards and disclosure policies. He has
and is a recipient of NIU’s Teaching and financial reporting books and is a published scholarly articles in The Accounting
Excellence Award and four Golden Apple member of the American Accounting Review, Journal of Accounting and
Teaching Awards. Professor Kieso is the Association, the American Institute of Economics, Research in Accounting
author of other accounting and business Certified Public Accountants, and the Regulation, andAccounting Horizons,
books and is a member of the American Wisconsin Society of Certified Public and he has served on the editorial boards
Accounting Association, the American Accountants. He has served on numerous ofThe Accounting Review, Accounting
Institute of Certified Public Accountants, committees of the American Accounting Horizons, andIssues in Accounting
and the Illinois CPA Society. He has served Association and as a member of the Education.He has served as president of
as a member of the Board of Directors editorial board of the Accounting Review; the Financial Accounting and Reporting
of the Illinois CPA Society, then AACSB’s he also has served as President and Section, the Financial Accounting Standards
Accounting Accreditation Committees, the Secretary-Treasurer of the American Committee of the American Accounting
State of Illinois Comptroller’s Commission, Accounting Association. In addition, Association (Chair 1995–1996), and on
as Secretary-Treasurer of the Federation of he has been actively involved with the the AAA-FASB Research Conference
Schools of Accountancy, and as Secretary- American Institute of Certified Public Committee. He also servedon the Financial
Treasurer of the American Accounting Accountants and has been a member Accounting Standards Advisory Council
Association. Professor Kieso is currently of the Accounting Standards Executive of the Financial Accounting Standards
serving on the Board of Trustees and Committee (AcSEC) of that organization. Board. Professor Warfield has received
Executive Committee of Aurora University, He has served on the FASB task force that teaching awards at both the Universityof
as a member of the Board of Directors of examined the reporting issues related to Iowa and the University of Wisconsin,
Kishwaukee Community Hospital, and accounting for income taxes and served and he was named to the Teaching
as Treasurer and Director of Valley West as a trustee of the Financial Accounting Academy at the University of Wisconsin
Community Hospital. From 1989 to 1993, Foundation. Professor Weygandt has in 1995. Professor Warfield has developed
he served as a charter member of the received the Chancellor’s Award for and published several case studies based
national Accounting Education Change Excellence in Teaching and the Beta on his research for use in accounting
Commission. He is the recipient of the Gamma Sigma Dean’s Teaching Award. classes. These cases have been selected
Outstanding Accounting Educator Award He is on the board of directors of M & I for the AICPA Professor-Practitioner
from the Illinois CPA Society, the FSA’s Bank of Southern Wisconsin. He is the Case Development Program and have
Joseph A. Silvoso Award of Merit, the NIU recipient of the Wisconsin Institute of been published in Issues in Accounting
Foundation’s Humanitarian Award for CPA’s Outstanding Educator’s Award and Education.
Service to Higher Education, a Distinguished the Lifetime Achievement Award. In 2001,
Service Award from the Illinois CPA Society, he received the American Accounting
and in 2003 an honorary doctoratefrom Association’s Outstanding Educator
Aurora University. Award.
FMTOC.qxd 2/3/11 11:25 AM Page iv
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