What Is an IFRS Revaluation?

The world's accounting system and accounting practice are divided into five major models, namely the American accounting model, the British accounting model, the German accounting model, the French accounting model, and the socialist accounting model.

The world's top five accounting models

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The U.S. accounting model follows generally accepted accounting principles, mainly to protect investors, especially the interests of potential equity investors;

The British accounting model focuses on authenticity and fairness. The accounting system is mainly to protect bonds, stock holders and creditors;

The German accounting model is based on the accounting practices of Germany and the Nordic countries. It emphasizes that accounting rules and financial reporting rules should be oriented to the company and protect the interests of the company;

The French accounting model is representative of accounting practices in France and neighboring countries such as Spain, Portugal, Italy, etc., to emphasize that accounting treatment should be subject to and consistent with the tax laws and regulations;

The socialist accounting model is typical of the accounting practices of the former Soviet Union and Eastern European countries. This accounting model has gradually disappeared with the disintegration of the Soviet Union and the reform of the political and economic systems of Eastern European countries.

The accounting standards adopted by countries around the world are divided into two specific forms: one is the form of accounting standards commonly used in English-speaking countries such as Britain and the United States; the other is related to the European continental law countries represented by Germany and France. Forms of accounting legislation and accounting systems. In recent years, with the development of economic globalization, the accounting norms in European continental law countries have tended to transform into the accounting norms of Anglo-American countries. An obvious example is that in recent years, Germany and France have successively established accounting standards committees.

At present, most countries and regions have formulated generally accepted accounting principles or accounting standards based on their actual conditions.

International Financial Reporting Standards

The International Financial Reporting Standards (IFRS) are developed by the International Accounting Standards Board (IASB) and include 30 standards and notes.

Due to the uneven level of accounting systems in different countries and the differences in the formulation and promulgation of accounting standards in various countries, the degree of adoption of international accounting standards varies from country to country, especially some developed countries are even reluctant to accept international accounting standards. In Japan, accounting standards have been developed by the Japanese government, and the Japanese government has no intention of adopting international accounting standards. In the UK, the Accounting Standards Board develops accounting standards that are consistent with international accounting standards. However, if they feel that their country's accounting standards are better, they will retain their own accounting standards and allow international accounting standards to be tried in practice for three to five years. Rethink whether to adopt international accounting standards. The United States, which represents a higher level of accounting, currently requires foreign companies to adopt or adjust to US accounting standards. The United States even wants domestic GAAP to be accepted globally, and so on.

The European Union has decided to adopt IFRS, which has been used by listed companies in EU countries since 2005. In addition, IFRS also provides the basis for accounting standards in many countries, such as South Africa, Malaysia, Australia, New Zealand, India, China, etc. Accountants use IFRS when doing accounting or auditing for EU companies and their affiliates and subsidiaries.

US Generally Accepted Accounting Principles

Accountants are exposed to US generally accepted accounting principles when dealing with US companies or foreign companies listed in the US. U.S. generally accepted accounting principles are developed for approximately 12,000 U.S.-listed companies and are also required by the Securities and Exchange Commission (SEC-Securities and Exchange Commission). Foreign companies that have stocks or bonds listed in the United States do not need to publish their accounts in accordance with US generally accepted accounting principles, but must prepare relevant reconciliation tables to provide US investors with detailed information about the net profit and What will happen to net assets?

For non-listed companies in the United States, although there is no general filing requirement, there are approximately 15,000 non-listed companies that prepare accounts in accordance with generally accepted accounting principles in the United States, some of which act in accordance with bank loan requirements and some of which are voluntary. The US Generally Accepted Accounting Principles, developed by the Financial Accounting Standards Board (FASB), are broader than IFRS and include hundreds of standards, notes, opinions, and other authoritative regulations.

Chinese accounting standards and accounting systems

With the further deepening of China's economic system reform and the gradual establishment of the socialist market economic system, the Chinese economy has gradually integrated into the world economy's major cycle, and the Chinese market has gradually become in line with the international market. However, there is a prerequisite for this convergence: that there must be an internationally-used "industrial language". Therefore, China's accounting must be further reformed, using internationally accepted accounting standards models to formulate and issue specific accounting standards.

A major characteristic of China's implementation of accounting reform is to decentralize part of the power of accounting treatment to enterprises, so that enterprises have the right to flexibly determine the accounting policies and specific accounting treatment methods to be used according to their own circumstances. The practice of accounting standards and accounting systems in China is different from that of most countries. China's accounting standards are in parallel with the accounting system, especially after the implementation of the new "Enterprise Accounting System" in 1993, it seems that accounting standards have only become the guideline for the formulation of the "Enterprise Accounting System", and the operability of the accounting standards itself has changed relatively Poorly.

The Accounting Law of the People's Republic of China (the most recent amendment was effective July 1, 2000) is the supreme authority in the field of accounting in China. It stipulates the general requirements and responsibilities for accounting of all enterprises, including the definition and basic principles of the nature and role of accounting, and the Accounting Law also authorizes the Ministry of Finance to manage accounting affairs and establish a unified accounting system. In 2000, the State Council issued the Regulations on Financial Accounting Reports for Enterprises. The "Financial Accounting Reporting Regulations" focus on financial accounting and reporting matters, such as bookkeeping records, the preparation of financial statements, and reporting practices. Except for small enterprises that do not finance externally, the Regulations on Financial Accounting Reports for Enterprises apply to all enterprises. The Corporate Accounting Standards implemented by the Ministry of Finance in 1993 served as the conceptual framework for Chinese accounting. However, many of the definitions and concepts contained therein have been revised or updated by subsequent documents such as the "Financial Accounting Reporting Regulations".

Different countries and regions have different principles or standards due to different social, historical, and cultural backgrounds, because any country or region must set out its own accounting principles or accounting standards based on its own position and needs. .

There are major differences in accounting standards between developed countries and regions and developing countries and regions.

The differences in economic development levels, social, historical, and cultural backgrounds between developed and developing countries and regions are also reflected in differences in accounting standards. For example, measurement of financial instruments, trading of physical assets such as fixed assets, etc. International accounting standards require measurement at fair value. This is commonplace in developed countries and regions, but it's hard for developing countries and regions. From the perspective of supply, developing countries and regions have immature market mechanisms, imperfect property rights markets, and it is difficult to form a fair market value, and accountants in developing countries and regions also lack experience in fair value measurement. From a demand perspective, investors and other users of accounting information in developing countries and regions are more concerned about the "reliability" of accounting information than "relevance"; they want to obtain a true and reliable reflection of past transactions. The information on the financial status and operating results formed by the peace event is not the forecast information based on fair value; it is more inclined to measure "historical cost" rather than "fair value". Therefore, developed countries and regions and developing countries and regions will have different regulations on related issues.

Major differences between US GAAP and International Accounting Standards (IFRS).

In the calculation method of inventory cost, IFRS stipulates that the use of the last-in-first-out method is prohibited. US GAAP stipulates that the last-in-first-out method (really?) Can be adopted.

On the reversal of inventory impairment, IFRS stipulates that when certain conditions are met, it is necessary to revert. US GAAP regulations cannot be reversed.

In terms of the classification of interest received and paid in the cash flow statement, IFRS regulations may be included in cash flows from operating, investing or financing activities. US GAAP regulations must be classified as business activities.

On construction contracts where the completion percentage cannot be determined, IFRS stipulates the cost recovery method. US GAAP provides for contract completion laws.

On the basis of reporting segments, IFRS provides for division by business and region. US GAAP stipulates that the division is based on the composition of information reported to senior management within the company, which may or may not be based on business and region.

On the basis of measurement of squares, plant and equipment (PPE-property, plant & Equipment), IFRS stipulates that revaluation or historical cost can be used. If it is measured by revaluation, it will be listed based on the accumulated depreciation and impairment loss after the fair value on the revaluation date. US GAAP regulations often require the use of historical costs.

In terms of dismissal benefits, IFRS rules do not distinguish between special and other dismissal benefits. Dismissal benefits are confirmed when the employer indicates that it will pay. US GAAP stipulates that when an employee accepts the conditions provided by the employer and the amount can be reasonably estimated, the "special" (one-time) termination benefit is recognized; when the employee is likely to be entitled and the amount can be reasonably estimated, the contract termination benefit is recognized.

In recognizing the cost of past services related to established benefits, IFRS requires immediate recognition. US GAAP provides for amortization over the remaining years of service or life.

In the defined benefit plan, there is no minimum requirement in the IFRS regulations on the minimum amount of liabilities to be recognized. US GAAP stipulates that the minimum amount of liabilities to be recognized is the unfunded cumulative benefit obligation.

With regard to the limitation of the recognition of pension assets, the IFRS stipulates that the recognized pension assets cannot exceed the unrecognized past service costs, actuarial losses, and current benefits of economic benefits derived from returning funds from the plan or reducing contributions to future plans. The total net value. US GAAP provides no such limit on the amount of confirmation.

At the time of confirming the reduction of profits, IFRS stipulates that when the relevant enterprise has clearly stated that it will reduce the benefit plan and has announced it, the reduction of profits and losses shall be recognized. US GAAP stipulates that until the relevant employee is fired or the plan is terminated or amended, the reduction of profits is recognized, which may be after the express and announcement.

In the measurement of gains and losses resulting from the reduction of the benefit plan, IFRS stipulates that the reduction of gains or losses includes changes in the present value of the defined benefit obligation; any changes in the fair value of the plan assets; any related actuarial gains and losses that have not been previously recognized; Application of transitional terms without confirmation and share of past service costs. US GAAP stipulates that although unrecognized actuarial gains or losses are written off in proportion to unrecognized transitional assets and liabilities, unrecognized actuarial gains and losses after the transition period are not affected by planned reductions.

IFRS stipulates that capitalization is an optional accounting policy on the cost of borrowing assets that require considerable time to complete. US GAAP requires a capitalization policy.

In terms of the types of borrowing costs that can be capitalized, IFRS regulations include interest, certain ancillary costs, and conversion differences as an interest adjustment. US GAAP regulations usually include only interest.

In the temporary investment income of special borrowings for the purchase and construction of fixed assets, IFRS provides for the deduction of borrowing costs that can be capitalized. US GAAP regulations generally do not deduct borrowing costs that are capitalizable.

In terms of different accounting policies between investors and associates, IFRS stipulates that accounting policies must be unified. US GAAP regulations have no requirements for uniform accounting policies.

In the adjustment of the financial statements of operating entities in a hyperinflation economy, IFRS requires the use of general price level index adjustments before conversion. US GAAP requires entities operating in a hyperinflation economy to use their parent company's functional currency (rather than the currency in which they are in a hyperinflation economy) to prepare their financial statements.

In the investment of joint ventures, IFRS regulations allow the use of equity method or proportional consolidation method. US GAAP regulations generally use the equity method (except for the construction and oil and gas industries).

In terms of the issuer's classification of convertible bond instruments, IFRS requires that convertible bond instruments be presented as a liability component and an equity component at the time of issue. US GAAP requires the entire instrument to be fully liabilities.

In the interim report-the recognition of income and expenses, the IFRS stipulates that the interim period is an arbitrary reporting period (with some exceptions). US GAAP stipulates that the medium term is part of the whole year (with some exceptions).

In terms of signs of impairment, IFRS stipulates that when assets show signs of impairment, detailed impairment calculations must be performed if the book value of the asset exceeds the asset's use value (the discounted value of the asset's expected future cash flow) and the fair value less sales The higher cost is impaired. US GAAP stipulates that if the book value of an asset exceeds its total expected future cash flow (no discount is needed), indicating that there is evidence of asset impairment, a detailed impairment calculation must be performed.

In the measurement of impairment losses, IFRS regulations are based on recoverable amounts (the higher of the value in use and the fair value less costs to sell). US GAAP regulations are based on fair value.

In measuring the residual value of assets, IFRS stipulates that it is measured at the current net sales price of the asset on the assumption that the asset has been used up and meets the expected condition at the end of its useful life. The US GAAP rule is usually the discounted value of expected income at the time of future asset disposal.

At the level of goodwill impairment testing, IFRS specifies a cash-generating unit or a group of cash-generating units. It represents the lowest level of organization that monitors goodwill for the purpose of internal management of the enterprise, and it cannot be larger than a business or regional segment. US GAAP requires reporting unitsa lower level within a business segment or organization.

In the calculation of goodwill impairment, IFRS stipulates a one-step method to compare the recoverable amount of the cash-generating unit (the higher of the fair value minus the cost of sales and the value in use) and its book value. US GAAP stipulates a two-step method: comparing the fair value of the reporting unit with its book value including goodwill; if the fair value is greater than the book value, there is no impairment (the second step is not required); comparing the embedded fairness of goodwill Value and its book value.

Regarding the impairment of intangible assets with indefinite years, IFRS stipulates that goodwill and other intangible assets with indefinite years are included in cash-generating units, and the cash-generating units are tested for impairment. US GAAP requires goodwill to be included in cash-generating units, and other intangible assets with indefinite useful lives are tested separately.

On the reversal of impairment losses, IFRS stipulates that if certain criteria are met, the impairment losses should be reversed, but the impairment loss of goodwill cannot be reversed. US GAAP stipulates that impairment losses cannot be reversed.

In the measurement of preparations, IFRS stipulates the best estimate of liquidation debt, usually using the expected value method, and requires the use of discounted methods. US GAAP stipulates that the liquidation of debt may occur at a lower value, and certain provisions do not require discounting.

In the follow-up expenditures for the purchase of research and development projects under development, IFRS stipulates capitalization if the definition of development is met. US GAAP provides for costing.

Regarding the revaluation of intangible assets, IFRS stipulates that revaluation can only be performed when there is an active market for intangible assets for trading. US GAAP regulations usually cannot be revalued.

For investment in unlisted equity instruments, IFRS requires that if it can be measured reliably, it is measured at fair value, otherwise it is measured at cost. US GAAP requires measurement at cost.

IFRS rules do not apply to the reclassification of financial instruments into or out of the categories held for trading. US GAAP stipulates that if the relevant assets are transferred to a portfolio for short-term profit, the financial instrument shall be classified from the category available for sale into the category held for trading. However, financial assets held for trading cannot be classified as available-for-sale financial assets.

In the offset of amounts payable and receivable from different parties, IFRS stipulates that if there is a legal offset contract, it can be offset. US GAAP regulations cannot be offset.

On the subsequent reversal of impairment losses, IFRS stipulates that if certain conditions are met, impairment losses on loans and receivables, held-to-maturity financial instruments (HTM) and available-for-sale (AFS) debt instruments Need to switch back. US GAAP prohibits reversal of impairment losses on HTM and AFS.

Based on the measurement of investment real estate, IFRS stipulates that a cost-depreciation-impairment model or a fair value model can be used, and changes in fair value are included in profit or loss. US GAAP regulations typically require the use of historical cost methods, withdrawing both depreciation and impairment.

Based on the measurement of agricultural products, livestock, fruits, and forest products, IFRS requires the use of fair value, and changes in fair value are accounted for in profit or loss; US GAAP rules usually use historical costs. However, agricultural products and livestock that have been harvested and sold for sale It is calculated at fair value less costs to sell.

On embedded derivatives in insurance contracts, IFRS stipulates that when the characteristics and risks of embedded derivatives are not closely related to the main contract and their values are related to the value of insurance contracts, they need not be separately listed and accounted for as derivatives . US GAAP requires such derivatives to be accounted for separately.

For the measurement when initially classified as assets held for sale, IFRS requires that accumulated exchange differences be retained in equity. US GAAP requires that accumulated exchange differences be redistributed from equity to the value of assets held for sale.

In the definition of discontinued operations, IFRS requires a business or regional reporting segment or its major components. US GAAP requires reporting segments, operating segments, reporting units, subsidiaries, or a group of assets (less restrictive than the definition in B).

In the presentation of discontinued operations, IFRS stipulates that after-tax profit or loss of discontinued operations shall be presented in the income statement. US GAAP stipulates that pre-tax and after-tax profit and loss of termination of operations shall be reported on the income statement.

The main differences between China's accounting standards and international accounting standards.

The formulation of China's accounting standards requires consideration of other relevant issues in addition to objective factors such as China's relatively backward economy, coexistence of multiple forms of ownership, and imbalanced development between the east and the west. China's socialist market economy is still in its primary stage of development. The market system is still incomplete, the legal system is not complete, there is a lack of adequate and open market competition, transactions between enterprises are not standardized, and state-owned enterprise connected transactions are extremely common, and prices often become profits. As a means of manipulation, due to the lack of fair transactions, it is more difficult to obtain and use fair value; the size and capacity of China's capital market are still small, the number of listed companies is insufficient, and users of financial information cannot yet It is completely investor-oriented, so it must also consider the needs of national macro management, investor decision-making, and internal management of the company when considering accounting goals. These factors also make the structure and content of China's accounting standards significantly different from those of international accounting standards and those of other countries.

For example, China's accounting standards exclude fair value and revaluation methods. Although this approach is conducive to avoiding corporate fraud and profit manipulation, and to a certain extent also meets the needs of China's current national conditions, the practice of denying fair value is not in line with the international development trend of accounting standards. With economic globalization, corporate mergers and acquisitions intensifying, and the emergence of financial instruments, fair value has jumped to a new measurement attribute that keeps pace with historical costs. In international accounting standards, fair value is widely used not only in financial instruments, but also in the accounting treatment of investment real estate, agriculture, business mergers, and non-monetary transactions.

In terms of specific accounting treatment and disclosure requirements, there are also many differences between China's accounting standards and international accounting standards. Comparing China's published accounting standards with relevant international accounting standards, at least the following differences exist:

In the measurement of purchase cost by the inventory standard, IFRS adopts the net price method, and our standard adopts the total price method;

In the cash flow statement guidelines, IFRS allows both direct and indirect methods. China only allows direct methods. (?)

For the interest and dividends received or paid, IFRS allows it to be classified as operating activities, investment activities, or fundraising activities on the premise of maintaining consistent processing. Our guidelines require that interest and dividends paid be classified as fundraising activities. Classified as investment activities;

In the construction contract standards, IFRS allows the costs directly related to the contract as a component of the contract costs. The Chinese standards require that the related costs incurred in the contract are directly recognized as current expenses;

In the fixed assets standard, IFRS allows fixed assets generated by exchange of non-similar fixed assets to be measured at fair value, and recognizes gains or losses. Our standard requires that the measured value be the book value of the assets that are swapped out. It is not allowed to recognize gains or losses.

For gains or losses arising from the disposal of fixed assets, IFRS is allowed to be included in the current period and included in the profit and loss of operating activities, which is required by Chinese standards to be classified as non-operating income and expenditure;

In the leasing standards, IFRS defines terms such as fair value, economic life, and service life, and our standards do not define them.

In judging the distinction between operating leases and financial leases, IFRS emphasizes fair value, and China's standards emphasize book value;

In the income standard, IFRS only stipulates the general principle of income measurement, that is, the income is required to be measured at the fair value of the consideration received or receivable. However, China's standard has determined the income from sales of goods, income from the provision of labor services, and interest income. Separate measurement principles;

In the borrowing cost guidelines, IFRS does not define a special borrowing, and our standards define this.

IFRS allows capitalization to include fixed assets and inventory. Our standard only includes fixed assets; (referring to the old standard?)

In the related party disclosure standards, the related parties referred to in IFRS do not involve joint ventures. China's standards consider joint ventures to be related parties. In some cases, IFRS may affect the wholly-owned subsidiaries, There is a certain exemption from the disclosure of transactions between related parties such as state-controlled enterprises, and there is no such exemption in our standards;

In the investment standards, IFRS requires that the difference between the investment cost and the investor's share in the fair value of the identifiable net assets of the investee company be recognized as goodwill and processed in accordance with the provisions of goodwill. The difference between the investment cost and the investor's share of the owner's equity of the invested unit is taken as the equity investment difference, which is amortized over a certain period and included in profit or loss;

In the interim financial reporting standards, IFRS requires a statement of changes in equity, which is not required by our standards.

IFRS allows simplified reporting format for interim reports, but Chinese standards require complete accounting statements.

IFRS requires that companies that provide segment data in their annual financial statements must also provide corresponding data in their interim reports. Chinese standards simply require disclosure of the revenue and profit or loss of business segments and regional segments;

In the contingency standard, IFRS requires the amount of a provision to be recognized at the discounted amount of the best estimate of the expenditures required to fulfill the current obligations on the balance sheet date. The Chinese standard requires that the amount of a liability recognized as a result of a contingent event be the amount It should be the best estimate of the expenditures required to settle the liability, using the concept of projected liabilities;

In the intangible assets standard, for intangible assets generated by asset exchange, IFRS requires the distinction between similar and non-identical asset exchanges, and requires accounting for the fair value of the assets received. Chinese standards require non-monetary transaction standards to be based on the book value of the assets being exchanged Accounting for value and more.

What Is an IFRS Revaluation?

The world's top five accounting models

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