Banco Bilbao Vizcaya Argentaria
INTERNATIONAL CASE
Examining the initial adoption of IFRS accounting policies is important since over 120 countries now require or permit IFRS financial reporting for listed or private entities. In particular, many U.S. companies must adopt IFRS because their foreign parents or investors report under IFRS, and the Securities and Exchange Commission allows foreign companies in the U.S. to use IFRS for SEC reporting purposes. The purpose of this case is to enhance your understanding of the objective of general-purpose financial reporting, the concept of comparability in the IASB’sConceptual Framework for Financial Reportingthat flows from that objective, and relevant guidance on the initial adoption of IFRS accounting policies.
Imagine that you are the head of Global Financial Reporting and your firm’s Chief Financial Officer has asked you to respond to the questions listed below. The firm is now formulating strategic plans for its divisions, which requires a solid understanding of the impacts of U.S. GAAP to IFRS conversion. Because most of your competitors use either IFRS or U.S. GAAP, a strong understanding of key differences between IFRS and U.S. GAAP is crucial in key business-planning activities. In responding to the questions, use annual reports
from 2003 - 2007, before and after the adoption of IFRS in the European Union. Your responses to the questions should address the requirements in detail, providing citations of sources used. Submit in memo form.
Question 1
Identify which accounting standards were used for financial reporting by your company in each year 2003 – 2007. In the year that the company transitioned to IFRS, what information did it disclose about the transition? What are three obstacles to financial statement comparability across accounting standards? Discuss why these obstacles could be problematic for a large global investor such as Fidelity Investments.
Question 2
The central accounting concept of this case is the comparability of financial statements after adopting new IFRS accounting policies. Review the IASBConceptual Framework.
Based upon your understanding of the IASBConceptual Framework, discuss whether your company’s conversion to IFRS enhances the qualitative characteristic of comparability or detracts from comparability among periods. Is your company’s notes and disclosures under IFRS comparable with the financial reporting before IFRS? Provide evidence of a similar and dissimilar disclosure. Make sure that it is for the same account.
Question 3
Discuss whether your company’s conversion to IFRS enhances the qualitative characteristic of comparability or detracts from comparability between entities. To respond to this question, access the financial reports for one of the largest banks (by market cap) from your bank’s country. (Include a link to the content). Is your company’s reporting under IFRS comparable with the financial reporting of its competitor? Provide evidence of a similar and dissimilar disclosure. Make sure that it is for the same account.
Question 4
Examine the explanation of the transition to IFRS. For the largest accounts and balances (by absolute value) affected by the company’s transition to IFRS, list and explain the main differences in accounting policies between the prior standard and IFRS. Prepare a schedule comparing total assets, total liabilities, total equity, total net income, and cash flow from operations in the year of transition under the prior standard and IFRS. Include the variance between the figures.
Calculate and compare the following key ratios: current ratio, net profit margin, return on assets, return on equity, and debt-to-equity for the prior standard and IFRS before and after adopting IFRS. Analyze the impact of implementing IFRS on each ratio.