Economics and Ifrs

Case 1 Fiat first time IFRS adoption

Abstract

The European Commission has required the adoption of IAS/IFRS in order to harmonize financial reporting standards for European listed companies as of 1 January 2005. Converting to IAS/IFRS has represented much more than a change in accounting rules and firms’ main concern has been to understand the extent to which accounting differences between national GAAP and IAS/IFRS could affect their reported performance. The purpose of the case is to address this concern by providing evidence of the differences between Italian GAAP and IAS/IFRS.   The main focus will be on Fiat group who adopted IFRS in 2004.

Vraag 1 & 2 Potential red flags & Discretion of the Fiat Group;

The most significant discrepancy between the two set of standards is in the accounting treatment of business combination, provisions, financial instruments and intangible assets with reference to both net income and shareholders’ equity; while the individual accounting differences in income taxes, and property, plant, and equipment show a significant difference only on shareholders’ equity. Therefore it is utterly important to observe the differences in the balance statement based on IFRS and Italian GAAP. The main accounting differences emerging from the application of IAS/IFRS compared to Italian accounting principles affect many areas, including fair value reporting, depreciation and amortization, leasing, segment reporting, revenue recognition, impairment tests, deferred taxes, and post-retirement employee benefits.


Vraag 3 The disclosure of IFRS adoption;

FIAT and PSA PEUGEOT CITROËN disclosed the assumptions they used to determine the recoverable
amount, in particular the ‘value in use’ of the cash-generating units (CGUs) concerned.
• FIAT stated that the principal assumptions made in determining the ‘value in the use’ of CGUs are
the discount rate and the growth rate. FIAT used pre-tax discount rates between 5.5% and 16%.
The... [continues]

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