1) Under GAAP, when a company installs safety and/or environmental devices in excess of what the law mandates, it is treated as part of the
asset. However; under IFRS these additional expenditures must be expensed immediately. Which method do you prefer? Explain your answer. Also, discuss the
implications on the balance sheet and income statement for the year of expenditure and subsequent years of the two methods.

2) An American Company borrowed 1million Canadian dollars to finance the construction of an office building when the Canadian dollar was worth
$1 US. At 10% interest, the American Company expected to pay back 1.1 million Canadian dollars which would cost $1.1 million US dollars. Unfortunately, based
on changes in the value of the Canadian dollar, the American Company must pay $1.3 million US dollars to satisfy this debt. How will this $200,000 US dollar
difference be shown on the American Company’s financial statements under GAAP? How would this have been shown if the American Company used IFRS? Which gives
us more relevant information? Explain.

3) Discuss the differences between the cash flow statement under GAAP and IFRS. What is your opinion on the flexibility offered under IFRS?
Defend your opinion.

4) You are the auditor of Big Company. After completing your audit with the exception of leases, you (and management) have determined that Big
has Assets of $6,000,000 Liabilities of $2,500,000 and therefore equity of $3,500,000. Big has leased the following four pieces of land Big has a debt
agreement requiring a debt/equity ratio of 1.0 or less.

Land A FMV $1,000,000 PV of lease payments $900,000

Land B FMV $1,000,000 PV of lease payments $850,000

Land C FMV $1,000,000 PV of lease payments $800,000

Land D FMV $1,000,000 PV of lease payments $750,000

4a) Under GAAP how do you classify each of these leases? Now what is the debt/equity ratio of Big? Are they violating their debt agreement?
Explain

4b) Under IFRS how do you classify each of these leases? Now what is the debt/equity ratio of Big? Are they violating their debt agreement?
Explain.

4c) Each piece of land was leased from the Big Land Company, who is audited by Filthy Rich CPA’s. Your cousin is a manager at Filthy Rich
CPA’s and she told you that under IFRS, they are classifying Land A as a capital lease and the rest as operating leases. Given this new piece of information
now how do you (under IFRS) classify these leases? Now what is the debt/equity ratio of Big? Justify your change or lack of change in your answers of 4b and
4c

5) Endor has lots of coal. You purchase the rights to mine the Far-Moon-of-Endor from the Endorian government for $100,000,000. At the time
you expected to generate $30,000,000 from mining the coal each year for 20 years on earth, thus making it a great investment. Unfortunately, the next year,
Earth passes new strict pollution laws which greatly reduce the demand for your coal. You correctly determine your mining rights asset is impaired and write it
down to $12,000,000. In the third year, ACME Company has developed an new way of burning coal which produces NO pollution! Earthlings want your coal again and
you expect to generate $30,000,000 per year for the remaining years. The Present value of which is $500,000,000. Under GAAP, what do you do in year 3? Under
IFRS, what do you do in year 3? Which approach is better? Defend your answer.

6) GAAP allows items that are unusual and infrequent as extraordinary items, while IFRS does not allow this treatment. You are the deciding
vote on the convergence committee. How do you vote on allowing extraordinary items? Defend your vote!!!

7) Component depreciation is allowed under GAAP but is rarely used. Under IFRS it is required. Should composite
depreciation be required or allowed or prohibited? Defend your answer and remember, it is allowed under GAAP but rarely used.