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US GAAP

versus IFRS
The basics
December 2015
Table of contents

Introduction..................................................................... 2
Financial statement presentation ..................................... 4
Interim financial reporting................................................ 7
Consolidation, joint venture accounting and equity
method investees/associates ........................................... 8
Business combinations................................................... 14
Inventory ....................................................................... 17
Long-lived assets ........................................................... 19
Intangible assets............................................................ 21
Impairment of long-lived assets, goodwill and
intangible assets ............................................................ 23
Financial instruments..................................................... 26
Foreign currency matters .............................................. 33
Leases ........................................................................... 35
Income taxes ................................................................. 38
Provisions and contingencies ......................................... 41
Revenue recognition ...................................................... 43
Share-based payments................................................... 46
Employee benefits other than share-based payments ..... 49
Earnings per share ......................................................... 51
Segment reporting ......................................................... 53
Subsequent events ........................................................ 54
Related parties .............................................................. 56
Appendix The evolution of IFRS ................................... 57

US GAAP versus IFRS The basics 1


Introduction
Introduction

Convergence in several important areas Key updates


namely, revenue (mainly implementation of Our analysis generally reflects guidance
recently issued standards), leasing and effective in 2015 and finalized by the FASB
financial instruments continued to be a high and the IASB as of 31 May 2015; however, we
priority on the agendas of both the have not included differences related to IFRS
US Financial Accounting Standards Board 9, Financial Instruments, IFRS 15, Revenue
(FASB) and the International Accounting from Contracts with customers and Accounting
Standards Board (IASB) (collectively, the Standards Update (ASU) 2014-09, Revenue
Boards) in 2015. However, in certain cases the from Contracts with Customers, because of the
Boards reached different conclusions during delayed effective date of that standard. These
their deliberations. Therefore, even after those standards will affect wide range of topics. For
projects are complete, differences will example, IFRS 15 and ASU 2014-09 will affect
continue to exist between US GAAP as revenue from contracts with customers, sale
promulgated by the FASB and International of certain nonfinancial assets and
Financial Reporting Standards (IFRS) as capitalization of certain costs (e.g.,
promulgated by the IASB. advertisement costs), among other items.
In this guide, we provide an overview by Our analysis does not include any guidance
accounting area of where the standards are related to IFRS for Small and Medium-sized
similar and where differences exist. We believe Entities (IFRS for SMEs) as well as Private
that any discussion of this topic should not lose Company Council (PCC) alternatives that are
sight of the fact that the two sets of standards embedded within US GAAP.
are generally more alike than different for most
commonly encountered transactions, with IFRS We will continue to update this publication
being largely, but not entirely, grounded in the periodically for new developments.
same basic principles as US GAAP. The general * * * * *
principles and conceptual framework are often
the same or similar in both sets of standards, The EY US GAAP-IFRS Differences Identifier
leading to similar accounting results. The Tool provides a more in-depth review of
existence of any differences and their differences between US GAAP and IFRS. The
materiality to an entitys financial statements Identifier Tool was developed as a resource for
depends on a variety of specific factors, companies that need to analyze the numerous
including the nature of the entity, the details of accounting decisions and changes inherent in
the transactions, interpretation of the more a conversion to IFRS. Conversion is of course
general IFRS principles, industry practices and more than just an accounting exercise, and
accounting policy elections where US GAAP identifying accounting differences is only
and IFRS offer a choice. This guide focuses on the first step in the process. Successfully
differences most commonly found in present converting to IFRS also entails ongoing project
practice and, when applicable, provides an management, systems and process change
overview of how and when those differences analysis, tax considerations and a review of all
are expected to converge. company agreements that are based on financial

US GAAP versus IFRS The basics | 2


Introduction

data and measures. EY assurance, tax and


advisory professionals are available to share
their experiences and to assist companies in
analyzing all aspects of the conversion process,
from the earliest diagnostic stages through
ultimate adoption of the international standards.
To learn more about the Identifier Tool, please
contact your local EY professional.

December 2015

US GAAP versus IFRS The basics | 3


Financial statement presentation
Financial statement presentation

Similarities changes in shareholders equity to be


There are many similarities in US GAAP and presented in the notes to the financial
IFRS guidance on financial statement statements while IFRS requires the changes in
presentation. Under both sets of standards, shareholders equity to be presented as a
the components of a complete set of financial separate statement. Further, both require that
statements include: a statement of financial the financial statements be prepared on the
position, a statement of profit and loss accrual basis of accounting (with the exception
(i.e., income statement) and a statement of of the cash flow statement) except for rare
comprehensive income (either a single circumstances. IFRS and the Conceptual
continuous statement or two consecutive Framework in US GAAP have similar concepts
statements), a statement of cash flows and regarding materiality and consistency that
accompanying notes to the financial entities have to consider in preparing their
statements. Both standards also require the financial statements. Differences between the
changes in shareholders equity to be two sets of standards tend to arise in the level
presented. However, US GAAP allows the of specific guidance provided.

Significant differences
US GAAP IFRS
Financial periods Generally, comparative financial Comparative information must be
required statements are presented; however, a disclosed with respect to the previous
single year may be presented in certain period for all amounts reported in the
circumstances. Public companies must current periods financial statements.
follow SEC rules, which typically require
balance sheets for the two most recent
years, while all other statements must
cover the three-year period ended on
the balance sheet date.

Layout of balance sheet No general requirement within IFRS does not prescribe a standard
and income statement US GAAP to prepare the balance sheet layout, but includes a list of minimum
and income statement in accordance line items. These minimum line items
with a specific layout; however, public are less prescriptive than the
companies must follow the detailed requirements in Regulation S-X.
requirements in Regulation S-X.

Balance sheet Debt for which there has been a Debt associated with a covenant
presentation of debt as covenant violation may be presented violation must be presented as current
current versus as non-current if a lender agreement to unless the lender agreement was
non-current waive the right to demand repayment reached prior to the balance sheet date.
for more than one year exists before
the financial statements are issued or
available to be issued.

US GAAP versus IFRS The basics | 4


Financial statement presentation

US GAAP IFRS
Balance sheet Current or non-current classification, All amounts classified as non-current in
classification of deferred generally based on the nature of the the balance sheet.
tax assets and liabilities related asset or liability, is required.

Income statement No general requirement within US Entities may present expenses based on
classification of GAAP to classify income statement either function or nature (e.g., salaries,
expenses items by function or nature. However, depreciation). However, if function is
SEC registrants are generally required selected, certain disclosures about the
to present expenses based on function nature of expenses must be included in
(e.g., cost of sales, administrative). the notes.

Income statement Prior to the adoption of ASU 2015-01, Prohibited.


extraordinary items Simplifying Income Statement
criteria Presentation by Eliminating the
Concept of Extraordinary Items, the
presentation of extraordinary items
was restricted to items that are both
unusual and infrequent.
ASU 2015-01 which prohibits the
presentation of extraordinary items,
was issued in 2015. (ASU 2015-01 is
effective in annual periods, and interim
periods within those annual periods,
beginning after 15 December 2015.)

Income statement Prior to the adoption of ASU 2014-08, Discontinued operations classification
discontinued operations Reporting Discontinued Operations and is for components held for sale or
criteria Disclosures of Disposals of Components disposed of and the component
of an Entity, discontinued operations represents a separate major line of
classification is for components held business or geographical area, is part
for sale or disposed of, provided that of a single coordinated plan to dispose
there will not be significant continuing of a separate major line of business or
cash flows or involvement with the geographical area of or a subsidiary
disposed component. acquired exclusively with an intention
Following the adoption of ASU 2014-08, to resell.
discontinued operations classification is
for components that are held for sale
or disposed of and represent a
strategic shift that has (or will have) a
major effect on an entitys operations
and financial results. Also, a newly
acquired business or nonprofit activity
that on acquisition is classified as held
for sale qualifies for reporting as a
discontinued operation. (ASU 2014-08
is applied prospectively and effective
for annual periods beginning on or
after 15 December 2014.)

US GAAP versus IFRS The basics | 5


Financial statement presentation

US GAAP IFRS
Disclosure of No general requirements within US Certain traditional concepts such as
performance measures GAAP that address the presentation of operating profit are not defined;
specific performance measures. SEC therefore, diversity in practice exists
regulations define certain key regarding line items, headings and
measures and require the presentation subtotals presented on the income
of certain headings and subtotals. statement. IFRS permits the presentation
Additionally, public companies are of additional line items, headings
prohibited from disclosing non-GAAP and subtotals in the statement of
measures in the financial statements comprehensive income when such
and accompanying notes. presentation is relevant to an
understanding of the entitys financial
performance. IFRS has requirements
on how the subtotals should be
presented when they are provided,

Third balance sheet Not required. A third balance sheet is required as of


the beginning of the earliest
comparative period when there is a
retrospective application of a new
accounting policy, or a retrospective
restatement or reclassification, that
have a material effect on the balances
of the third balance sheet. Related
notes to the third balance sheet are
not required.

Convergence noncurrent amounts. For public business


No further convergence is planned at this time. entities (PBEs), ASU 2015-17 is effective for
annual periods beginning after 15 December
In November 2015, the FASB issued 2016, and interim periods within those annual
ASU 2015-17, Balance Sheet Classification of periods. For non-PBEs, it is effective for annual
Deferred Taxes. ASU 2015-17 requires entities periods beginning after 15 December 2017,
to classify all deferred tax assets and liabilities and interim periods within annual periods
as noncurrent on the balance sheet instead of beginning after 15 December 2018. Early
separating deferred taxes into current and adoption is permitted.

US GAAP versus IFRS The basics | 6


Interim financial reporting
Interim financial reporting

Similarities and provide for similar disclosure requirements.


ASC 270, Interim Reporting, and IAS 34, Under both US GAAP and IFRS, income taxes
Interim Financial Reporting, are substantially are accounted for based on an estimated
similar except for the treatment of certain costs average annual effective tax rates. Neither
described below. Both require an entity to apply standard requires entities to present interim
the accounting policies that were in effect in the financial information. That is the purview of
prior annual period, subject to the adoption of securities regulators such as the SEC, which
new policies that are disclosed. Both standards requires US public companies to comply with
allow for condensed interim financial statements Regulation S-X.

Significant differences
US GAAP IFRS

Treatment of certain Each interim period is viewed as an Each interim period is viewed as a
costs in interim periods integral part of an annual period. As a discrete reporting period. A cost that
result, certain costs that benefit more does not meet the definition of an asset
than one interim period may be at the end of an interim period is not
allocated among those periods, deferred, and a liability recognized at
resulting in deferral or accrual of an interim reporting date must
certain costs. represent an existing obligation.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 7


Consolidation, joint venture accounting and
Consolidation, joint venture accounting and equity method investees/associates

equity method investees/associates


Similarities An equity investment that gives an investor
ASC 810, Consolidation, contains the main significant influence over an investee (referred
guidance for consolidation of financial to as an associate in IFRS) is considered an
statements, including variable interest entities equity method investment under both
(VIEs), under US GAAP. IFRS 10, Consolidated US GAAP (ASC 323, Investments Equity
Financial Statements, contains the IFRS guidance. Method and Joint Ventures) and IFRS (IAS 28,
Investments in Associates and Joint Ventures).
Under both US GAAP and IFRS, the Further, the equity method of accounting for
determination of whether entities are such investments generally is consistent under
consolidated by a reporting entity is based on US GAAP and IFRS.
control, although there are differences in how
control is defined. Generally, all entities The characteristics of a joint venture in
subject to the control of the reporting entity US GAAP (ASC 323) and IFRS (IFRS 11, Joint
must be consolidated (although there are limited Arrangements) are similar but certain
exceptions for a reporting entity that meets differences exist. Both US GAAP and IFRS also
the definition of an investment company). generally require investors to apply the equity
method when accounting for their interests in
joint ventures.

Significant differences
US GAAP IFRS

Consolidation model Provides for primarily two Provides a single control model for all
consolidation models (variable entities, including structured entities
interest model and voting model). (the definition of a structured entity
The variable interest model evaluates under IFRS 12, Disclosure of Interests in
control based on determining which Other Entities, is similar to the definition
party has power and benefits. The of a VIE in US GAAP). An investor
voting model evaluates control based controls an investee when it is exposed
on existing voting rights. All entities or has rights to variable returns from its
are first evaluated as potential variable involvement with the investee and has
interest entities (VIEs). If an entity is the ability to affect those returns
not a VIE, it is evaluated for control through its power over the investee.
pursuant to the voting model.
Potential voting rights are generally Potential voting rights are considered.
not included in either evaluation. Notion of de facto control is also
The notion of de facto control is considered.
not considered.

US GAAP versus IFRS The basics | 8


Consolidation, joint venture accounting and equity method investees/associates

US GAAP IFRS

Preparation of Required, although certain Required, although certain


consolidated financial industry-specific exceptions exist industry-specific exceptions exist (e.g.,
statements general (e.g., investment companies). investment entities), and there is a
limited exemption from preparing
consolidated financial statements for a
parent company that is itself a wholly
owned or partially owned subsidiary, if
certain conditions are met.

Preparation of Investment companies do not Investment companies (investment


consolidated financial consolidate entities that might entities in IFRS) do not consolidate
statements Investment otherwise require consolidation (e.g., entities that might otherwise require
companies majority-owned corporations). consolidation (e.g., majority-owned
Instead, equity investments in these corporations). Instead, these
entities are reflected at fair value as a investments are reflected at fair value
single line item in the financial as a single line item in the financial
statements. A parent of an statements. However, a parent of an
investment company is required to investment company consolidates all
retain the investment company entities that it controls, including those
subsidiarys fair value accounting in controlled through an investment
the parents consolidated financial company subsidiary, unless the parent
statements. itself is an investment company.

Preparation of The reporting entity and the The financial statements of a parent and
consolidated financial consolidated entities are permitted its consolidated subsidiaries are
statements different to have differences in year-ends of up prepared as of the same date. When the
reporting dates of parent to three months. parent and the subsidiary have different
and subsidiaries The effects of significant events reporting period end dates, the
occurring between the reporting subsidiary prepares (for consolidation
dates of the reporting entity and the purposes) additional financial
controlled entities are disclosed in the statements as of the same date as those
financial statements. of the parent, unless it is impracticable.
If it is impracticable, when the difference
in the reporting period end dates of the
parent and subsidiary is three months or
less, the financial statements of the
subsidiary may be adjusted to reflect
significant transactions and events, and
it is not necessary to prepare additional
financial statements as of the parents
reporting date.

Uniform accounting Uniform accounting policies between Uniform accounting policies between
policies parent and subsidiary are not required. parent and subsidiary are required.

US GAAP versus IFRS The basics | 9


Consolidation, joint venture accounting and equity method investees/associates

US GAAP IFRS
Changes in ownership Transactions that result in decreases in Consistent with US GAAP, except that
interest in a subsidiary the ownership interest of a subsidiary this guidance applies to all subsidiaries,
without loss of control without a loss of control are accounted including those that are not businesses or
for as equity transactions in the nonprofit activities and those that involve
consolidated entity (i.e., no gain or loss sales of in substance real estate or the
is recognized) when: (1) the subsidiary conveyance of oil and gas mineral rights.
is a business or nonprofit activity
(except in a sale of in substance real
estate or a conveyance of oil and gas
mineral rights) or (2) the subsidiary is
not a business or nonprofit activity, but
the substance of the transaction is not
addressed directly by other ASC Topics.
Loss of control of a For certain transactions that result in Consistent with US GAAP, except that
subsidiary a loss of control of a subsidiary, any this guidance applies to all subsidiaries,
retained noncontrolling investment in including those that are not businesses or
the former subsidiary is remeasured to nonprofit activities and those that involve
fair value on the date the control is sales of in substance real estate or
lost, with the gain or loss included in conveyance of oil and gas mineral rights.
income along with any gain or loss on
the ownership interest sold. In addition, the gain or loss resulting
This accounting is limited to the from the loss of control of a subsidiary
following transactions: (1) loss of that does not constitute a business in a
control of a subsidiary that is a business transaction involving an associate or a
or nonprofit activity (except for a joint venture that is accounted for using
sale of in substance real estate or a the equity method is recognized only to
conveyance of oil and gas mineral the extent of the unrelated investors
rights); (2) loss of control of a interests in that associate or joint
subsidiary that is not a business or venture. 1
nonprofit activity if the substance of the
transaction is not addressed directly by
other ASC Topics. This guidance also
does not apply if a parent ceases to
control a subsidiary that is in substance
real estate as a result of default on the
subsidiarys nonrecourse debt.

1
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, Amendments to IFRS 10 and IAS 28
was issued by the IASB in September 2014 and is applicable for annual periods beginning on or after 1 January 2016
,with early adoption permitted. In August 2015, the IASB proposed to defer the effective date of this amendment
indefinitely. However, under the proposal, early adoption of this amendment would still be available.

US GAAP versus IFRS The basics | 10


Consolidation, joint venture accounting and equity method investees/associates

US GAAP IFRS
Loss of control of a For certain transactions that result in For transactions that result in a loss of
group of assets that a loss of control of a group of assets control of a group of assets that meet
meet the definition of that meet the definition of a business the definition of a business, any retained
a business or nonprofit activity, any retained noncontrolling investment in the former
noncontrolling investment in the group of assets is remeasured to fair
former group of assets is remeasured value on the date control is lost, with the
to fair value on the date control is lost, gain or loss included in income with any
with the gain or loss included in gain or loss on the ownership interest
income along with any gain or loss on sold.1
the ownership interest sold. There are
two exceptions: a sale of in substance
real estate, or a conveyance of oil and
gas mineral rights.
Equity method An investment of 20 % or more of the An investment of 20% or more of the
investments voting common stock of an investee equity of an investee (including potential
leads to a presumption that an rights) leads to a presumption that an
investor has the ability to exercise investor has the ability to exercise
significant influence over an investee, significant influence over an investee,
unless this presumption can be unless this presumption can be
overcome based on facts and overcome based on facts and
circumstances. circumstances.
When determining significant When determining significant influence,
influence, potential voting rights are potential voting rights are considered if
generally not considered. currently exercisable.
When an investor in a limited When an investor has an investment in a
partnership, LLC, trust or similar limited partnership, LLC, trust or similar
entity with specific ownership entity, the determination of significant
accounts has an interest greater than influence is made using the same general
3% to 5% in an investee, normally it principle of significant influence that is
accounts for its investment using the used for all other investments.
equity method.
ASC 825-10, Financial Instruments, Investments in associates held by
gives entities the option to account venture capital organizations, mutual
for certain equity method investments funds, unit trusts and similar entities
at fair value. If management does are exempt from using the equity
not elect to use the fair value option, method, and the investor may elect to
the equity method of accounting measure their investments in associates
is required. at fair value.
Conforming accounting policies Uniform accounting policies between
between investor and investee is investor and investee are required.
generally not permitted.

US GAAP versus IFRS The basics | 11


Consolidation, joint venture accounting and equity method investees/associates

US GAAP IFRS

Joint ventures Joint ventures are generally defined Joint ventures are separate vehicles in
as entities whose operations and which the parties that have joint control
activities are jointly controlled by of the separate vehicle have rights to
their equity investors. the net assets. These rights could be
through equity investors, certain parties
with decision-making rights through
a contract.
Joint control is not defined, but it is Joint control is defined as existing when
commonly interpreted to exist when two or more parties must unanimously
all of the equity investors consent to each of the significant
unanimously consent to each of the decisions of the entity.
significant decisions of the entity.
An entity can be a joint venture, In a joint venture, the parties cannot
regardless of the rights and obligations have direct rights and obligations with
the parties sharing joint control have respect to the underlying assets and
with respect to the entitys underlying liabilities of the entity (In this case the
assets and liabilities. arrangement would be classified as a
joint operation).
The investors generally account for The investors generally account for
their interests in joint ventures using their interests in joint ventures using the
the equity method of accounting. equity method of accounting.
They also can elect to account for Investments in associates held by
their interests at fair value. venture capital organizations, mutual
funds, unit trusts and similar entities are
exempt from using the equity method
and the investor may elect to measure
its investment at fair value
Proportionate consolidation may be Proportionate consolidation is not
permitted to account for interests in permitted, regardless of industry.
unincorporated entities in certain However, when a joint arrangement
limited industries when it is an meets the definition of a joint operation
established practice (i.e., in the instead of a joint venture under IFRS, an
construction and extractive investor would recognize its share of the
industries). entitys assets, liabilities, revenues and
expenses and not apply the equity
method.

US GAAP versus IFRS The basics | 12


Consolidation, joint venture accounting and equity method investees/associates

Convergence In June 2015, the FASB issued a proposal to


The FASB issued final guidance that eliminates simplify the equity method of accounting in two
the deferral of FAS 167 and makes changes to respects. First, the proposal would eliminate
both the variable interest model and the voting the requirement that an investor account for
model. While the ASU is aimed at asset the difference between the cost of an
managers, all reporting entities will have to investment and the amount of underlying
re-evaluate limited partnerships and similar equity in net assets of an investee (referred to
entities for consolidation and revise their as basis difference) as if the investee were a
documentation. It also may affect reporting consolidated subsidiary. That is, investors
entities that evaluate certain corporations or would not determine the fair value of an
similar entities for consolidation. For PBEs, the investees assets and liabilities at the date of
guidance is effective for annual periods acquisition, and investors would not adjust the
beginning after 15 December 2015 and proportionate share of the investees income
interim periods therein. Early adoption is for basis differences when determining the
permitted, including in an interim period. equity method earnings. If finalized, this aspect
Certain differences between consolidation of the proposal would further diverge US GAAP
guidance between IFRS and US GAAP (e.g., from IFRS. The proposal also would eliminate
effective control, potential voting rights) will the requirement that an entity retrospectively
continue to exist. adopts the equity method of accounting if an
investment that was previously accounted for
on other than the equity method (e.g., cost
method) qualifies for use of the equity method.
If finalized, this aspect of the proposal would
converge US GAAP with IFRS.

US GAAP versus IFRS The basics | 13


Business combinations
Business combinations

Similarities underlying transaction is measured at fair


The principal guidance for business value, establishing the basis on which the
combinations in US GAAP (ASC 805, Business assets, liabilities and noncontrolling interests
Combinations) and IFRS (IFRS 3, Business of the acquired entity are measured. As
Combinations) represents the culmination of described below, IFRS 3 provides an
the first major convergence project between alternative to measuring noncontrolling
the IASB and the FASB. Pursuant to ASC 805 interest at fair value with limited exceptions.
and IFRS 3, all business combinations are Although the new standards are substantially
accounted for using the acquisition method. converged, certain differences still exist.
Upon obtaining control of another entity, the

Significant differences
US GAAP IFRS
Measurement of Noncontrolling interest is measured at Noncontrolling interest components
noncontrolling interest fair value, including goodwill. that are present ownership interests
and entitle their holders to a
proportionate share of the acquirees
net asset in the event of liquidation may
be measured at: (1) fair value, including
goodwill, or (2) the noncontrolling
interests proportionate share of the
fair value of the acquirees identifiable
net assets, exclusive of goodwill.All
other components of noncontrolling
interest are measured at fair value
unless another measurement basis is
required by IFRS.The choice is available
on a transaction-by-transaction basis.

Acquirees operating If the terms of an acquiree operating Separate recognition of an intangible


leases lease are favorable or unfavorable asset or liability is required only if the
relative to market terms, the acquirer acquiree is a lessee. If the acquiree is the
recognizes an intangible asset or lessor, the terms of the lease are taken
liability, respectively, regardless of into account in estimating the fair value
whether the acquiree is the lessor or of the asset subject to the lease.
the lessee. Separate recognition of an intangible
asset or liability is not required.

US GAAP versus IFRS The basics | 14


Business combinations

US GAAP IFRS
Assets and liabilities Initial recognition and measurement Initial recognition and measurement
arising from Assets and liabilities arising from Liabilities arising from contingencies
contingencies contingencies are recognized at fair are recognized as of the acquisition
value (in accordance with ASC 820, date if there is a present obligation that
Fair Value Measurement and arises from past events and the fair
Disclosures) if the fair value can be value can be measured reliably.
determined during the measurement Contingent assets are not recognized.
period. Otherwise, those assets or
liabilities are recognized at
the acquisition date in accordance with
ASC 450, Contingencies, if those
criteria for recognition are met.
Contingent assets and liabilities that
do not meet either of these recognition
criteria at the acquisition date are
subsequently accounted for in
accordance with other applicable
literature, including ASC 450,
Contingencies. (See Provisions and
contingencies for differences between
ASC 450 and IAS 37).
Subsequent measurement Subsequent measurement
If contingent assets and liabilities are Liabilities subject to contingencies are
initially recognized at fair value, an subsequently measured at the higher
acquirer should develop a systematic and of: (1) the amount that would be
rational basis for subsequently measuring recognized in accordance with IAS 37,
and accounting for those assets and Provisions, Contingent Liabilities and
liabilities depending on their nature. Contingent Assets or (2) the amount
If amounts are initially recognized and initially recognized less, if appropriate,
measured in accordance with ASC 450, cumulative amortization recognized in
Contingencies, the subsequent accordance with IAS 18, Revenue.
accounting and measurement should
be based on that guidance.
Combination of entities The receiving entity records the net Outside the scope of IFRS 3, Business
under common control assets at their carrying amounts in Combinations. In practice, either follow
the accounts of the transferor an approach similar to US GAAP
(historical cost). (historical cost) or apply the acquisition
method (fair value) if there is substance
to the transaction (policy election).

US GAAP versus IFRS The basics | 15


Business combinations

US GAAP IFRS
Pushdown accounting An acquired entity can choose to apply No guidance exists, and it is unclear
pushdown accounting in its separate whether pushdown accounting is
financial statements when an acquirer acceptable under IFRS. However, the
obtains control of it or later. However, general view is that entities may not
an entitys election to apply pushdown use the hierarchy in IAS 8 to refer to
accounting is irrevocable. US GAAP and apply pushdown
accounting in the separate financial
statements of an acquired subsidiary,
because the application of pushdown
accounting will result in the recognition
and measurement of assets and
liabilities in a manner that conflicts with
certain IFRS standards and
interpretations. For example, the
application of pushdown accounting
generally will result in the recognition
of internally generated goodwill and
other internally generated intangible
assets at the subsidiary level, which
conflicts with the guidance in IAS 38.

Other differences may arise due to different during the period in which the amount of the
accounting requirements of other existing adjustment is determined. Those amendments
US GAAP and IFRS literature (e.g., identifying create an additional difference between
the acquirer, definition of control, replacement US GAAP and IFRS.
of share-based payment awards, initial
In November, 2015, the FASB issued an
classification and subsequent measurement of
exposure draft to clarify certain aspects of the
contingent consideration, initial recognition and
definition of a business. While the definition of a
measurement of income taxes, initial recognition
business is currently converged, the application
and measurement of employee benefits).
of the definition by US GAAP and IFRS reporters
Convergence is often different. The FASB intends for the
The FASB and IASB issued substantially clarifications to more closely align the
converged standards in December 2007 and interpretations of what constitutes a business.
January 2008, respectively. Both boards have The IASB also has a project on the definition of a
completed post-implementation reviews (PIRs) business as a result of concerns raised about
of their respective standards and separately the complexity of its application in its PIR. It is
discussed several narrow-scope projects. possible that the FASB and the IASB would
make similar changes to the definition of a
In September 2015, the FASB issued ASU business as a result of their separate projects.
2015-16, which eliminates the requirement for
an acquirer in a business combination to In addition, the IASB has a research project on
account for measurement-period adjustments business combinations of entities under
retrospectively. Instead, an acquirer common control.
recognizes a measurement-period adjustment

US GAAP versus IFRS The basics | 16


Inventory
Inventory

Similarities such as retail inventory method, are similar


ASC 330, Inventory, and IAS 2, Inventories, under both US GAAP and IFRS. Further, under
are based on the principle that the primary both sets of standards, the cost of inventory
basis of accounting for inventory is cost. Both includes all direct expenditures to ready
define inventory as assets held for sale in the inventory for sale, including allocable
ordinary course of business, in the process of overhead, while selling costs are excluded from
production for such sale or to be consumed the cost of inventories, as are most storage
in the production of goods or services. costs and general administrative costs.
Permissible techniques for cost measurement,

Significant differences
US GAAP IFRS

Costing methods LIFO is an acceptable method. LIFO is prohibited. Same cost formula
Consistent cost formula for all must be applied to all inventories
inventories similar in nature is not similar in nature or use to the entity.
explicitly required.

Measurement Prior to the adoption of ASU 2015-11, Inventory is carried at the lower of cost
inventory is carried at the lower of cost or net realizable value. Net realizable
or market. Market is defined as current value is defined as the estimated selling
replacement cost, but not greater than price less the estimated costs of
net realizable value (estimated selling completion and the estimated costs
price less reasonable costs of necessary to make the sale.
completion, disposal and
transportation) and not less than net
realizable value reduced by a normal
sales margin.

Reversal of inventory Any write-down of inventory to the Previously recognized impairment


write-downs lower of cost or market creates a new losses are reversed up to the amount
cost basis that subsequently cannot of the original impairment loss when
be reversed. the reasons for the impairment no
longer exist.

Permanent inventory Permanent markdowns do not affect Permanent markdowns affect the
markdowns under the the gross margins used in applying the average gross margin used in applying
retail inventory method RIM. Rather, such markdowns reduce the RIM. Reduction of the carrying cost
(RIM) the carrying cost of inventory to net of inventory to below the lower of cost
realizable value, less an allowance for or net realizable value is not allowed.
an approximately normal profit margin,
which may be less than both original
cost and net realizable value.

US GAAP versus IFRS The basics | 17


Inventory

Convergence
In July 2015 the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the
Measurement of Inventory, which requires that
inventories, other than those accounted for
under the LIFO or retail inventory method
(RIM), be measured at the lower of cost and
net realizable value. The guidance is effective
for PBEs for fiscal years beginning after
15 December 2016, and interim periods within
those fiscal years. For all other entities, it is
effective for fiscal years beginning after
15 December 2016, and interim periods within
fiscal years beginning after 15 December
2017. Early adoption is permitted as of the
beginning of an interim or annual reporting
period. This ASU will generally result in
convergence in the subsequent measurement
of inventories other than those accounted for
under the LIFO or RIM.

US GAAP versus IFRS The basics | 18


Long-lived assets
Long-lived assets

Similarities Depreciation
Although US GAAP does not have a Depreciation of long-lived assets is required
comprehensive standard that addresses on a systematic basis under both accounting
long-lived assets, its definition of property, plant models. ASC 250, Accounting Changes and
and equipment is similar to IAS 16, Property, Error Corrections, and IAS 8, Accounting
Plant and Equipment, which addresses tangible Policies, Changes in Accounting Estimates and
assets held for use that are expected to be used Errors, both treat changes in residual value and
for more than one reporting period. Other useful economic life as a change in accounting
concepts that are similar include the following: estimate requiring prospective treatment.

Cost Assets held for sale


Both accounting models have similar Assets held for sale criteria are similar in the
recognition criteria, requiring that costs be Impairment or Disposal of Long-Lived Assets
included in the cost of the asset if future subsections of ASC 360-10, Property, Plant
economic benefits are probable and can be and Equipment (and in ASC 205-20,
reliably measured. Neither model allows the Presentation of Financial Statements
capitalization of start-up costs, general Discontinued Operations), and IFRS 5,
administrative and overhead costs or regular Non-current Assets Held for Sale and
maintenance. Both US GAAP and IFRS require Discontinued Operations. Under both
that the costs of dismantling an asset and standards, the asset is measured at the lower
restoring its site (i.e., the costs of asset of its carrying amount or fair value less costs to
retirement under ASC 410-20, Asset sell, the assets are not depreciated and they
Retirement and Environmental Obligations are presented separately on the face of the
Asset Retirement Obligations or IAS 37, balance sheet. Exchanges of nonmonetary
Provisions, Contingent Liabilities and similar productive assets are also treated
Contingent Assets) be included in the cost similarly under ASC 845, Nonmonetary
of the asset when there is a legal obligation, Transactions, and IAS 16, Property, Plant and
but IFRS requires provision in other Equipment, both of which allow gain or loss
circumstances as well. recognition if the exchange has commercial
substance and the fair value of the exchange
Capitalized interest
can be reliably measured.
ASC 835-20, Interest Capitalization of
Interest, and IAS 23, Borrowing Costs,
require the capitalization of borrowing costs
(e.g., interest costs) directly attributable to
the acquisition, construction or production of
a qualifying asset. Qualifying assets are
generally defined similarly under both
accounting models. However, there are
differences between US GAAP and IFRS in
the measurement of eligible borrowing costs
for capitalization.

US GAAP versus IFRS The basics | 19


Long-lived assets

Significant differences
US GAAP IFRS

Revaluation of assets Revaluation not permitted. Revaluation is a permitted accounting


policy election for an entire class of
assets, requiring revaluation to fair
value on a regular basis.

Depreciation of asset Component depreciation permitted but Component depreciation required if


components not common. components of an asset have differing
patterns of benefit.

Measurement of Eligible borrowing costs do not include Eligible borrowing costs include
borrowing costs exchange rate differences. Interest exchange rate differences from foreign
earned on the investment of borrowed currency borrowings to the extent that
funds generally cannot offset interest they are regarded as an adjustment to
costs incurred during the period. interest costs.
For borrowings associated with a For borrowings associated with a
specific qualifying asset, borrowing specific qualifying asset, actual
costs equal to the weighted-average borrowing costs are capitalized offset
accumulated expenditures times the by investment income earned on those
borrowing rate are capitalized. borrowings.

Costs of a major Multiple accounting models have Costs that represent a replacement of
overhaul evolved in practice, including: expense a previously identified component of an
costs as incurred, capitalize costs and asset are capitalized if future economic
amortize through the date of the next benefits are probable and the costs can
overhaul, or follow the IFRS approach. be reliably measured. Otherwise, these
costs are expensed as incurred.
Investment property Investment property is not separately Investment property is separately
defined and, therefore, is accounted defined in IAS 40, Investment Property,
for as held for use or held for sale. as property held to earn rent or for
capital appreciation (or both) and may
include property held by lessees under a
finance or operating lease. Investment
property may be accounted for on a
historical cost basis or on a fair value
basis as an accounting policy election.
Capitalized operating leases classified as
investment property must be accounted
for using the fair value model.

Other differences include: hedging gains and Convergence


losses related to the purchase of assets, No further convergence is planned at this time.
constructive obligations to retire assets, the
discount rate used to calculate asset retirement
costs and the accounting for changes in the
residual value.

US GAAP versus IFRS The basics | 20


Intangible assets
Intangible assets

Similarities research phase of research and development


Both US GAAP (ASC 805, Business are expensed as incurred under both
Combinations, and ASC 350, Intangibles accounting models.
Goodwill and Other) and IFRS (IFRS 3(R), Amortization of intangible assets over their
Business Combinations, and IAS 38, Intangible estimated useful lives is required under both
Assets) define intangible assets as US GAAP and IFRS, with one US GAAP minor
nonmonetary assets without physical exception in ASC 985-20, Software Costs of
substance. The recognition criteria for both Software to be Sold, Leased or Marketed,
accounting models require that there be related to the amortization of computer
probable future economic benefits from costs software sold to others. In both sets of
that can be reliably measured, although some standards, if there is no foreseeable limit to
costs are never capitalized as intangible assets the period over which an intangible asset is
(e.g., start-up costs). Goodwill is recognized expected to generate net cash inflows to the
only in a business combination. With the entity, the useful life is considered to be
exception of development costs (addressed indefinite and the asset is not amortized.
below), internally developed intangibles are not Goodwill is never amortized under either
recognized as assets under either ASC 350 or US GAAP or IFRS.
IAS 38. Moreover, internal costs related to the

Significant differences
US GAAP IFRS

Development costs Development costs are expensed as Development costs are capitalized
incurred unless addressed by guidance when technical and economic feasibility
in another ASC Topic. Development of a project can be demonstrated in
costs related to computer software accordance with specific criteria,
developed for external use are including: demonstrating technical
capitalized once technological feasibility feasibility, intent to complete the asset
is established in accordance with and ability to sell the asset in the
specific criteria (ASC 985-20). In the future. Although application of these
case of software developed for internal principles may be largely consistent
use, only those costs incurred during with ASC 985-20 and ASC 350-40,
the application development stage (as there is no separate guidance
defined in ASC 350-40, Intangibles addressing computer software
Goodwill and Other Internal-Use development costs.
Software) may be capitalized.
Advertising costs Advertising and promotional costs are Advertising and promotional costs are
either expensed as incurred or expensed as incurred. A prepayment
expensed when the advertising takes may be recognized as an asset only
place for the first time (policy choice). when payment for the goods or
Direct response advertising may be services is made in advance of the
capitalized if the specific criteria in entity having access to the goods or
ASC 340-20, Other Assets and Deferred receiving the services.
Costs Capitalized Advertising Costs,
are met.

US GAAP versus IFRS The basics | 21


Intangible assets

US GAAP IFRS

Revaluation Revaluation is not permitted. Revaluation to fair value of intangible


assets other than goodwill is a permitted
accounting policy election for a class of
intangible assets. Because revaluation
requires reference to an active market
for the specific type of intangible, this
is relatively uncommon in practice.

Convergence The IASB has a project on its research agenda


Neither the IASB nor the FASB has any current on goodwill and impairment that was added
plans to converge the guidance on intangible in response to the findings in its PIR of IFRS 3.
assets. The IASB also is considering which intangible
assets should be recognized apart from
The FASB is deliberating a project on accounting goodwill, as part of the research project on
for goodwill. The objective of this project is goodwill and impairment.
to reduce the cost and complexity of the
subsequent accounting for goodwill. The FASB The accounting for certain intangible assets
also is deliberating a project on accounting for transactions (e.g., advertisement costs) will be
identifiable intangible assets in a business affected by the implementation of ASU 2014-09
combination. The objective of this project is to and IFRS 15.
evaluate whether certain identifiable intangible
assets acquired in a business combination should
be subsumed into goodwill.

US GAAP versus IFRS The basics | 22


Impairment of long-lived assets, goodwill and
Impairment of long-lived assets, goodwill and intangible assets

intangible assets
Similarities ASC 350, Intangibles Goodwill and Other,
Under both US GAAP and IFRS, long-lived Impairment or Disposal of Long-Lived Assets
assets are not tested annually, but rather when subsections of ASC 360-10, Property, Plant
there are similarly defined indicators of and Equipment, and IAS 36, Impairment of
impairment. Both standards require goodwill Assets, apply to most long-lived and intangible
and intangible assets with indefinite useful lives assets, although some of the scope exceptions
to be tested at least annually for impairment listed in the standards differ. Despite the
and more frequently if impairment indicators similarity in overall objectives, differences exist
are present. In addition, both US GAAP and in the way impairment is tested, recognized
IFRS require that the impaired asset be written and measured.
down and an impairment loss recognized.

Significant differences
US GAAP IFRS

Method of determining Two-step approach requires that a One-step approach requires that
impairment long-lived recoverability test be performed first impairment loss calculation be
assets (carrying amount of the asset is performed if impairment indicators
compared with the sum of future exist.
undiscounted cash flows generated
through use and eventual disposition).
If it is determined that the asset is not
recoverable, an impairment loss
calculation is required.

Impairment loss The amount by which the carrying The amount by which the carrying
calculation long-lived amount of the asset exceeds its fair amount of the asset exceeds its
assets value, as calculated in accordance with recoverable amount; recoverable
ASC 820, Fair Value Measurement. amount is the higher of: (1) fair value
less costs to sell and (2) value in use
(the present value of future cash flows
in use, including disposal value).

Assignment of goodwill Goodwill is assigned to a reporting unit, Goodwill is allocated to a


which is defined as an operating cash-generating unit (CGU) or group of
segment or one level below an CGUs that represents the lowest level
operating segment (component). within the entity at which the goodwill
is monitored for internal management
purposes and cannot be larger than an
operating segment (before
aggregation) as defined in IFRS 8,
Operating Segments.

US GAAP versus IFRS The basics | 23


Impairment of long-lived assets, goodwill and intangible assets

US GAAP IFRS

Method of determining Companies have the option to Qualitative assessment is not


impairment goodwill qualitatively assess whether it is more permitted. One-step approach requires
likely than not that the fair value of a that an impairment test be done at the
reporting unit is less than its carrying CGU level by comparing the CGUs
amount. If so, a two-step approach carrying amount, including goodwill,
requires a recoverability test to be with its recoverable amount.
performed first at the reporting unit level
(carrying amount of the reporting unit is
compared with the reporting unit fair
value). If the carrying amount of the
reporting unit exceeds its fair value, then
impairment testing must be performed.

Method of determining Companies have the option to Qualitative assessment is not


impairment qualitatively assess whether it is more permitted. One-step approach requires
indefinite-lived likely than not that an indefinite-lived that an impairment test be done at the
intangibles intangible asset is impaired. If a CGU level by comparing the CGUs
quantitative test is performed, the carrying amount, including goodwill,
quantitative impairment test for an with its recoverable amount.
indefinite-lived intangible asset
requires a comparison of the fair value
of the asset with its carrying amount. If
the carrying amount of an intangible
asset exceeds its fair value, a company
should recognize an impairment loss in
an amount equal to that excess.

Impairment loss The amount by which the carrying Impairment loss on the CGU (amount
calculation goodwill amount of goodwill exceeds the implied by which the CGUs carrying amount,
fair value of the goodwill within its including goodwill, exceeds its
reporting unit. recoverable amount) is allocated first
to reduce goodwill to zero, then,
subject to certain limitations, the
carrying amount of other assets in the
CGU are reduced pro rata, based on the
carrying amount of each asset.

Level of assessment Indefinite-lived intangible assets If the indefinite-lived intangible asset


indefinite-lived separately recognized should be does not generate cash inflows that are
intangible assets assessed for impairment individually largely independent of those from
unless they operate in concert with other assets or groups of assets, then
other indefinite-lived intangible assets the indefinite-lived intangible asset
as a single asset (i.e., the should be tested for impairment as part
indefinite-lived intangible assets are of the CGU to which it belongs, unless
essentially inseparable). Indefinite-lived certain conditions are met.
intangible assets may not be combined
with other assets (e.g., finite-lived
intangible assets or goodwill) for
purposes of an impairment test.

US GAAP versus IFRS The basics | 24


Impairment of long-lived assets, goodwill and intangible assets

US GAAP IFRS

Impairment loss The amount by which the carrying The amount by which the carrying
calculation amount of the asset exceeds its fair amount of the asset exceeds its
indefinite-lived value. recoverable amount.
intangible assets

Reversal of loss Prohibited for all assets to be held Prohibited for goodwill. Other assets
and used. must be reviewed at the end of each
reporting period for reversal indicators.
If appropriate, loss should be reversed
up to the newly estimated recoverable
amount, not to exceed the initial
carrying amount adjusted for
depreciation.

Convergence combination. The objective of this project is to


Neither the IASB nor the FASB has any current evaluate whether certain identifiable intangible
plans to converge the guidance on impairment assets acquired in a business combination
of long-lived assets, goodwill and indefinite-lived should be subsumed into goodwill.
intangible assets. The IASB has a project on its research agenda
The FASB is deliberating a project on on goodwill and impairment that was added
accounting for goodwill. The objective of this in response to the findings in its PIR of IFRS 3.
project is to reduce the cost and complexity of The IASB also is considering which intangible
the subsequent accounting for goodwill. The assets should be recognized apart from
FASB also is deliberating a project on accounting goodwill, as part of the research project on
for identifiable intangible assets in a business goodwill and impairment.

US GAAP versus IFRS The basics | 25


Financial instruments
Financial instruments

Similarities IFRS 13, Fair Value Measurement. IFRS 9,


The US GAAP guidance for financial instruments Financial Instruments, if early adopted, would
is located in numerous ASC Topics, including supersede IAS 39.
ASC 310, Receivables; ASC 320, Investments Both US GAAP and IFRS (1) require financial
Debt and Equity Securities; ASC 470, Debt; instruments to be classified into specific
ASC 480, Distinguishing Liabilities from Equity; categories to determine the measurement of
ASC 815, Derivatives and Hedging; ASC 820, those instruments, (2) clarify when financial
Fair Value Measurement; ASC 825, Financial instruments should be recognized or
Instruments; ASC 860, Transfers and derecognized in financial statements, (3) require
Servicing; and ASC 948, Financial Services the recognition of all derivatives on the balance
Mortgage Banking. sheet and (4) require detailed disclosures in
IFRS guidance for financial instruments, on the the notes to the financial statements for the
other hand, is limited to IAS 32, Financial financial instruments reported in the balance
Instruments: Presentation; IAS 39, Financial sheet. Both sets of standards also allow hedge
Instruments: Recognition and Measurement; accounting and the use of a fair value option.
IFRS 7, Financial Instruments: Disclosures; and

Significant differences
US GAAP IFRS

Debt vs. equity

Classification US GAAP specifically identifies certain Classification of certain instruments


instruments with characteristics of with characteristics of both debt and
both debt and equity that must be equity is largely based on the
classified as liabilities. contractual obligation to deliver cash,
assets or an entitys own shares.
Economic compulsion does not
constitute a contractual obligation.
Certain other contracts that are Contracts that are indexed to, and
indexed to, and potentially settled in, potentially settled in, an entitys own
an entitys own stock may be classified stock are classified as equity if settled
as equity if they either: (1) require only by delivering a fixed number of
physical settlement or net-share shares for a fixed amount of cash.
settlement, or (2) give the issuer a
choice of net-cash settlement or
settlement in its own shares.

US GAAP versus IFRS The basics | 26


Financial instruments

US GAAP IFRS

Compound (hybrid) Compound (hybrid) financial instruments Compound (hybrid) financial


financial instruments (e.g., convertible bonds) are not split into instruments are required to be split
debt and equity components unless into a debt and equity component and,
certain specific requirements are met, if applicable, a derivative component.
but they may be bifurcated into debt The derivative component is accounted
and derivative components, with the for using fair value accounting.
derivative component accounted for
using fair value accounting.

Recognition and measurement


Impairment recognition Declines in fair value below cost may Generally, only objective evidence of
available-for-sale (AFS) result in an impairment loss being one or more credit loss events result
debt instruments recognized in the income statement on in an impairment being recognized in
an AFS debt instrument due solely to a the statement of comprehensive
change in interest rates (risk-free or income for an AFS debt instrument.
otherwise) if the entity has the intent The impairment loss is measured as
to sell the debt instrument or it is more the difference between the debt
likely than not that it will be required instruments amortized cost basis and
to sell the debt instrument before its fair value.
its anticipated recovery. In this
circumstance, the impairment loss is
measured as the difference between
the debt instruments amortized cost
basis and its fair value.
When a credit loss exists, but (1) the
entity does not intend to sell the debt
instrument, or (2) it is not more likely
than not that the entity will be required
to sell the debt instrument before the
recovery of the remaining cost basis,
the impairment is separated into the
amount representing the credit loss and
the amount related to all other factors.
The amount of the total impairment
related to the credit loss is recognized
in the income statement and the
amount related to all other factors is
recognized in other comprehensive
income, net of applicable taxes.
When an impairment loss is recognized Impairment losses for AFS debt
in the income statement, a new cost instruments may be reversed through
basis in the instrument is established the statement of comprehensive income
equal to the previous cost basis less the if the fair value of the instrument
impairment recognized in earnings, and increases in a subsequent period and
therefore, impairment losses recognized the increase can be objectively related
in the income statement cannot be to an event occurring after the
reversed for any future recoveries. impairment loss was recognized.

US GAAP versus IFRS The basics | 27


Financial instruments

US GAAP IFRS

Impairment Impairment of an AFS equity instrument Impairment of an AFS equity


recognition is recognized in the income statement instrument is recognized in the
available-for-sale (AFS) if the equity instruments fair value is statement of comprehensive income
equity instruments not expected to recover sufficiently in when there is objective evidence that
the near term to allow a full recovery of the AFS equity instrument is impaired
the entitys cost basis. An entity must and the cost of the investment in the
have the intent and ability to hold an equity instrument may not be
impaired equity instrument until such recovered. A significant or prolonged
near-term recovery; otherwise an decline in the fair value of an equity
impairment loss must be recognized in instrument below its cost is considered
the income statement. objective evidence of an impairment.

Impairment recognition The impairment loss of a HTM The impairment loss of an HTM
held-to-maturity (HTM) instrument is measured as the instrument is measured as the
debt instruments difference between its fair value and difference between the carrying
amortized cost basis. The amount of amount of the instrument and the
the total impairment related to the present value of estimated future cash
credit loss is recognized in the income flows discounted at the instruments
statement, and the amount related to original effective interest rate.
all other factors is recognized in other
comprehensive income.
The carrying amount of an HTM The carrying amount of the instrument
investment after recognition of an is reduced either directly or through
impairment is the fair value of the debt the use of an allowance account.
instrument at the date of the impairment.
The new cost basis of the debt instrument
is equal to the previous cost basis less
the impairment recognized in the
income statement.
The impairment recognized in other The amount of impairment loss is
comprehensive income is accreted to the recognized in the statement of
carrying amount of the HTM instrument comprehensive income.
through other comprehensive income
over its remaining life.

US GAAP versus IFRS The basics | 28


Financial instruments

US GAAP IFRS

Derivatives and hedging

Definition of a derivative To meet the definition of a derivative, The IFRS definition of a derivative does
and scope exceptions an instrument must have one or more not include a requirement that a
underlyings, one or more notional notional amount be indicated, nor is
amounts or payment provisions or net settlement a requirement. Certain
both, must require no initial net of the scope exceptions under IFRS
investment, as defined, and must be differ from those under US GAAP.
able to be settled net, as defined.
Certain scope exceptions exist for
instruments that would otherwise meet
these criteria.
Hedging a risk The risk components that may be Allows risks associated with only a
component of a financial hedged are specifically defined by the portion of the instruments cash flows
instrument literature, with no additional flexibility. or fair value (such as one or more
selected contractual cash flows or
portions of them or a percentage of the
fair value) provided that effectiveness
can be measured: that is, the portion is
separately identifiable and reliably
measurable.
Hedge effectiveness The shortcut method for interest rate The shortcut method for interest rate
swaps hedging recognized debt swaps hedging recognized debt is not
instruments is permitted. permitted.
The long-haul method of assessing and Under IFRS, assessment and
measuring hedge effectiveness for a fair measurement of hedge effectiveness
value hedge of the benchmark interest considers only the change in fair value
rate component of a fixed rate debt of the designated hedged portion of the
instrument requires that all contractual instruments cash flows, as long as the
cash flows be considered in calculating portion is separately identifiable and
the change in the hedged items fair reliably measurable.
value even though only a component of
the contractual coupon payment is the
designated hedged item.
Hedge effectiveness Permitted. Not permitted.
inclusion of options
time value

US GAAP versus IFRS The basics | 29


Financial instruments

US GAAP IFRS
Derecognition
Derecognition of Derecognition of financial assets Derecognition of financial assets is
financial assets (i.e., sales treatment) occurs when based on a mixed model that considers
effective control over the financial transfer of risks and rewards and
asset has been surrendered: control. Transfer of control is
The transferred financial assets are considered only when the transfer of
legally isolated from the transferor risks and rewards assessment is not
Each transferee (or, if the conclusive. If the transferor has neither
retained nor transferred substantially
transferee is a securitization entity
or an entity whose sole purpose is to all of the risks and rewards, there is
facilitate an asset-backed financing, then an evaluation of the transfer of
control. Control is considered to be
each holder of its beneficial
interests), has the right to pledge or surrendered if the transferee has the
exchange the transferred financial practical ability to unilaterally sell the
transferred asset to a third party
assets (or beneficial interests)
without restrictions. There is no legal
The transferor does not maintain isolation test.
effective control over the transferred
financial assets or beneficial interests
(e.g., through a call option or
repurchase agreement)
The derecognition criteria may be The derecognition criteria may be
applied to a portion of a financial asset applied to a portion of a financial asset
only if it mirrors the characteristics of if the cash flows are specifically
the original entire financial asset. identified or represent a pro rata share
of the financial asset or a pro rata
share of specifically identified cash
flows.
Loans and receivables
Measurement effective Requires catch-up approach, Requires the original effective interest
interest method retrospective method or prospective rate to be used throughout the life of the
method of calculating the interest for instrument for all financial assets and
amortized cost-based assets, liabilities, except for certain reclassified
depending on the type of instrument. financial assets, in which case the effect
of increases in cash flows are recognized
as prospective adjustments to the
effective interest rate.
Measurement loans Unless the fair value option is elected, Loans and receivables are carried at
and receivables loans and receivables are classified as amortized cost unless classified into
either: (1) held for investment, which the fair value through profit or loss
are measured at amortized cost, or category or the available for sale
(2) held for sale, which are measured category, both of which are carried at
at the lower of cost or fair value. fair value on the balance sheet.

US GAAP versus IFRS The basics | 30


Financial instruments

US GAAP IFRS
Fair value measurement
Day one gains and losses Entities are not precluded from Day one gains and losses on financial
recognizing day one gains and losses on instruments are recognized only when
financial instruments reported at fair their fair value is evidenced by a
value even when all inputs to the quoted price in an active market for an
measurement model are not identical asset or liability (i.e., a level 1
observable. Unlike IFRS, US GAAP or level 2 input) or based on a valuation
contains no specific requirements technique that uses only data from
regarding the observability of inputs, observable markets.
thereby potentially allowing for the
recognition of gains or losses at initial
recognition of an asset or liability even
when the fair value measurement is
based on a valuation model with
significant unobservable inputs
(i.e., Level 3 measurements).

Practical expedient for Entities are provided a practical No practical expedient to assume that
alternative investments expedient to estimate the fair value of NAV represents the fair value of
certain alternative investments (e.g., a certain alternative investments.
limited partner interest in a Private
Equity fund) using net asset value per
share (NAV) or its equivalent.

Other differences include: (1) definitions of a Classification and measurement


derivative and embedded derivative, (2) cash The FASB concluded redeliberations on its
flow hedge basis adjustment and effectiveness 2013 proposal on classification and
testing, (3) normal purchase and sale exception, measurement of financial instruments and
(4) foreign exchange gain and/or losses on AFS tentatively decided to retain the existing
investments, (5) recognition of basis adjustments guidance for financial assets and financial
when hedging future transactions, (6) macro liabilities, with the exception of investments in
hedging, (7) hedging net investments, (8) cash equity securities and financial liabilities that
flow hedge of intercompany transactions, are measured under the fair value option. The
(9) hedging with internal derivatives, FASB also decided to make other targeted
(10) impairment criteria for equity investments, amendments to certain disclosure
(11) puttable minority interest, (12) netting and
requirements and other aspects of current
offsetting arrangements, (13) unit of account
US GAAP. The FASBs approach is a significant
eligible for derecognition and (14) accounting
departure from the joint model it developed
for servicing assets and liabilities.
with the IASB and the final version of IFRS 9,
Convergence Financial Instruments, which was issued in July
The FASB and the IASB are engaged in 2014. The FASB is expected to issue a final
projects to simplify and improve the standard in early 2016.
accounting for financial instruments.

US GAAP versus IFRS The basics | 31


Financial instruments

Impairment Hedge accounting


The FASB initially worked with the IASB to The IASB issued the final version of IFRS 9 in
develop new guidance, but the Boards July 2014. IFRS 9 introduces a substantial
ultimately were unable reach a converged overhaul of the hedge accounting model that
solution. The FASBs decisions on credit aligns the accounting treatment with risk
impairment differ from the three-stage management activities. The aim of the new
impairment model the IASB finalized as part of standard is to allow entities to better reflect
IFRS 9. Under the FASBs approach, an entity these activities in their financial statements
would record an allowance for credit losses and provide users of the financial statements
that reflects the contractual cash flows the with better information about risk
entity does not expect to collect over the life of management and the effect of hedge
all financial assets that are debt instruments accounting on the financial statements.
measured at amortized cost. Available-for-sale
The FASB tentatively decided in July 2015 to
debt securities would be subject to todays
make certain targeted improvements to its
other-than-temporary impairment model with
hedge accounting model in an effort to make
a few modifications. The FASB expects to issue
the accounting easier for companies to apply
a final standard in the first quarter of 2016.
and for users of the financial statements to
understand. An exposure draft is expected in
early 2016.

US GAAP versus IFRS The basics | 32


Foreign currency matters
Foreign currency matters

Similarities resulting from changes in exchange rates


ASC 830, Foreign Currency Matters, and reported in income. Except for the translation
IAS 21, The Effects of Changes in Foreign of financial statements in hyperinflationary
Exchange Rates, are similar in their approach economies, the method used to translate
to foreign currency translation. Although the financial statements from the functional
criteria to determine an entitys functional currency to the reporting currency generally is
currency are different under US GAAP and the same. In addition, both US GAAP and IFRS
IFRS, both ASC 830 and IAS 21 generally require remeasurement into the functional
result in the same determination (i.e., the currency before translation into the reporting
currency of the entitys primary economic currency. Assets and liabilities are translated
environment). In addition, although there are at the period-end rate and income statement
differences in accounting for foreign currency amounts generally are translated at the
translation in hyperinflationary economies average rate, with the exchange differences
under ASC 830 and IAS 29, Financial reported in equity. Both sets of standards also
Reporting in Hyperinflationary Economies, require certain foreign exchange effects
both sets of standards require the identification related to net investments in foreign
of hyperinflationary economies and generally operations to be accumulated in shareholders
consider the same economies to be equity (i.e., the cumulative translation
hyperinflationary. adjustment portion of other comprehensive
income). In general, these amounts are
Both US GAAP and IFRS require foreign reflected in income when there is a sale,
currency transactions to be remeasured into complete liquidation or abandonment of the
an entitys functional currency with amounts foreign operation.

Significant differences
US GAAP IFRS

Translation/functional Local functional currency financial The functional currency must be


currency of foreign statements are remeasured as if the maintained. However, local functional
operations in a functional currency was the reporting currency financial statement amounts
hyperinflationary currency (US dollar in the case of a US not already measured at the current
economy parent) with resulting exchange rate at the end of the reporting period
differences recognized in income. (current and prior period) are indexed
using a general price index
(i.e., restated in terms of the
measuring unit current at the balance
sheet date with the resultant effects
recognized in income), and are then
translated to the reporting currency at
the current rate.

US GAAP versus IFRS The basics | 33


Foreign currency matters

US GAAP IFRS

Consolidation of foreign A bottom-up approach is required in The method of consolidation is not


operations order to reflect the appropriate foreign specified and, as a result, either the
currency effects and hedges in place. direct or the step-by-step method
As such, an entity should be of consolidation is used. Under the
consolidated by the enterprise that direct method, each entity within
controls the entity. Therefore, the the consolidated group is directly
step-by-step method of consolidation translated into the functional currency
is used, whereby each entity is of the ultimate parent and then
consolidated into its immediate parent consolidated into the ultimate parent
until the ultimate parent has (i.e., the reporting entity) without regard
consolidated the financial statements to any intermediate parent. The choice
of all the entities below it. of consolidation method used could
affect the cumulative translation
adjustments deferred within equity at
intermediate levels, and therefore the
recycling of such exchange rate
differences upon disposal of an
intermediate foreign operation.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 34


Leases
Leases

Similarities Under both US GAAP and IFRS, a lessee would


The overall accounting for leases under record a capital (finance) lease by recognizing
US GAAP and IFRS (ASC 840, Leases and an asset and a liability, measured at the lower
IAS 17, Leases, respectively) is similar, of the present value of the minimum lease
although US GAAP has more specific application payments or fair value of the asset. A lessee
guidance than IFRS. Both focus on classifying would record an operating lease by
leases as either capital (IAS 17 uses the term recognizing expense on a straight-line basis
finance) or operating, and both separately over the lease term. Any incentives under an
discuss lessee and lessor accounting. operating lease are amortized on a
straight-line basis over the term of the lease.
Lessee accounting (excluding real estate)
Both US GAAP and IFRS require the party that Lessor accounting (excluding real estate)
bears substantially all the risks and rewards of Lessor accounting under ASC 840 and IAS 17
ownership of the leased property to recognize is similar and uses the above tests to determine
a lease asset and corresponding obligation, whether a lease is a sales-type/direct financing
and provide criteria (ASC 840) or indicators lease (referred to as a finance lease under
(IAS 17) to determine whether a lease is IAS 17) or an operating lease. ASC 840
capital or operating. The criteria or indicators specifies two additional criteria (i.e., collection
of a capital lease are similar in that both of lease payments is reasonably predictable
standards include the transfer of ownership to and no important uncertainties surround the
the lessee at the end of the lease term and a amount of unreimbursable costs to be incurred
purchase option that, at inception, is by the lessor) for a lessor to qualify for
reasonably expected to be exercised. ASC 840 sales-type/direct financing lease accounting
requires capital lease treatment if the lease that IAS 17 does not. Although not specified in
term is equal to or greater than 75% of the IAS 17, it is reasonable to expect that if these
assets economic life, while IAS 17 requires conditions exist, the same conclusion may be
such treatment when the lease term is a reached under both standards. If a lease is a
major part of the assets economic life. sales-type/direct financing (finance) lease,
ASC 840 specifies capital lease treatment if the leased asset is replaced with a lease
the present value of the minimum lease receivable. If a lease is classified as operating,
payments exceeds 90% of the assets fair rental income is recognized on a straight-line
value, while IAS 17 uses the term basis over the lease term, and the leased asset
substantially all of the fair value. In practice, is depreciated by the lessor over its useful life.
while ASC 840 specifies bright lines in certain
instances, IAS 17s general principles are
interpreted similarly to the bright-line tests.
As a result, lease classification is often the
same under ASC 840 and IAS 17.

US GAAP versus IFRS The basics | 35


Leases

Significant differences
US GAAP IFRS
Lease of real estate A lease of land and buildings that The land and building elements of the
transfers ownership to the lessee or lease are considered separately when
contains a bargain purchase option evaluating all indicators unless the
would be classified as a capital lease by amount that would initially be
the lessee, regardless of the relative recognized for the land element is
value of the land. immaterial, in which case they would
be treated as a single unit for purposes
of lease classification.
If the fair value of the land at inception There is no 25% test to determine
represents less than 25% of the total whether to consider the land and
fair value of the lease, the lessee building separately when evaluating
accounts for the land and building certain indicators.
components as a single unit for
purposes of evaluating the 75% and
90% tests noted above.
Otherwise, the lessee must consider
the land and building components
separately for purposes of evaluating
other lease classification criteria.
(Note: Only the building is subject to
the 75% and 90% tests in this case).

Recognition of a gain or If the seller-lessee retains only a minor Gain or loss is recognized immediately,
loss on a sale and use of the leased asset through the subject to adjustment if the sales price
leaseback when the sale-leaseback, the sale and leaseback differs from fair value.
leaseback is an are accounted for as separate
operating leaseback transactions based on their respective
(non-real estate) terms (unless rentals are unreasonable
in relation to market conditions).
If a seller-lessee retains more than a
minor use of the leased asset but less
than substantially all of it, and the
profit on the sale exceeds the present
value of the minimum lease payments
due under the operating leaseback,
that excess is recognized as profit at
the date of sale. All other profit is
deferred and generally amortized over
the lease term.
(Note: If real estate is involved, the
specialized rules are very restrictive
with respect to the sellers continuing
involvement, and they may not allow
for recognition of the sale).

US GAAP versus IFRS The basics | 36


Leases

US GAAP IFRS

Recognition of gain or The seller-lessee is presumed to have Gain or loss deferred and amortized
loss on a sale-leaseback retained substantially all of the over the lease term.
when the leaseback is a remaining use of the leased asset when
capital leaseback the leaseback is classified as a capital
lease. In such cases, the profit on sale
is deferred.

Sale and leaseback of If real estate is involved, while the There is no real estate specific
real estate above model generally applies, the guidance for sale and leaseback
specialized rules also must be applied. transactions under IFRS.
Those rules are very restrictive with
respect to the sellers continuing
involvement, and they may not allow
for recognition of the sale.

Other differences include: (1) the treatment of Convergence


a leveraged lease by a lessor under ASC 840 As part of their convergence efforts, the
(IAS 17 does not have such classification), Boards anticipate issuing new standards in
(2) real estate sale-leasebacks, (3) real estate early 2016. The final standards are expected
sales-type leases, (4) leases of land and (5) the to have differences however under both the
rate used to discount minimum lease payments FASBs and IASBs new standard, lessees
to the present value for purposes of determining would recognize the assets and liabilities
lease classification and subsequent recognition arising under many lease contracts on their
of a capital lease, including in the event of balance sheets.
a renewal.

US GAAP versus IFRS The basics | 37


Income taxes
Income taxes

Similarities temporary differences arising from


ASC 740, Income Taxes, and IAS 12, Income non-deductible goodwill are not recorded under
Taxes, require entities to account for both both US GAAP and IFRS, and tax effects of
current tax effects and expected future tax items accounted for directly in equity during the
consequences of events that have been current year are allocated directly to equity.
recognized (i.e., deferred taxes) using an asset Neither US GAAP nor IFRS permits the
and liability approach. Deferred taxes for discounting of deferred taxes.

Significant differences
US GAAP IFRS

Tax basis Tax basis is a question of fact under the Tax basis is generally the amount
tax law. For most assets and liabilities, deductible or taxable for tax purposes.
there is no dispute on this amount; The manner in which management
however, when uncertainty exists, it is intends to settle or recover the
determined in accordance with carrying amount affects the
ASC 740-10-25. determination of tax basis.

Taxes on intercompany Requires taxes paid on intercompany Requires taxes paid on intercompany
transfers of assets that profits to be deferred and prohibits the profits to be recognized as incurred
remain within a recognition of deferred taxes on and requires the recognition of
consolidated group temporary differences between the tax deferred taxes on temporary
bases of assets transferred between differences between the tax bases of
entities/tax jurisdictions that remain assets transferred between entities/tax
within the consolidated group. jurisdictions that remain within the
consolidated group.

Uncertain tax positions ASC 740-10-25 requires a two-step IFRS does not include specific guidance.
process, separating recognition from IAS 12, Income Taxes indicates that tax
measurement. A benefit is recognized assets and liabilities should be
when it is more likely than not to be measured at the amount expected to be
sustained based on the technical merits paid based on enacted or substantively
of the position. Detection risk is enacted tax legislation. Some adopt a
precluded from being considered in one-step approach that recognizes all
the analysis. The amount of benefit to uncertain tax positions at an expected
be recognized is based on the largest value. Others adopt a two-step
amount of tax benefit that is greater approach that recognizes only those
than 50% likely of being realized upon uncertain tax positions that are
ultimate settlement. considered more likely than not to
result in a cash outflow. Practice varies
regarding the consideration of
detection risk in the analysis.

US GAAP versus IFRS The basics | 38


Income taxes

US GAAP IFRS

Initial recognition Does not include an exemption like that Deferred tax effects arising from the
exemption under IFRS for non-recognition of initial recognition of an asset or liability
deferred tax effects for certain assets are not recognized when: (1) the
or liabilities. amounts did not arise from a business
combination, and (2) upon occurrence,
the transaction affects neither accounting
nor taxable profit (e.g., acquisition of
non-deductible assets).

Recognition of deferred Recognized in full (except for certain Amounts are recognized only to the
tax assets outside basis differences), but extent it is probable (similar to more
valuation allowance reduces asset to likely than not under US GAAP) that
the amount that is more likely than not they will be realized.
to be realized.

Calculation of deferred Enacted tax rates must be used. Enacted or substantively enacted tax
tax asset or liability rates as of the balance sheet date must
be used.
Classification of deferred Current or non-current classification, All amounts classified as non-current in
tax assets and liabilities based on the nature of the related the balance sheet.
in balance sheet asset or liability, is required.
Recognition of deferred Recognition not required for Recognition required unless the
tax liabilities from investment in a foreign subsidiary or reporting entity has control over the
investments in foreign corporate JV that is essentially timing of the reversal of the temporary
subsidiaries or joint permanent in duration, unless it difference and it is probable (more
ventures (JVs) (often becomes apparent that the difference likely than not) that the difference will
referred to as outside will reverse in the foreseeable future. not reverse in the foreseeable future.
basis differences)

Other differences include: (1) the allocation of Convergence


subsequent changes to deferred taxes to The Boards have abandoned plans for a joint
components of income or equity, (2) the convergence project. However, the IASB and
calculation of deferred taxes on foreign FASB have separately agreed to consider as
nonmonetary assets and liabilities when the a potential longer term project undertaking
local currency of an entity is different than its a fundamental review of accounting for
functional currency, (3) the measurement of income taxes.
deferred taxes when different tax rates apply
to distributed or undistributed profits and In October 2015, the IFRS Interpretations
(4) the recognition of deferred tax assets on Committee issued a proposed interpretation
basis differences in domestic subsidiaries and that would provide guidance on accounting for
domestic joint ventures that are permanent current and deferred tax liabilities and assets
in duration. in circumstances in which there is uncertainty
over income tax treatments. Developments on
this proposal should be monitored.

US GAAP versus IFRS The basics | 39


Income taxes

In November 2015, the FASB issued


ASU 2015-17, Balance Sheet Classification of
Deferred Taxes. ASU 2015-17 requires entities
to classify all deferred tax assets and liabilities
as noncurrent on the balance sheet instead of
separating deferred taxes into current and
noncurrent amounts. For PBEs, ASU 2015-17
is effective for annual periods beginning after
15 December 2016, and interim periods within
those annual periods. For non-PBEs, it is
effective for annual periods beginning after 15
December 2017, and interim periods within
annual periods beginning after 15 December
2018. Early adoption is permitted.
In an exposure draft released in January 2015,
the FASB proposed requiring companies to
immediately recognize income tax effects on
intercompany transaction in their income
statements, eliminating the current exception
that requires companies to defer the income tax
effects of certain intercompany transactions.
Developments on this proposal should be
monitored.

US GAAP versus IFRS The basics | 40


Provisions and contingencies
Provisions and contingencies

Similarities Statements in US GAAP (CON 5, Recognition


While the sources of guidance under US GAAP and Measurement in Financial Statements of
and IFRS differ significantly, the general Business Enterprises, and CON 6, Elements of
recognition criteria for provisions are similar. Financial Statements) is similar to the specific
IAS 37, Provisions, Contingent Liabilities and recognition criteria provided in IAS 37. Both
Contingent Assets, provides the overall US GAAP and IFRS require recognition of a loss
guidance for recognition and measurement based on the probability of occurrence,
criteria of provisions and contingencies. While although the definition of probability is
there is no equivalent single standard under different under US GAAP and IFRS. Both
US GAAP, ASC 450, Contingencies, and a US GAAP and IFRS prohibit the recognition of
number of other standards deal with specific provisions for costs associated with future
types of provisions and contingencies operating activities. Further, both US GAAP and
(e.g., ASC 410, Asset Retirement and IFRS require disclosures about a contingent
Environmental Obligations; ASC 420, Exit or liability whose occurrence is more than remote
Disposal Cost Obligations). In addition, although but does not meet the recognition criteria.
nonauthoritative, the guidance in two Concept

Significant differences
US GAAP IFRS

Recognition threshold A loss must be probable (in which A loss must be probable (in which
probable is interpreted as likely) to be probable is interpreted as more likely
recognized. While ASC 450 does not than not) to be recognized. More likely
ascribe a percentage to probable, it is than not refers to a probability of
intended to denote a high likelihood greater than 50%.
(e.g., 70% or more).

Discounting provisions Provisions may be discounted only Provisions should be recorded at the
when the amount of the liability and estimated amount to settle or transfer
the timing of the payments are fixed the obligation taking into consideration
or reliably determinable, or when the the time value of money. The discount
obligation is a fair value obligation rate to be used should be a pre-tax
(e.g., an asset retirement obligation rate (or rates) that reflect(s) current
under ASC 410-20). The discount rate market assessments of the time value
to be used is dependent upon the nature of money and the risks specific to
of the provision, and may vary from the liability.
that used under IFRS. However, when
a provision is measured at fair value,
the time value of money and the risks
specific to the liability should be
considered.

US GAAP versus IFRS The basics | 41


Provisions and contingencies

US GAAP IFRS

Measurement of Most likely outcome within range Best estimate of obligation should be
provisions range of should be accrued. When no one accrued. For a large population of
possible outcomes outcome is more likely than the others, items being measured, such as
the minimum amount in the range of warranty costs, best estimate is
outcomes should be accrued. typically expected value, although
midpoint in the range may also be used
when any point in a continuous range is
as likely as another. Best estimate for a
single obligation may be the most likely
outcome, although other possible
outcomes should still be considered.

Restructuring costs Under ASC 420, Exit or Disposal Cost Once management has demonstrably
Obligations once management has committed (i.e., a legal or constructive
committed to a detailed exit plan, each obligation has been incurred) to a
type of cost is examined to determine detailed exit plan, the general
when recognized. Involuntary employee provisions of IAS 37, Provisions,
termination costs under a one-time Contingent Liabilities and Contingent
benefit arrangement are recognized Assets apply. Costs typically are
over future service period, or recognized earlier than under US GAAP
immediately if there is no future service because IAS 37 focuses on the exit
required. Other exit costs are expensed plan as a whole, rather than individual
when incurred. cost components of the plan.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 42


Revenue recognition
Revenue recognition

Similarities Significant differences


Revenue recognition under both US GAAP and Despite the similarities, differences in revenue
IFRS is tied to the completion of the earnings recognition may exist, in part, as a result of
process and the realization of assets from such differing levels of specificity between the two
completion. Under IAS 18, Revenue, revenue GAAPs. There is extensive guidance under
is defined as the gross inflow of economic US GAAP, which can be very prescriptive and
benefits during the period arising in the course often applies only to specific industries. For
of the ordinary activities of an entity when example, under US GAAP there are specific
those inflows result in increases in equity, rules for the recognition of software revenue
other than increases relating to contributions and sales of real estate, while comparable
from equity participants. Under US GAAP guidance does not exist under IFRS. In
(which is primarily included in ASC 605, addition, the detailed US rules often contain
Revenue Recognition), revenues represent exceptions for particular types of transactions.
actual or expected cash inflows that have Further, public companies in the US must follow
occurred or will result from the entitys ongoing additional guidance provided by the SEC staff.
major operations. Under both US GAAP and Conversely, two primary standards (IAS 18
IFRS, revenue is not recognized until it is both and IAS 11 Construction Contracts) exist under
realized (or realizable) and earned. Ultimately, IFRS, which contains general principles and
both US GAAP and IFRS base revenue illustrative examples of specific transactions.
recognition on the transfer of risks and rewards, Exclusive of the industry-specific differences
and both attempt to determine when the between the two GAAPs, following are the
earnings process is complete. Both sets of major differences in revenue recognition.
standards contain revenue recognition criteria
that, while not identical, are conceptually similar.
For example, under IFRS, one recognition
criterion is that the amount of revenue can be
measured reliably, while US GAAP requires
that the consideration to be received from the
buyer be fixed or determinable.

US GAAP versus IFRS The basics | 43


Revenue recognition

US GAAP IFRS

Sale of goods Public companies must follow SAB Revenue is recognized only when risks
Topic 13, Revenue Recognition, which and rewards of ownership have been
requires that delivery has occurred (the transferred, the seller retains neither
risks and rewards of ownership have continuing managerial involvement to
been transferred), there is persuasive the degree usually associated with
evidence of an arrangement, the fee is ownership nor effective control over
fixed or determinable and collectibility the goods sold, revenues can be
is reasonably assured. measured reliably, it is probable that
the economic benefits will flow to the
company and the costs incurred or to
be incurred in respect of the
transaction can be measured reliably.

Rendering of services Certain types of service revenue, Revenue may be recognized in


primarily relating to services sold accordance with long-term contract
with software, have been addressed accounting whenever revenues, costs
separately in US GAAP literature. and the stage of completion can be
All other service revenue should measured reliably and it is probable
follow SAB Topic 13. Application of that economic benefits will flow to
long-term contract accounting the company.
(ASC 605-35, Revenue Recognition
Construction-Type and Production-Type
Contracts) generally is not permitted for
non-construction services.

Multiple elements Specific criteria are required in order IAS 18 requires recognition of revenue
for each element to be a separate unit for each separately identifiable
of accounting, including delivered component of a single transaction if
elements must have standalone value. separation reflects the substance of the
If those criteria are met, revenue for transaction; conversely, two or more
each element of the transaction may be transactions may be grouped together
recognized when the element is delivered. when their commercial effects are
linked. IAS 18 does not provide specific
criteria for making the determination on
how to identify separate components in
a single transaction.

Deferred receipt of Discounting to present value is Considered to be a financing


receivables required only in limited situations. agreement. The value of revenue to be
recognized is determined by
discounting all future receipts using an
imputed rate of interest.

US GAAP versus IFRS The basics | 44


Revenue recognition

US GAAP IFRS

Construction contracts Construction contracts are accounted Under IAS 11, construction contracts
for using the percentage-of-completion are accounted for using the
method if certain criteria are met. percentage-of-completion method if
Otherwise, the completed contract certain criteria are met. Otherwise,
method must be used. revenue recognition is limited to
recoverable costs incurred. The
completed contract method is
not permitted.
Construction contracts may be, but Construction contracts are combined
are not required to be, combined or or segmented if certain criteria are
segmented if certain criteria are met. met. Criteria under IFRS differ from
those in US GAAP.

Convergence
The FASB and the IASB issued substantially
converged standards in May 2014 that will
supersede virtually all existing revenue
guidance under US GAAP and IFRS, which is
described above. The core principle is that an
entity would recognize revenue to depict the
transfer of goods or services to customers at
an amount that reflects the consideration the
entity expects to receive in exchange for those
goods or services. As part of implementation,
the Boards are making certain amendments to
these standards, not all of which are the same.

US GAAP versus IFRS The basics | 45


Share-based payments
Share-based payments

Similarities companies. Both ASC 718 and IFRS 2 define


The US GAAP guidance for share-based the fair value of the transaction as the amount
payments, ASC 718, Compensation Stock at which the asset or liability could be bought or
Compensation, and ASC 505-50, Equity sold in a current transaction between willing
Equity-based Payments to Non-Employees, is parties. Further, they require the fair value of
largely converged with the guidance in IFRS 2, the shares to be measured based on a market
Share-Based Payment. Both require a fair price (if available) or estimated using an
value-based approach for measuring and option-pricing model. In the rare cases in which
accounting for share-based payment fair value cannot be determined, both sets of
arrangements whereby an entity (1) acquires standards allow the use of intrinsic value, which
goods or services in exchange for issuing share is remeasured until settlement of the shares. In
options or other equity instruments addition, the treatment of modifications and
(collectively referred to as shares in this settlements of share-based payments is similar
guide), or (2) incurs liabilities that are based, in many respects. Finally, both standards
at least in part, on the price of its shares or require similar disclosures in the financial
that may require settlement in its shares. statements to provide investors with sufficient
Under both US GAAP and IFRS, this guidance information to understand the types and extent
applies to transactions with both employees to which the entity is entering into share-based
and non-employees and is applicable to all payment transactions.

Significant differences
US GAAP IFRS

Performance period A performance condition where the A performance condition is a vesting


different from service performance target affects vesting can condition that must be met while the
period be achieved after the employees counterparty is rendering service. The
requisite service period. Therefore, the period of time to achieve a
period of time to achieve a performance condition must not extend
performance target can extend beyond beyond the end of the service period. If
the end of the service period. a performance target can be achieved
after the employees requisite service
period, it would be accounted for as a
non-vesting condition that affects the
grant date fair value of the award.

Transactions with The US GAAP definition of an employee IFRS has a more general definition of
non-employees focuses primarily on the common law an employee that includes individuals
definition of an employee. who provide services similar to those
rendered by employees.

US GAAP versus IFRS The basics | 46


Share-based payments

US GAAP IFRS
The fair value of: (1) the goods or Fair value of the transaction should be
services received, or (2) the equity based on the fair value of the goods or
instruments granted, whichever is services received, and only on the fair
more reliably measurable, is used to value of the equity instruments granted
value the transaction. in the rare circumstance that the fair
value of the goods and services cannot
be reliably estimated.
Measurement date is the earlier of: Measurement date is the date the
(1) the date at which a commitment entity obtains the goods or the
for performance by the counterparty counterparty renders the services.
is reached, or (2) the date at which the No performance commitment
counterpartys performance is complete. concept exists.

Measurement and Entities make an accounting policy Entities must recognize compensation
recognition of expense election to recognize compensation cost cost on an accelerated basis and each
awards with graded for awards containing only service individual tranche must be separately
vesting features conditions either on a straight-line basis measured.
or on an accelerated basis, regardless of
whether the fair value of the award is
measured based on the award as a
whole or for each individual tranche.

Equity repurchase Liability classification is not required if Liability classification is required (no
features at employees employee bears risks and rewards of six-month consideration exists).
election equity ownership for at least six
months from the date the shares are
issued or vest.
Deferred taxes Calculated based on the cumulative GAAP Calculated based on the estimated tax
expense recognized and trued up or deduction determined at each
down upon realization of the tax benefit. reporting date (e.g., intrinsic value).
If the tax benefit exceeds the deferred If the tax deduction exceeds cumulative
tax asset, the excess (windfall benefit) compensation cost, deferred tax based
is credited directly to shareholders on the excess is credited to
equity. Any shortfall of the tax benefit shareholders equity. If the tax
below the deferred tax asset is charged deduction is less than or equal to
to shareholders equity to the extent of cumulative compensation cost, deferred
prior windfall benefits, and to tax taxes are recorded in income.
expense thereafter.

US GAAP versus IFRS The basics | 47


Share-based payments

US GAAP IFRS

Modification of vesting If an award is modified such that the Compensation cost is the grant date
terms that are service or performance condition, fair value of the award, together with
improbable of which was previously improbable of any incremental fair value at the
achievement achievement, is probable of achievement modification date. The determination
as a result of the modification, the of whether the original grant date fair
compensation cost is based on the fair value affects the accounting is based
value of the modified award at the on the ultimate outcome (i.e., whether
modification date. Grant date fair value the original or modified conditions are
of the original award is not recognized. met) rather than the probability of
vesting as of the modification date.

Convergence
No further convergence is planned at this time.
However, there are certain items on the
agenda of the IASB and the FASB that could
change IFRS 2 and ASC 718. The IASB has
proposed amendments to IFRS 2 on the effects
of vesting conditions on the measurement of a
cash-settled share-based payment,
classification of a share-based payment settled
net of tax withholdings, and accounting for a
modification to a share-based payment that
changes the classification from cash-settled to
equity-settled. In its simplification project, the
FASB has proposed changes to the accounting
for share-based payments settled net of tax
withholdings, forfeitures, income tax effects
when awards vest or are settled, and contingent
repurchase features. The FASB also has
proposed providing practical expedients for
nonpublic entities to estimate the expected
term of certain awards and to measure
liability-classified awards at intrinsic value.

US GAAP versus IFRS The basics | 48


Employee benefits other than
Employee benefits other than share-based payments

share-based payments
Similarities plans has many similarities as well, most
ASC 715, Compensation Retirement Benefits, notably that the defined benefit obligation is
ASC 710, Compensation General, ASC 712, the present value of benefits that have
Compensation Nonretirement Post-Employment accrued to employees for services rendered
Benefits, and IAS 19, Employee Benefits, as through that date, based on actuarial methods
amended, are the principal sources of of calculation. Both US GAAP and IFRS require
guidance for employee benefits other than the funded status of the defined benefit plan to
share-based payments under US GAAP and be recognized on the balance sheet as the
IFRS, respectively. Under both US GAAP and difference between the present value of the
IFRS, the net periodic benefit cost recognized benefit obligation and the fair value of plan
for defined contribution plans is based on the assets, although IAS 19 limits the net plan
contribution due from the employer in each asset recognized for overfunded plans.
period. The accounting for defined benefit

Significant differences
US GAAP IFRS

Actuarial method used Different methods are required Projected unit credit method is
for defined benefit plans depending on the characteristics of the required in all cases.
plans benefit formula.

Calculation of the Calculated using the expected A concept of an expected return on


expected return on plan long-term rate of return on invested plan assets does not exist in IFRS. A
assets assets and the market related value of net interest expense (income) on the
the assets (based on either the fair net defined benefit liability (asset) is
value of plan assets at the recognized as a component of defined
measurement date or a calculated benefit cost, based on the discount rate
value that smoothees changes in fair used to determine the obligation.
value over a period not to exceed five
years, at the employers election).

Treatment of actuarial May be recognized in net income as Must be recognized immediately in


gains and losses they occur or deferred in other other comprehensive income. Gains
comprehensive income and and losses are not subsequently
subsequently amortized to net income recognized in net income.
through a corridor approach.

Recognition of prior Initially deferred in other Immediate recognition in net income.


service costs or credits comprehensive income and
from plan amendments subsequently recognized in net income
over the average remaining service
period of active employees or, when all
or almost all participants are inactive,
over the average remaining life
expectancy of those participants.

US GAAP versus IFRS The basics | 49


Employee benefits other than share-based payments

US GAAP IFRS

Settlements and Settlement gain or loss is recognized in Settlement gain or loss is recognized in
curtailments net income when the obligation is net income when it occurs. Change in
settled. Curtailment loss is recognized the defined benefit obligation from a
in net income when the curtailment is curtailment is recognized in net income
probable of occurring and the loss is at the earlier of when it occurs or when
estimable, while curtailment gain is related restructuring costs or
recognized in net income when the termination benefits are recognized.
curtailment occurs.

Multi-employer Accounted for similar to a defined Accounted for as either a defined


post-retirement plans contribution plan. contribution or defined benefit plan
based on the terms (contractual and
constructive) of the plan. If a defined
benefit plan, must account for the
proportionate share of the plan similar
to any other defined benefit plan unless
sufficient information is not available.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 50


Earnings per share
Earnings per share

Similarities statement, both use the treasury stock method


Entities whose common shares are publicly for determining the effects of stock options
traded, or that are in the process of issuing and warrants in the diluted EPS calculation,
such shares in the public markets, must and both use the if-converted method for
disclose substantially the same earnings per determining the effects of convertible debt on
share (EPS) information under ASC 260 and the diluted EPS calculation. Although both
IAS 33 (both titled Earnings Per Share). Both US GAAP and IFRS use similar methods of
standards require the presentation of basic calculating EPS, there are a few detailed
and diluted EPS on the face of the income application differences.

Significant differences
US GAAP IFRS

Contracts that may be Such contracts are presumed to be Such contracts are always assumed to
settled in shares or cash settled in shares unless evidence is be settled in shares.
at the issuers option provided to the contrary (i.e., the
issuers past practice or stated policy
is to settle in cash).

Computation of For year-to-date and annual Regardless of whether the period is


year-to-date and annual computations when each period is profitable, the number of incremental
diluted EPS for options profitable, the number of incremental shares is computed as if the entire
and warrants (using the shares added to the denominator is the year-to-date period were the period
treasury stock method) weighted average of the incremental (that is, do not average the current
and for contingently shares that were added to the quarter with each of the prior quarters).
issuable shares denominator in each of the quarterly
computations.

Treasury stock method Under the treasury stock method, For options, warrants and their
assumed proceeds include the income equivalents, IAS 33 currently does not
tax effects, if any, on additional paid-in explicitly require assumed proceeds to
capital at exercise. include the income tax effects on
additional paid-in capital.

Treatment of contingently Potentially issuable shares are included Potentially issuable shares are
convertible debt in diluted EPS using the if-converted considered contingently issuable and
method if one or more contingencies are included in diluted EPS using the
relate to a market price trigger if-converted method only if the
(e.g., the entitys share price), even if contingencies are satisfied at the end
the market price trigger is not satisfied of the reporting period.
at the end of the reporting period.

US GAAP versus IFRS The basics | 51


Earnings per share

Convergence
In June 2015, the FASB issued an exposure
draft to make improvements to employee
share-based payment accounting. The
proposal would change how the treasury stock
method is applied. Under the treasury stock
method, assumed proceeds include the income
tax effects, if any, on additional paid in capital
at exercise. The proposal would eliminate
consideration of income tax effects in the
calculation of assumed proceeds under the
treasury stock method. IAS 33 currently does
not explicitly require the income tax effects of
such awards in the calculation of the treasury
stock method.

US GAAP versus IFRS The basics | 52


Segment reporting
Segment reporting

Similarities based on a management approach in


The requirements for segment reporting under identifying the reportable segments. The two
both ASC 280, Segment Reporting, and standards are largely converged, and only
IFRS 8, Operating Segments, apply to entities limited differences exist.
with public reporting requirements and are

Significant differences
US GAAP IFRS

Determination of Entities with a matrix form of All entities determine segments based
segments organization (i.e., in some public on the management approach,
entities, the chief operating decision regardless of form of organization.
maker (CODM) is responsible for
different product and service lines
worldwide, while other CODMs are
responsible for specific geographic
areas) must determine segments based
on products and services.

Disclosure of segment Entities are not required to disclose If regularly reported to the CODM,
liabilities segment liabilities even if reported to segment liabilities are a required
the CODM. disclosure.

Disclosure of long-lived For the purposes of entity-wide If a balance sheet is classified


assets geographic area disclosures, the according to liquidity, non-current
definition of long-lived assets implies assets are assets that include amounts
hard assets that cannot be readily expected to be recovered more than
removed, which would exclude 12 months after the balance sheet
intangible assets. date.These non-current assets often
includes intangible assets.

Disclosure of Entities must disclose whether Entities must disclose whether


aggregation operating segments have been operating segments have been
aggregated. aggregated and the judgments made in
applying the aggregation criteria,
including a brief description of the
operating segments that have been
aggregated and the economic
indicators that have been assessed in
determining economic similarity.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 53


Subsequent events
Subsequent events

Similarities adjustment to the financial statements. If the


Despite differences in terminology, the event occurring after the balance sheet date
accounting for subsequent events under but before the financial statements are issued
ASC 855, Subsequent Events, and IAS 10, relates to conditions that arose after the
Events after the Reporting Period, is largely balance sheet date, the financial statements
similar. An event that occurs during the are not adjusted, but disclosure may be
subsequent events period that provides necessary to keep the financial statements
additional evidence about conditions existing from being misleading.
at the balance sheet date usually results in an

Significant differences
US GAAP IFRS

Date through which Subsequent events are evaluated Subsequent events are evaluated
subsequent events must through the date the financial through the date that the financial
be evaluated statements are issued (SEC registrants statements are authorized for issue.
and conduit bond obligors) or available to Depending on an entitys corporate
be issued (all entities other than SEC governance structure and statutory
registrants and conduit bond obligors). requirements, authorization may come
Financial statements are considered from management or a board of
issued when they are widely distributed directors.
to shareholders or other users in a form
that complies with US GAAP. Financial
statements are considered available to
be issued when they are in a form that
complies with US GAAP and all necessary
approvals have been obtained.

Reissuance of financial If the financial statements are reissued, IAS 10, Events after the Reporting
statements events or transactions may have Period does not specifically address the
occurred that require disclosure in the reissuance of financial statements and
reissued financial statements to keep recognizes only one date through
them from being misleading. However, which subsequent events are evaluated,
an entity should not recognize events that is, the date that the financial
occurring between the time the financial statements are authorized for issuance,
statements were issued or available to even if they are being reissued. As a
be issued and the time the financial result, only one date will be disclosed
statements were reissued unless the with respect to the evaluation of
adjustment is required by US GAAP or subsequent events, and an entity could
regulatory requirements (e.g., stock have adjusting subsequent events in
splits, discontinued operations, or the reissued financial statements.
effect of adopting a new accounting
standard retrospectively would give rise
to an adjustment).

US GAAP versus IFRS The basics | 54


Subsequent events

US GAAP IFRS
Entities must disclose both the date If financial statements are reissued as a
that the financial statements were result of adjusting subsequent events
originally issued and the date that they or an error correction, the date the
were reissued if the financial reissued statements are authorized for
statements were revised due to an reissuance is disclosed.
error correction, a Type I subsequent
IAS 10 does not address the
event or retrospective application of
presentation of re-issued financial
US GAAP.
statements in an offering document
when the originally issued financial
statements have not been withdrawn,
but the re-issued financial statements
are provided either as supplementary
information or as a re-presentation of
the originally issued financial statements
in an offering document in accordance
with regulatory requirements.

Short-term loans Short-term loans are classified as Shortterm loans refinanced after the
refinanced with long-term if the entity intends to balance sheet date may not be
long-term loans after refinance the loan on a long-term basis reclassified to long-term liabilities
balance sheet date and, prior to issuing the financial unless the entity expected and had the
statements, the entity can discretion to refinance the obligation
demonstrate an ability to refinance the for at least 12 months at the balance
loan by meeting specific criteria. sheet date.

Convergence
No further convergence is planned at this time.

US GAAP versus IFRS The basics | 55


Related parties
Related parties

Similarities outstanding balances) be disclosed for related


The reporting objective of both ASC 850 and party transactions. Neither standard contains
IAS 24 (both titled Related Party Disclosures) is any measurement or recognition requirements
to make financial statement users aware of the for related-party transactions. ASC 850 does
effect of related-party transactions on the not require disclosure of compensation of key
financial statements. The definitions of a management personnel as IAS 24 does, but the
related party are broadly similar, and both financial statement disclosure requirements of
standards require that the nature of the IAS 24 are similar to those required by the SEC
relationship, a description of the transaction outside the financial statements.
and the amounts involved (including

Significant differences
US GAAP IFRS

Scope ASC 850, Related Party Disclosures IAS 24, Related Party Disclosures
requires disclosure of all material provides a partial exemption from the
related party transactions, other than disclosure requirements for transactions
compensation arrangements, expense between government-related entities as
allowances and other similar items in well as with the government itself.
the ordinary course of business.

Convergence
No further convergence is planned at this time

US GAAP versus IFRS The basics | 56


Appendix The evolution of IFRS
Appendix The evolution of IFRS

This appendix summarizes key events in the evolution of international accounting standards.
Phase I The early years
1973: International Accounting 1999: IASC Board approved a
Standards Committee (IASC) formed. restructuring that resulted in the current
The IASC was founded to formulate and International Accounting Standards Board
publish International Accounting Standards (IASB). The constituted IASB structure
(IAS) that would improve financial reporting comprises: (1) the IFRS Foundation, an
and that could be accepted worldwide. independent organization with 22 trustees
In keeping with the original view that who appoint the IASB members, exercise
the IASCs function was to prohibit oversight and raise the funds needed,
undesirable accounting practices, the (2) a Monitoring Board that provides a
original IAS permitted several alternative formal link between the trustees and public
accounting treatments. authorities, (3) the IASB (Board), which has
16 independent Board members, up to three
1994: IOSCO (International Organization
of whom may be part-time members, with
of Securities Commissions) completed
sole responsibility for setting accounting
its review of IASC standards and
standards, (4) the IFRS Advisory Council and
communicated its findings to the IASC.
(5) the IFRS Interpretations Committee
The review identified areas that required
which is mandated with interpreting IFRS,
improvement before IOSCO would consider
and providing timely guidance on matters
recommending IAS for use in cross-border
not addressed by current standards.
listings and offerings.
2000: IOSCO recommended that
1994: IASC Advisory Council formed to
multinational issuers be allowed to use
oversee the IASC and manage its finances.
IAS in cross-border offerings and listings.
1995: IASC developed its Core Standards
April 2001: IASB assumed
Work Program. IOSCOs Technical
standard-setting responsibility. The IASB
Committee agreed that the Work Program
met with representatives from eight national
would result, upon successful completion,
standard-setting bodies to coordinate
in IAS comprising a comprehensive core
agendas and discuss convergence, and
set of standards. The European Commission
adopted existing IAS standards and SIC
(EC) supported this agreement between
Interpretations.
IASC and IOSCO and associated itself with
the work of the IASC toward international February 2002: IFRIC assumed
harmonization of accounting standards. responsibility for interpretation of IFRS.
1997: Standing Interpretations Committee
(SIC) established to interpret IAS.

US GAAP versus IFRS The basics | 57


Appendix The evolution of IFRS

Phase II 2002 to 2005 Phase III 2006 to present


July 2002: EC required EU-listed February 2006: FASB and IASB published
companies to prepare their consolidated a Memorandum of Understanding (MOU).
financial statements in accordance with The MOU reaffirmed the Boards shared
IFRS as endorsed by the EC, generally objective to develop high quality, common
from 2005 onward. This was a critical accounting standards, and further
milestone that drove the expanded use elaborated on the Norwalk Agreement. The
of IFRS. Boards agreed to proceed along two tracks:
(1) a series of short-term projects designed
September 2002: FASB and IASB
to eliminate major differences in focused
execute the Norwalk Agreement and
areas and (2) the development of new
document a Memorandum of
common standards for accounting practices
Understanding. The Boards agreed to use
regarded as candidates for improvement.
best efforts to make their existing standards
fully compatible as soon as practicable and August 2006: CESR/SEC published a
to coordinate future work programs. joint work plan. The regulators agreed that
they could share issuer-specific matters,
December 2004: EC issued its
following set protocols, and that their
Transparency Directive. This directive
regular reviews of issuer filings would be
required non-EU companies with listings on
used to identify IFRS and US GAAP areas
an EU exchange to use IFRS unless the
that raise questions about quality and
Committee of European Securities
consistent application.
Regulators (CESR) determined that national
GAAP was equivalent to IFRS. CESR said November 2007: SEC eliminated the
in 2005 that US GAAP was equivalent, US GAAP reconciliation for foreign
subject to certain additional disclosure private issuers that use IFRS to file their
requirements. financial statements with the SEC.
April 2005: SEC published the Mid-2007, through 2008: SEC explored
Roadmap. An article published by the the use of IFRS by US companies. The SEC
SEC Chief Accountant discussed the issued a Concept Release seeking comment
possible elimination of the US GAAP on the possible use of IFRS by US domestic
reconciliation for foreign private issuers registrants. In November 2008 the SEC
that use IFRS by 2009, if not sooner. issued for comment an updated proposed
Roadmap.

US GAAP versus IFRS The basics | 58


Appendix The evolution of IFRS

February 2010: SEC reaffirmed its November 2011: SEC staff issued
commitment to a single set of high-quality two papers as part of its Work Plan:
global accounting standards. In February An Analysis of IFRS in Practice and
2010, the SEC voted unanimously to publish A Comparison of US GAAP and IFRS.
a statement reaffirming its commitment to The SEC staff papers provide additional
the goal of a single set of high-quality global information for the SEC to review before it
accounting standards and expressing support makes its decision.
for the continued convergence of US GAAP July 2012: SEC staff issued its final
and IFRS. The SEC said that after executing a progress report on its Work Plan for
Work Plan to address certain questions, it the Consideration of Incorporating
would be able to make an informed decision International Financial Reporting
about whether and, if so, how and when to Standards into the Financial Reporting
further incorporate IFRS into the US financial System for U.S. Issuers (The Final Report).
reporting system. The report summarized what the staff
October 2010: SEC issued a Progress learned in carrying out the work plan.
Report on its Work Plan. The report does not include a
May 2011: SEC staff published a paper recommendation to the Commission about
detailing a possible approach for whether or how to incorporate IFRS into the
incorporating IFRS into the US financial US financial reporting system.
reporting system. The SEC staff said the The report notes that the Commission still
approach could achieve the goal of a single needs to analyze and consider the threshold
set of high-quality accounting standards and question whether and, if so, how and
could minimize the cost and effort needed when IFRS should be incorporated into the
to incorporate IFRS into the US financial US financial reporting system.
reporting system.
As a result, we do not expect a decision
Spring through fall 2011: Convergence from the Commission in the near term.
schedule delayed. The FASB and the IASB
extend their timetables for completing their December 2014: SEC Chief Accountant
priority convergence projects beyond their expressed an interest in voluntary
target of June 2011. The Boards decided disclosure of IFRS information. In his
to re-expose proposals on revenue speech at the 2014 AICPA National
recognition and leases. Conference on Current SEC and PCAOB
Developments, the SEC Chief Accountant
July 2011: SEC staff sponsored a said the SEC staff is exploring a new
roundtable to discuss benefits or alternative that would allow US issuers to
challenges in potentially incorporating voluntarily disclose IFRS information as a
IFRS into the financial reporting system supplement to their US GAAP financial
for US issuers. The participants discussed statements without including reconciliation
investors understanding of IFRS, the impact to the most directly comparable US GAAP
on smaller public companies and on the measure.
benefits and challenges in potentially
incorporating IFRS into the financial
reporting system for US issuers.

US GAAP versus IFRS The basics | 59


Appendix The evolution of IFRS
IFRS resources

EY offers a variety of online resources that provide more detail about IFRS as well as things to
consider as you research the potential impact of IFRS on your company.
www.ey.com/ifrs AccountingLink
EYs global website contains a variety of free AccountingLink, at ey.com/us/accountinglink, is
resources, including: a virtual newsstand of US technical accounting
guidance and financial reporting thought
IFRS Developments announces significant
leadership. It is a fast and easy way to get
decisions on technical topics that have a
access to the publications produced by EYs
broad audience, application or appeal.
US Professional Practice Group as well as the
Applying IFRS Applying IFRS provides more latest guidance proposed by the standard setters.
detailed analyses of proposals, standards or AccountingLink is available free of charge.
interpretations and discussion of how to
Global Accounting & Auditing
apply them.
Information Tool (GAAIT)
Other technical publications including a GAAIT-Client Edition contains EYs comprehensive
variety of publications focused on specific proprietary technical guidance, as well as all
standards and industries. standard setter content. GAAIT-Client Edition
is available through a paid subscription.
International GAAP Illustrative Financial
Statements a set of illustrative interim International GAAP
and annual financial statements that Written by EY and updated annually, this is a
incorporates applicable presentation and comprehensive guide to interpreting and
disclosure requirements. Also provided is a implementing IFRS and provides insights into
range of industry-specific illustrative how complex practical issues should be resolved
financial statements. in the real world of global financial reporting.
International GAAP Disclosure checklist
a checklist designed to assist in the
preparation of financial statements in
accordance with IFRS, as issued by the
IASB, and in compliance with the disclosure
requirements of IFRS.
From here you can also locate information
about free web-based IFRS training and our
Thought center webcast series.

Please contact your local EY representative for information about any of these resources.

US GAAP versus IFRS The basics | 61


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About EYs International Financial Reporting Standards Group


A global set of accounting standards provides the global economy with one
measure to assess and compare the performance of companies. For
companies applying or transitioning to International Financial Reporting
Standards (IFRS), authoritative and timely guidance is essential as the
standards continue to change. The impact stretches beyond accounting and
reporting, to key business decisions you make. We have developed
extensive global resources people and knowledge to support our clients
applying IFRS and to help our client teams. Because we understand that
you need a tailored service as much as consistent methodologies, we work
to give you the benefit of our deep subject matter knowledge, our broad
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