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US GAAP versus IFR
S
The basics
November 2012


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Table of contents
Introduction....................................................................
2
Financial statement presentation .....................................
3
Interim financial reporting...............................................
6
Consolidation, joint venture accounting and equity
method investees/associates ...........................................
7
Business combinations...................................................
12

Inventory.......................................................................
14
Long-lived assets...........................................................
15
Intangible assets...........................................................
17
Impairment of long-lived assets, goodwill and intangible
assets ...........................................................................
19
Financial instruments....................................................
22
Foreign currency matters ..............................................
28
Leases...........................................................................
30
Income taxes .................................................................
33
Provisions and contingencies .........................................
35
Revenue recognition ......................................................
37


Share-based payments..................................................
39

IntroductionEmployee benefits other than share-based payments .....
41

Earnings per share.........................................................
43
Segment reporting.........................................................
44
Subsequent events ........................................................
45
Related parties ..............................................................
47
Appendix — The evolution of IFRS...................................
48


US GAAP versus IFRS The basics

Introduction

Convergence continued t o be a high priority on
the agendas of bot h the US Financial
Accounting Standards Board (FASB) and the
International Accounting Standards Board
(IASB) (collectively, the Boards) in 2012.
However, the convergence process is designed
t o address only the mos t significant
differences and/ or areas t hat the Boards have
identified as having the greatest need for
improvement. While the converged standards
will be m or e similar, differences will continue
t o exist between US GAAP as promulgated by
the FASB and International Financial Reporting
Standards (IFRS) as promulgated by the IASB.
In this guide, we provide an overview by
accounting area of where the standards are
similar and where differences exist. We believe

1

that any discussion of this topic should not lose
sight of the fact that the t w o sets of standards
are generally m ore alike than different for most
commonly encountered transactions, wit h IFRS
being largely, but not entirely, grounded in the
same basic principles as US GAAP. The general
principles and conceptual framework are often
the same or similar in both sets of standards,
leading t o similar accounting results. The
existence of any differences — and their
materiality t o an entity’s financial statements —
depends on a variety of specific factors,
including the nature of the entity, the details of
the transactions, interpretation of the m ore
general IFRS principles, industry practices and
accounting policy elections where US GAAP
and IFRS offer a choice. This guide focuses on
differences most commonly found in present
practice and, when applicable, provides an
overview of how and when those differences
are expected t o converge.


KeyFinancial
updates

statement presentati

on

Our analysis generally reflects guidance
effective in 2012 and finalized by the FASB
and the IASB before 31 May 2012; however,
we have not included differences related t o
IFRS 9 , Financial Instruments, IFRS 1 0 ,
Consolidated Financial Statements and
IFRS 11 , Joint Arrangements, except in our
discussion of convergence.
We will continue t o update this publication
periodically f or new developments.
*

*

*

Identifier Tool was developed as a resource for
companies that need t o analyze the numerous
accounting decisions and changes inherent in
a conversion t o IFRS. Conversion is of course
more than just an accounting exercise, and
identifying accounting differences is only the
first step in the process. Successfully converting
t o IFRS also entails ongoing project
management, systems and process change
analysis, tax considerations and a review of all
company agreements that are based on
financial data and measures. Ernst & Young’s
assurance, tax and advisory professionals are
available t o share their experiences and t o
assist companies in analyzing all aspects of the
conversion process, f rom the earliest diagnostic
stages through ultimate adoption of the
international standards.

*

*

The Ernst & Young ―US GAAP-IFRS Differences
Identifier Tool‖ provides a more in-depth review
of differences between US GAAP and IFRS. The

To learn more about the Identifier Tool, please
contact your local Ernst & Young professional.

November 2012
US GAAP versus IFRS The basics

2

Financial
statement presentation
required
Generally, comparative

financial

Similarities

changes in shareholders’ equity t o be presented
in the notes t o the financial statements while
There are many similarities in US GAAP and
IFRS requires the changes in shareholders’
IFRS guidance on financial statement
and income statement
No
general
requirement
withi
equity
t o be presented as a separate statement.
presentation. Under both sets of standards,
Further,
both require that the financial
the components
of a complete set of financial
n
statements be prepared on the accrual basis
statements include: a statement of financial
of accounting (with the exception of the cash
position, a statement of profit and loss
flow statement) except for rare circumstances.
(i.e., income statement) and a statement of
Both sets of standards have similar concepts
comprehensive income (either a single
regarding materiality and consistency that
continuous statement or t w o consecutive
entities have t o consider in preparing their
statements), a statement of cash flows and
financial statements. Differences between the
accompanying notes t o the financial
t w o sets of standards tend t o arise in the level
statements. Both standards also require the
of specific guidance provided.
changes in shareholders’ equity t o be
presented. However, US GAAP allows the

Significant differences
US GAAP
Financial periods

IFRS


Layout of balance sheet

statements are presented; however, a
single year may be presented in certain
circumstances. Public companies must
follow SEC rules, which typically require
balance sheets for the two most recent
years, while all other statements mu st
cover the three-year period ended on
the balance sheet date.
US GAAP to prepare the balance sheet
and income statement in accordance
with a specific layout; however, public
companies m u st follow the detailed
requirements in Regulation S-X.

Comparative information m u st be
disclosed with respect t o the previous
period fo r all amounts reported in the
cur rent period’s financial statements.

IFRS does n ot prescribe a standard
layout, but includes a list of m inimum
line items. These m in im um line items
are less prescriptive than the
requirements in Regulation S-X.


Balance sheet —
presentation o f debt as
cur rent versus
non-current

Debt fo r which there has been a
covenant violation m ay be presented
as non-current if a lender agreement to
waive the right t o demand repayment
fo r m or e than one year exists before
the financial statements are issued o r
available t o be issued.

Debt associated with a covenant
violation must be presented as current
unless the lender agreement was
reached prior to the balance sheet date.


US GAAP

IFRS

Balance sheet —
Current or non-current classification,
classification o f deferred generally based on the nature o f the
tax assets and liabilities related asset or liability, is required.

All amounts classified as non-current in
the balance sheet.

Income statement —
classification o f
expenses

No general requirement within US
Entities m ay present expenses based o n
GAAP t o classify income statement
either function o r nature (e.g., salaries,
items by function o r nature. However, depreciation). However, if function is
SEC registrants are generally required selected, certain disclosures about the
t o present expenses based on function nature o f expenses must be included in
(e.g., cost o f sales, administrative).
the notes.

Income statement —
extraordinary items
criteria

Restricted t o items that are both
unusual and infrequent.

Income statement —
discontinued operations
criteria

Discontinued operations classification
is fo r components held fo r sale o r
disposed of, provided th at there will
n o t be significant continuing cash flows
o r involvement with the disposed
component.

Discontinued operations classification
is fo r components held fo r sale o r
disposed o f th at are either a separate
major line of business o r geographical
area or a subsidiary acquired
exclusively with an intention to resell.

Disclosure o f
performance measures

No general requirements within US
GAAP th at address the presentation o f
specific performance measures. SEC
regulations define certain key
measures and require the presentation
o f certain headings and subtotals.
Additionally, public companies are
prohibited f r o m disclosing non-GAAP
measures in the financial statements
and accompanying notes.

Certain traditional concepts such as
―operating profit‖ are n ot defined;
therefore, diversity in practice exists
regarding line items, headings and
subtotals presented on the income
statement. IFRS permits the
presentation o f additional line items,
headings and subtotals in the
statement o f comprehensive income
when such presentation is relevant t o
an understanding of the entity’s
financial performance.

Third balance sheet

Not required.

A third balance sheet is required as o f
the beginning o f the earliest
comparative period when there is a
retrospective application o f a new
accounting policy, o r a retrospective
restatement o r reclassifications that
have a material effect on the balances
o f the third balance sheet. Related
notes t o the third balance sheet are
n o t required.

Prohibited.

US GAAP versus IFRS The basics

Financial statement presentation

3


US GAAP versus IFRS The basics

4

Financial statement presentation

Interim financial reporti
ng
The Boards have also delayed wo rk on

Convergence

Convergence efforts in this area have been put
on hold and f urt her action is not expected in
the near term . The Boards suspended their
efforts on the joint project on financial
statement presentation so they could focus on
priority convergence projects. Before putting
the project on hold, the Boards issued a staff
draf t of the proposed standards and engaged
in a targeted outreach program.

their efforts t o converge presentation of
discontinued operations. The Boards
tentatively decided that the definition of
discontinued operations would be consistent
with the c urrent definition in IFRS 5 ,
Non-current Assets Held f or Sale and
Discontinued Operations, and t hat certain
requirements in existing US GAAP f or
discontinued operations classification
(i.e., elimination of cash flows of the
com ponent and prohibition of significant
continuing involvement) would be eliminated,
although disclosure of those and additional
items would be required. There have been no
furt he r developments on this topic.

US GAAP versus IFRS The basics

Interim financial reporting

5


Similarities

allow f or condensed interim financial
Consolidation,
joint
venture
accounting
statements and provide
f or similar disclosure
ASC 270, Interim Reporting, and IAS 3 4 ,
requirements.
Neither
standard requires
Interim
Financial
Reporting,
are
substantially
and
entities t o present interim financial information.
similar except for the treatment of certain costs
described below. Both require an entity t o apply
the accounting policies that were in effect in the
prior annual period, subject t o the adoption of
new policies that are disclosed. Both standards

That is the purview of securities regulators
such as the SEC, which requires US public
companies t o comply with Regulation S-X.

Significant differences
US GAAP

IFRS

Treatment of certain
integral part o f an annual period. As a
result, certain costs that benefit mo re
than one interim period ma y be
allocated among those periods,
resulting in deferral o r accrual o f
certain costs.
costs in interim periods

Each interim period is viewed as

an

Each interim period is viewed as a
discrete reporting period. A cost that
does not meet the definition of an asset
at the end o f an interim period is n ot
deferred, and a liability recognized at
an interim reporting date mu st
represent an existing obligation.
Income taxes are accounted fo r
based on an annual effective tax rate
(similar to US GAAP).

Convergence
The FASB planned t o address presentation
and display of interim financial information
in US GAAP as part of the joint financial
statement presentation project. As noted in
the Financial statement presentation section,
f urt her action is not expected on this project
in the near t erm.

US GAAP versus IFRS The basics

Consolidation, joint venture accounting and equity me thod investees/associates

equity method investees/associates

6


Similarities
The principal guidance for consolidation of
financial statements, including variable interest
entities (VIEs), under US GAAP is ASC 810,
Consolidation. IAS 27 (as revised), Consolidated
and Separate Financial Statements, and SIC-12,
Consolidation — Special Purpose Entities,
contain the IFRS guidance.
Under both US GAAP and IFRS, the
determination of whet her entities are
consolidated by a reporting entity is based on
control, although differences exist in the
definition of control. Generally, all entities
subject t o the control of the reporting entity
m us t be consolidated (although there are
limited exceptions in US GAAP f or investment

companies). Further, uniform accounting
policies are used f o r all of the entities within a
consolidated group, with certain exceptions
under US GAAP (e.g., a subsidiary within a
specialized industry m a y retain the specialized
accounting policies in consolidation).
An equity investment t hat gives an investor
significant influence over an investee (referred
t o as ―an associate‖ in IFRS) is considered an
equity m et hod investment under bot h
US GAAP (ASC 323, Investments — Equity
Method and Joint Ventures) and IFRS (IAS 2 8 ,
Investments in Associates). Further, the equity
met hod of accounting f or such investments, if
applicable, generally is consistent under bot h
US GAAP and IFRS.

Significant differences
US GAAP
Consolidation model

Focus is o n controlling financial
interests. All entities are first
evaluated as potential VIEs. If a VIE,
the applicable guidance in ASC 810 is
followed (below). If an entity is n ot a
VIE, it is evaluated fo r control by
voting rights. Potential voting rights
are generally n ot included in either
evaluation.

Special purpose entities
primary beneficiary (determined based
on the consideration of power and
benefits) t o consolidate the VIE. For
certain specified VIEs, the pr imary
beneficiary is determined
quantitatively based on a majority o f
the exposure t o variability.

(SPE) / VIEs

IFRS
Focus is o n the power t o control, with
control defined as the parent’s ability
t o govern the financial and operating
policies of an entity t o obtain benefits.
Control is presumed to exist if the
parent owns m o r e than 50% o f the
votes, and potential voting rights mu st
be considered. Notion o f ―de facto
c on tr o l‖ also ma y be considered.
Under SIC-12, SPEs (entities created to
accomplish a narrow and well-defined
objective) are consolidated when the
substance o f the relationship indicates
th at an entity controls the SPE.

The guidance in ASC 810 requires

the
US GAAP versus IFRS The basics

Consolidation, joint venture accounting and equity me thod investees/associates

US GAAP
Preparation o f
consolidated financial

statements — general

IFRS

7


Preparation of
consolidated financial
statements — different
reporting dates of parent
and subsidiary(ies)

Required, although certain
industry-specific exceptions exist
(e.g., investment companies).

Generally required, but there is a limited
exemption from preparing consolidated
financial statements fo r a parent
company that is itself a wholly owned
subsidiary, o r is a partially owned
subsidiary, if certain conditions are met.

The reporting entity and the
consolidated entities are permitted
t o have different year-ends o f up to
three months.
The effects o f significant events
occurring between the reporting dates
o f the reporting entity and the
controlled entities are disclosed in the
financial statements.

The financial statements of a parent and
its consolidated subsidiaries are
prepared as of the same date. When the
end of the reporting period differs fo r
the parent and a subsidiary, the
subsidiary prepares (for consolidation
purposes) additional financial
statements as o f the same date as the
financial statements o f the parent
unless it is impracticable t o do so.
However, when the difference between
the end of the reporting period o f the
parent and subsidiary is three months or
less, the financial statements o f the
subsidiary m ay be adjusted fo r the
effects o f significant transactions and
events, rather than preparing additional
financial statements as o f the parent’s
reporting date.

Transactions th at result in decreases
in ownership interest in a subsidiary
without a loss of control are accounted
fo r as equity transactions in the
consolidated entity (that is, no gain or
loss is recognized) when: (1) subsidiary
is a business or nonprofit activity (with
two exceptions: a sale of in substance
real estate and a conveyance of oil and
gas mineral rights); or (2) subsidiary is
n o t a business o r nonprofit activity,
but the substance of the transaction is
n o t addressed directly by other
ASC Topics.

Consistent with US GAAP, except th at
this guidance applies t o all subsidiaries
under IAS 27(R), even those tha t are
n ot businesses o r nonprofit activities,
those that involve sales of in substance
real estate or conveyance of oil and gas
mineral rights. In addition, IAS 27(R)
does not address whether that guidance
should be applied t o transactions
involving non-subsidiaries th at are
businesses o r nonprofit activities.

Changes in ownership
interest in a subsidiary
without loss of control


US GAAP versus IFRS The basics

8

Consolidation, joint venture accounting and equity me thod investees/associates
subsidiary

For certain transactions that result i

na
Equity method
investments

Potential voting rights are generally
n o t considered in the determination o f
significant influence.

In determining significant influence,
potential voting rights are considered if
currently exercisable.

ASC 8 25 - 1 0 , Financial Instruments,
gives entities the option t o account fo r
certain investments at fair value. If
management does not elect t o use the
fair value option, the equity metho d o f
accounting is required.

directly by other ASC Topics.

The fair value option is not available t o
investors (other than venture capital
organizations, mutual funds, unit trusts,
and similar entities) t o account fo r their
investments in associates.
IAS 28 generally requires investors
(other than venture capital
organizations, mutual funds, unit trusts,
and similar entities) t o use the equity
method of accounting fo r their
investments in associates in consolidated
financial statements. If separate financial
statements are presented (i.e., by a
parent o r investor), subsidiaries and
associates can be accounted fo r at either
cost or fair value.

Uniform accounting policies between
Uniform accounting policies between
investor and investee are n ot required. investor and investee are required.
US GAAP
Loss of control o f a

loss of control of a subsidiary o r a
group o f assets, any retained
noncontrolling investment in the
former subsidiary or group of assets is
re-measured to fair value on the date
control is lost, with the gain o r loss
included in income along with any gain
o r loss on the ownership interest sold.
This accounting is limited to the
following transactions: (1) loss of
control of a subsidiary that is a
business o r nonprofit activity or a
group o f assets that is a business o r
nonprofit activity (with two exceptions:
a sale o f in substance real estate, o r a
conveyance o f oil and gas mineral
rights); (2) loss o f control o f a

IFRS
subsidiary that is not a business o r
nonprofit activity if the substance o f
the transaction is not addressed
Consistent with US GAAP, except th at
this guidance applies t o all subsidiaries
under IAS 27(R), even those tha t are
not businesses or nonprofit activities or
those that involve sales of in substance
real estate or conveyance of oil and gas
mineral rights. In addition, IAS 27(R)
does not address whether that guidance
should be applied t o transactions
involving non-subsidiaries th at are
businesses o r nonprofit activities.
IAS 27(R) also does n ot address the
derecognition o f assets outside the
loss o f control of a subsidiary.


US GAAP versus IFRS The basics

Jo int ventures

US GAAP

IFRS

Generally accounted fo r using the
equity metho d o f accounting (or a t fair
value, if the fair value option is
elected). Proportionate consolidation
ma y be permitted in limited
circumstances to account fo r interests
in unincorporated entities in certain
industries where it is an established
practice (i.e., in the construction and
extractive industries).

IAS 3 1 , Interests in J oi nt Ventures,
permits either the proportionate
consolidation metho d o r the equity
me tho d o f accounting fo r interests in
jointly controlled entities. The fair value
option is not available t o investors
(other than venture capital
organizations, mutual funds, unit trusts,
and similar entities) t o account fo r their
investments in jointly controlled entities.

9

Consolidation, joint venture accounting and equity me thod investees/associates

Convergence
In May 2011, the IASB issued IFRS 1 0 ,
Consolidated Financial Statements, which
replaces IAS 27(R) and SIC-12 and provides a
single control model. The FASB chose not t o
pursue a single consolidation model at this time
and instead is making targeted revisions t o the
consolidation models within US GAAP. The
FASB’s proposed amendments t o the
consideration of kick-out rights and principal
versus agent relationships would m ore closely
align the consolidation guidance under
US GAAP with IFRS. However, certain
differences between consolidation guidance
under IFRS and US GAAP (e.g., effective
control, potential voting rights) will continue t o
exist. IFRS 10 is effective for annual periods
beginning on or after 1 January 2013, with
earlier application permitted. The FASB’s
exposure draft was issued on 3 November
2011 and comments were received by 15
February 2012. The FASB technical plan calls
for a final Accounting Standards Update t o be
issued in the first half of 2013.
In May 2011, the IASB also issued IFRS 11 ,
Joint Arrangements, which replaces IAS 3 1 ,
Interests in Joint Ventures, and SIC-13,
Jointly Controlled Entities — Non-monetary

Contributions by Venturers. IFRS 11 establishes
a principles-based approach t o determining the
accounting f or joint arrangements. In doing so,
IFRS 11 eliminates proportionate consolidation
and requires joint arrangements classified as
joint ventures t o be accounted for using the
equity method. This change is expected t o
reduce differences between IFRS and US GAAP.
Jointly controlled assets and jointly controlled
operations under IAS 31 are generally expected
t o be considered joint operations subject t o joint
operation accounting under IFRS 11 . Joint
operations will recognize their assets, liabilities,
revenues and expenses, and relative shares
thereof. IFRS 11 is effective for annual periods
beginning on or after 1 January 2013, with
earlier application permitted.
In May 2011, the IASB also issued a revised
IAS 2 8 , Investments in Associates and Joint
Ventures (referred as IAS 28 ( 2 0 11 ) in this
publication). The revised standard resulted
f r om the IASB’s consolidation project. IAS 28
was amended t o include the application of the
equity met hod t o investments in joint ventures
(as defined in IFRS 11 ). IAS 28 (2 0 11 ) is
effective f or annual periods beginning on
or after 1 January 2013, with earlier
application permitted.

US GAAP versus IFRS The basics

10


Consolidation, joint venture accounting and equity me thod investees/associates

The IASB also issued IFRS 1 2 , Disclosure of
Interests in Other Entities, in May 2011, which
includes all of the disclosure requirements f o r
subsidiaries, joint arrangements , associates

and consolidated and unconsolidated
structured entities. IFRS 12 is effective f o r
annual periods beginning on or after 1 January
2013, wit h earlier application permitted.
Note that this publication does n ot address the
differences between US GAAP and IFRS
resulting f r om IFRS 10, IFRS 11 and IFRS 12.
The FASB is addressing the accounting for
equity met hod investments in the
redeliberation of its May 2010 Exposure Draft,
Accounting f or Financial Instruments and
Revisions t o the Accounting f or Derivative
Instruments and Hedging Activities.
The FASB and the IASB have issued proposals
t o establish consistent criteria f or determining
whether an entity is an investment company
(the IASB uses the t e rm ―investment enti t y ‖ ) .


In October 2012, the IASB issued an
am endment t o IFRS 10 t o provide an
exception t o the consolidation requirement
f o r entities t hat meet the definition of an
investment company. Generally, investment
companies would be excluded f r om
consolidating controlled investments. The
FASB is continuing t o work on its proposed
amendments t o the US GAAP definition of an
investment company, which may bring

Business combinatio
ns
US GAAP

US GAA
P and IF
RS f urt h
er int o a
lignment
.

IFRS

Measurement o f
noncontrolling interest

Noncontrolling interest is measured at
fair value, including goodwill.

Noncontrolling interest components
th at are present ownership interests
and entitle their holders t o a
proportionate share o f the acquiree’s
net asset in the event o f liquidation ma y
be measured at: (1) fair value, including
goodwill, o r (2) at the noncontrolling
interest’s proportionate share o f the
fair value o f the acquiree’s identifiable
net assets, exclusive o f goodwill.
All other components o f 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.

Acquiree’s operating
leases

If the terms o f an acquiree operating
lease are favorable o r unfavorable
relative to market terms, the acquirer
recognizes an intangible asset o r
liability, respectively, regardless o f
whether the acquiree is the lessor o r
the lessee.

Separate recognition o f an intangible
asset o r liability is required only if the
acquiree is a lessee. If the acquiree is the
lessor, the terms o f the lease are taken
into account in estimating the fair value
o f the asset subject t o the lease.
Separate recognition o f an intangible
asset o r liability is not required.

However, US GAAP and IFRS differences
in accounting and reporting for investment
companies will remain. The FASB intends t o
issue its final standard in the first half of 2013.

US GAAP versus IFRS The basics

Business combinations

Similarities
The principal guidance for business

11

combinations in US GAAP (ASC 8 0 5 , Business
Combinations) and IFRS (IFRS 3(R), Business
Combinations) represents the culmination of
the first major convergence project between
the IASB and the FASB. Pursuant t o ASC 805
and IFRS 3(R), all business combinations are
accounted f or using the acquisition method.
Upon obtaining control of another entity, the


underlying transaction is measured at fair
value, establishing the basis on which the
assets, liabilities and noncontrolling interests
of the acquired entity are measured. As
described below, IFRS 3(R) provides an
alternative t o measuring noncontrolling
interest at fair value wit h limited exceptions.
Although the new standards are substantially
converged, certain differences still exist.

Significant differences
US GAAP versus IFRS The basics

12

Business combinations

US GAAP

IFRS

Initial recognition and measurement
Assets and liabilities arising f r o m
contingencies are recognized at fair
value (in accordance with ASC 8 2 0 ,
Fair Value Measurement) if the fair
value can be determined during the
measurement period. Otherwise, those
assets o r liabilities are recognized a t
the acquisition date in accordance with
ASC 450, Contingencies, if those
r recognition
are met.
under co mm on control criteria
Theforeceiving
entity
records the
Contingent assets and liabilities that
net
do not meet either of these recognition
criteria at the acquisition date are
subsequently accounted fo r in
accordance with other applicable
literature, including ASC 450.
(See ―Provisions and Contingencies‖
fo r differences between ASC 450
and IAS 37) .

Assets and liabilities
arising fr o m
contingencies

Combination o f entities

Initial recognition and measurement
Liabilities arising f r o m contingencies
are recognized as o f the acquisition
date if there is a present obligation that
arises f r o m past events and the fair
value can be measured reliably.
Contingent assets are not recognized.

Subsequent measurement
If contingent assets and liabilities are
initially recognized at fair value, an
acquirer should develop a systematic
and rational basis for subsequently
measuring and accounting fo r those
assets and liabilities depending on
their nature.


If amounts are initially recogni Subsequent measurement
Liabilities subject to contingencies are
zed and
measured in accordance with subsequently measured at the higher
of: (1) the a mo unt tha t would be
ASC 450,
the subsequent accounting an recognized in accordance with IAS 37,
o r (2) the am ou nt initially recognized
d
measurement should be base less, if appropriate, cumulative
amortization recognized in accordance
d on
with IAS 1 8 .
th at guidance.

Inventory

practice, either follow an approach
similar t o US GAAP (historical cost) o r
apply the acquisition metho d (fair
value) if there is substance t o the
transaction (policy election).

assets a t their carrying amou
nts in
the accounts o f the transferor Outside the scope o f IFRS 3(R). In
(historical cost).

Other differences m ay arise due t o different
accounting requirements of other existing
US GAAP and IFRS literature (e.g., identifying
the acquirer, definition of control, replacement
of share-based payment awards, initial
classification and subsequent measurement of

contingent consideration, initial recognition and
measurement of income taxes, initial recognition
and measurement of employee benefits).

Convergence
No furt he r convergence is planned at this time.

US GAAP versus IFRS The basics

13

Inventory

such as retail inventory met hod, are similar
under bot h US GAAP and IFRS. Further, under
Similarities
bot h sets of standards, the cost of inventory
ASC 330, Inventory, and IAS 2 , Inventories,
includes all direct expenditures t o ready
are based on the principle that the primary
inventory for sale, including allocable
basis of accounting f or inventory is cost. Both
overhead, while selling costs are excluded f r om
define inventory as assets held f or sale in the
the cost of inventories, as are most storage
write-downs
Any
ordinary
course of business, in
thewrite-down
process of of inventory to t
costs and general administrative costs.
production f or such sale o r t o be consumed
he
in the production of goods or services.
Permissible techniques f or cost measurement,

Significant differences
US GAAP
Costing methods

Measurement

LIFO is an acceptable method.
Consistent cost formula fo r all
inventories similar in nature is n ot
explicitly required.
Inventory is carried at the lower of cost
o r market. Market is defined as cur rent
replacement cost, but n ot greater than
net realizable value (estimated selling
price less reasonable costs of
completion and sale) and not less than
net realizable value reduced by a
normal sales margin.

IFRS
Reversal of inventory
lower of cost o r ma
rket creates a new
equently cannot

cost basis tha t subs
be reversed.


completion and the estimated costs
necessary t o make the sale.

LIFO is prohibited. Same cost formula
m u st be applied t o all inventories
similar in nature o r use to the entity.

Long-lived
assets

Inventory is carried at the lower of cost
o r net realizable value. Net realizable
value is defined as the estimated selling
price less the estimated costs o f
Permanent inventory
markdowns under the
retail inventory method
(RIM)

Previously recognized impairment
losses are reversed up to the amount
o f the original impairment loss when
the reasons fo r the impairment no
longer exist.

Permanent markdowns do n ot affect
the gross margins used in applying the
RIM. Rather, such markdowns reduce
the carrying cost o f inventory t o net
realizable value, less an allowance fo r
an approximately normal profit margin,
which m ay be less than both original
cost and net realizable value.

Permanent markdowns affect the
average gross margin used in applying
the RIM. Reduction o f the carrying cost
o f inventory t o below the lower o f cost
o r net realizable value is not allowed.

Convergence
No f urt her convergence is planned at this time.

US GAAP versus IFRS The basics

Long-lived assets

Similarities
Although US GAAP does not have a
comprehensive standard that addresses
long-lived assets, its definition of property, plant
and equipment is similar t o IAS 1 6 , Property,
Plant and Equipment, which addresses tangible
assets held for use that are expected t o be used
for more than one reporting period. Other
concepts that are similar include the following:
Cost
Bot h accounting models have similar
recognition criteria, requiring that costs be
included in the cost of the asset if future
economic benefits are probable and can be
reliably measured. Neither model allows the
capitalization of start-up costs, general
administrative and overhead costs o r regular
maintenance. Both US GAAP and IFRS require
t hat the costs of dismantling an asset and
restoring its site (i.e., the costs of asset
reti rement under ASC 4 1 0 - 2 0 , Asset
Retirement and Environmental Obligations —
Asset Retirement Obligations or IAS 3 7 ,

14

Provisions, Contingent Liabilities and
Contingent Assets) be included in the cost
of the asset when there is a legal obligation,
but IFRS requires provision in ot her
circumstances as well.


Impairment or Disposal of Long-Lived Assets
subsections of ASC 3 6 0 - 1 0 , Property, Plant
and Equipment, and IFRS 5 , Non-current Assets
Held f or Sale and Discontinued Operations.
Under bo
US GAAP
IFRS
th standa
rds, the a
Revaluation of assets
Revaluation n ot permitted.
Revaluation is a permitted accounting
sset is m
policy election fo r an entire class o f
easured
assets, requiring revaluation t o fair
Significant differences
value on a regular basis.
at the lo
wer of it
s carrying amount or fair
Depreciation
value less costs t o sell, the assets are not
Depreciation of long-lived assets is required
depreciated and they are presented separately
on a systematic basis under both accounting
on the face of the balance sheet. Exchanges of
models. ASC 250, Accounting Changes and
nonmonetary similar productive assets are also
Error Corrections, and IAS 8 , Accounting
Depreciation o f asset
treated
similarlybut
under Component
ASC 845, Nonmonetary
Policies,
Changes
in
Accounting
Estimates
and
components
Component depreciation
permitted
depreciation
Transactions, and IAS 1 6 , Property, Plant and
Errors, both t reat changes in residual value and
Equipment, both of which allow gain or loss
usefulrequired
economiciflife as a change in accounting
recognition
if the exchange has commercial
estimate
requiring
prospective
treatm
ent.
borrowing costs
Eligible borrowing costs
do not inclu
substance and the fair value of the exchange
Assets held for sale
can be reliably measured.
de
Assets held f or sale criteria are similar in the
Capitalized interest
ASC 8 3 5 - 2 0 , Interest — Capitalization of
Interest, and IAS 2 3 , Borrowing Costs,
require the capitalization of borrowing costs
(e.g., interest costs) directly attributable t o
the acquisition,
construction or
production
of
overhaul
Multiple
accounting
models
a qualifying asset. Qualifying assets are
generally
havedefined similarly under bot h
accounting models. However, there are
differences between US GAAP and IFRS in
the measurement of eligible borrowing costs
f o r capitalization.
US GAAP versus IFRS The basics

15

Long-lived assets

n o t common.
Measurement of

exchange rate differences. Interest
earned on the investment of borrowed
funds generally cannot offset interest
costs incurred during the period.

components o f an asset have differing
patterns o f benefit.
For borrowings ass
ociated with a
sset, borrowing

specific qualifying a


costs equal to the weighted-average
accumulated expenditures times the
borrowing rate are capitalized.
Costs of a major

evolved in practice, including: expense
Intangible
asset
costs as
incurred, capitalize costs and
amortize through the date of the next
s
overhaul, o r follow the IFRS approach.

Investment property

Investment property is n ot separately
defined and, therefore, is accounted
fo r as held fo r use o r held fo r sale.

Eligible borrowing costs include
exchange rate differences from foreign
currency borrowings. For borrowings
associated with a specific qualifying
asset, actual borrowing costs are
capitalized offset by investment
income earned o n those borrowings.

Costs th at represent a replacement o f
a previously identified component o f an
asset are capitalized if future economic
benefits are probable and the costs can
be reliably measured.
Investment property is separately
defined in IAS 40, Investment Property,
as property held to earn rent or fo r
capital appreciation (or both) and may
include property held by lessees under a
finance o r operating lease. Investment
property may be accounted fo r 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
fo r using the fair value model.

Other differences include: hedging gains and
losses related t o the purchase of assets,
constructive obligations t o retire assets, the
discount rate used t o calculate asset
reti rement costs and the accounting f or
changes in the residual value.

Convergence
The FASB has an ongoing project t o consider
whether entities should be provided an option
or be required t o measure investment
properties at fair value.

US GAAP versus IFRS The basics

Intangible assets

Similarities
Bot h US GAAP (ASC 805, Business
Combinations, and ASC 350, Intangibles —
Goodwill and Other) and IFRS (IFRS 3(R),
Business Combinations, and IAS 3 8 , Intangible
Assets) define intangible assets as
nonm onetary assets wit hout physical
substance. The recognition criteria f or bot h
accounting models require t hat there be
probable fut ure economic benefits f r om costs
t hat can be reliably measured, although some
costs are never capitalized as intangible assets
(e.g., start-up costs). Goodwill is recognized

16

only in a business combination. With the
exception of development costs (addressed
below), internally developed intangibles are not
recognized as assets under either ASC 350 or
IAS 3 8 . Moreover, internal costs related t o the


exception in ASC 9 8 5 - 2 0 , Software — Costs of
Software t o be Sold, Leased or Marketed,
related t o the amortization of computer
software sold t o others. In bot h sets of
US GAAP
Revaluation

IFRS

Revaluation is not permitted.

research phase of research and development
are expensed as incurred under bot h
accounting models.
Amortization of intangible assets over their
estimated useful lives is required under both
US GAAP and IFRS, with one US GAAP minor

Revaluation t o fair value o f intangible
assets other than goodwill is a
permitted accounting policy election
fo r a class o f intangible assets. Because
revaluation requires reference t o an
active market fo r the specific type o f
intangible, this is relatively uncommon
in practice.

standards, if there is no foreseeable limit t o
the period over which an intangible asset is
expected t o generate net cash inflows t o the
entity, the useful life is considered t o be
indefinite and the asset is not amortized.
Goodwill is never amortized under either
US GAAP or IFRS.

Significant differences
US GAAP

IFRS

Development costs

Development costs are expensed as
incurred unless addressed by guidance
in another ASC Topic. Development
costs related t o computer software
developed fo r external use are
capitalized once technological feasibility
is established in accordance with
specific criteria (ASC 985 - 20 ) . In the
case of software developed for internal
use, only those costs incurred during
the application development stage (as
defined in ASC 3 5 0 - 4 0 , Intangibles —
Goodwill and Other — Internal-Use
Software) m ay be capitalized.

Development costs are capitalized
when technical and economic feasibility
o f a project can be demonstrated in
accordance with specific criteria,
including: demonstrating technical
feasibility, intent to complete the asset,
and ability to sell the asset in the
future. Although application o f these
principles ma y be largely consistent
with ASC 9 8 5 - 2 0 and ASC 3 5 0 - 4 0 ,
there is no separate guidance
addressing compute r software
development costs.

Advertising costs

Advertising and promotional costs are
either expensed as incurred or
expensed when the advertising takes
place fo r the first t ime (policy choice).
Direct response advertising m ay be
capitalized if the specific criteria in
ASC 3 4 0 - 2 0 , Other Assets and
Deferred Costs — Capitalized
Advertising Costs, are met.

Advertising and promotional costs are
expensed as incurred. A prepayment
ma y be recognized as an asset only
when payment fo r the goods o r
services is made in advance o f the
entity having access to the goods o r
receiving the services.

US GAAP versus IFRS The basics

Intangible assets

17


No f urt her convergence is planned at this time.

Impairment of long-lived assets, goodwill
and

Impairment loss
The a mo unt by which the carrying
calculation — long-lived
a mo unt of the asset exceeds its fair
Convergence
assets
value, as calculated in accordance with
ASC 820.

The a mo unt by which the carrying
a mo unt of the asset exceeds its
recoverable amount; recoverable
a mo unt is the higher of: (1) fair value
less costs t o sell and (2) value in use
(the present value o f future cash flows
in use, including disposal value).

Assignment o f goodwill

Goodwill is allocated t o a
cash-generating unit (CGU) o r group o f
CGUs tha t represents the lowest level
within the entity a t which the goodwill
is monitored fo r internal management
purposes and cannot be larger than an
operating segment (before
aggregation) as defined in IFRS 8 ,
Operating Segments.

Goodwill is assigned t o a reporting unit,
which is defined as an operating
segment o r one level below an
operating segment (component).

US GAAP versus IFRS The basics

18

Impairment o f long-lived assets, goodwill and intangible assets

intangible assets
Similarities
Under both US GAAP and IFRS, long-lived
assets are not tested annually, but rather when
there are similarly defined indicators of
impairment. Both standards require goodwill
and intangible assets wit h indefinite useful lives
t o be tested at least annually f or impairment
and m ore frequently if impairment indicators
are present. In addition, both US GAAP and
IFRS require that the impaired asset be writt en
down and an impairment loss recognized.

Significant differences

ASC 350, Intangibles — Goodwill and Other,
Impairment or Disposal of Long-Lived Assets
subsections of ASC 3 6 0 - 1 0 , Property, Plant
and Equipment, and IAS 3 6 , Impairment of
Assets, apply t o most long-lived and intangible
assets, although some of the scope exceptions
listed in the standards differ. Despite the
similarity in overall objectives, differences exist
in the way impairment is tested, recognized
and measured.


US GAAP
Method o f determining
impairment — long-lived
assets

Two-step approach requires tha t a
recoverability test be performed first
(carrying am ou nt o f the asset is
compared with the sum o f future
undiscounted cash flows generated
through use and eventual disposition).

impairment — goodwill

to

IFRS
If it is determined th at the asset is n ot
recoverable, an impairment loss
One-step approach requires tha t
impairment loss calculation be
per forme d if impairment indicators
exist.

Companies have the option
US GAAP versus IFRS The basics

19

Impairment o f long-lived assets, goodwill and intangible assets

Impairment
loss — goodwillThe amount
by which the
value The a mo unt by which the carrying
calculation
The amount
by carrying
which the
calculation —
o f the asset exceeds its fair value.
value of the asset exceeds its
indefinite-lived
recoverable amount.
carrying
intangible assets
Reversal of loss

Prohibited fo r all assets t o be held
and used.

calculation is required.
US GAAP
Method o f determining

qualitatively assess whether it is more
likely than not that the fair value o f a
reporting unit is less than its carrying
amount. If so, a two-step approach
requires a recoverability test t o be
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.

Impairment loss
amount of goodwill exceeds the implied
fair value o f the goodwill within its
reporting unit.

Level o f assessment —
indefinite-lived

intangible assets

Prohibited fo r goodwill. Other
long-lived assets mu st be reviewed a t
the end o f each reporting period fo r
reversal indicators. If appropriate, loss
should be reversed up to the newly
estimated recoverable amount, not t o
exceed the initial carrying amount
adjusted fo r depreciation.
IFRS
One-step approach requires tha t an
impairment test be done at the CGU
level by comparing the CGU’s carrying
amount, including goodwill, with its
recoverable amount.

Impairment loss on the CGU (amount
by which the CGU’s carrying amount,
including goodwill, exceeds its
recoverable amount) is allocated first
t o reduce goodwill t o zero, then,
subject to certain limitations, the
carrying amount of other assets in the
CGU are reduced pro rata, based on the
carrying a mo unt o f each asset.
Indefinite-lived intangible assets
separately recognized should be


assessed fo r impairment indiv indefinite-lived intangible assets are
idually
essentially inseparable). Indefinite-lived
unless they operate in concert intangible assets may not be combined
with
with other assets (e.g., finite-lived
other indefinite-lived
intangible assets o r goodwill) fo r
intangible assets
as a single asset (i.e., the
If the indefinite-lived intangible asset

does not generate cash inflows that are
largely independent o f those f r o m
other assets o r groups o f assets, then
the indefinite-lived intangible asset
should be tested for impairment as part
o f the CGU t o which it belongs, unless
certain conditions are m et .

US GAAP versus IFRS The basics

Impairment o f long-lived assets, goodwill and intangible assets

Convergence
No f urt her convergence is planned at this time.
In July 2012, the FASB issued guidance that
gives companies the option t o perform a
qualitative impairment assessment for
indefinite-lived intangible assets that m ay allow
t hem t o skip the annual fair value calculation.
The guidance is effective for annual and interim
impairment tests perf orm ed f or fiscal years
beginning after 15 September 2012. Early
adoption is permitted. The guidance is similar
t o the qualitative screen t o tes t goodwill
f o r impairment.

purposes o f an impairment test.

20


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