Best start with IFRS and US GAAP

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Best start with IFRS and US GAAP – Many of the world’s capital markets now require IFRS, or some form thereof, for financial statements of public-interest entities.

The remaining major capital markets without an IFRS mandate are: Best start with IFRS and US GAAP

  • The US, with no current plans to change Best start with IFRS and US GAAP
  • Japan, where voluntary adoption is allowed, but no mandatory transition date has been established
  • India, where regulatory authorities have made public statements about the intention to adopt from 2016-2017
  • China, which intends to fully converge at some undefined future date

Continued global adoption affects multinational businesses, as additional countries permit or require IFRS for statutory reporting purposes and public filings. IFRS requirements elsewhere in the Read more

IFRS vs US GAAP Financial Statement presentation

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IFRS vs US GAAP Financial Statement presentation – There are many similarities in US GAAP and IFRS guidance on financial statement presentation. Under both sets of standards, the components of a complete set of financial statements include: a statement of financial position, a statement of profit and loss (i.e., income statement) and a statement of comprehensive income (either a single continuous statement or two consecutive statements), a statement of cash flows and accompanying notes to the financial statements.

Both US GAAP and IFRS also require the changes in shareholders’ equity to be presented. However, US GAAP allows the changes in shareholders’ equity to be presented in the notes to the financial statements, while IFRS requires the changes … Read more

New Lease Standard Comparing IFRS and US GAAP

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New Lease Standard Comparing IFRS and US GAAP – The FASB and IASB issued their respective standards in the first quarter of 2016. The issuance of the standards are the culmination of multiple years of deliberating a leasing model with the primary objective of bringing almost all leases onto the balance sheet for lessees. The leases standard was initially intended to be a converged standard; however, the Boards ultimately diverged and as a result there are some differences between the two new standards.

The FASB discussed numerous lease-related questions since issuing ASC 842, and issued five Accounting Standards Updates during 2018 and 2019 relating to: the accounting for easements, certain technical corrections, targeted improvements to the transition … Read more

IFRS vs US GAAP Business combinations

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IFRS vs US GAAP Business combinations – IFRS and US GAAP are largely converged in this area. The business combinations standards under US GAAP and IFRS are close in principles and language. However, some differences remain between US GAAP and IFRS pertaining to (1) the definition of control, (2) recognition of certain assets and liabilities based on the reliably measurable criterion, (3) accounting for contingencies, and (4) accounting for non-controlling interests. Significant differences also continue to exist in subsequent accounting. Different requirements for impairment testing and accounting for deferred taxes (e.g., the recognition of a valuation allowance) are among the most significant.

New definitions of a business were also issued under both US GAAP and IFRS. … Read more

US GAAP vs IFRS Consolidations at-a-glance

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US GAAP vs IFRS Consolidations at-a-glance – IFRS provides indicators of control, some of which individually determine the need to consolidate. However, where control is not apparent, consolidation is based on an overall assessment of all of the relevant facts, including the allocation of risks and benefits between the parties. The indicators provided under IFRS help the reporting entity in making that assessment. Consolidation in financial statements is required under IFRS when an entity is exposed to variable returns from another entity and has the ability to affect those returns through its power over the other entity. US GAAP vs IFRS Consolidations at-a-glance

US GAAP has a two-tier consolidation model: one focused on voting rights (the voting … Read more

IFRS vs US GAAP Derivatives and hedging

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IFRS vs US GAAP Derivatives and hedging – Derivatives and hedging represent some of the more complex and nuanced topical areas within both US GAAP and IFRS. While IFRS generally is viewed as less rules-laden than US GAAP, the difference is less dramatic in relation to derivatives and hedging, wherein both frameworks embody a significant volume of detailed and complex guidance.

Derivatives and embedded derivatives

The definition of derivatives is broader under IFRS than under US GAAP; therefore, more instruments may be required to be accounted for as derivatives at fair value through the income statement under IFRS. There are also differences in the identification of embedded derivatives within both financial and nonfinancial host contracts that should … Read more

IFRS vs US GAAP Financial liabilities and equity

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IFRS vs US GAAP Financial liabilities and equity – Under current standards, both US GAAP and IFRS require the issuer of financial instruments to determine whether either equity or financial liability classification (or both) is required. Although the IFRS and US GAAP definitions of a financial liability bear some similarities, differences exist that could result in varying classification of identical instruments.

As an overriding principle, IFRS requires a financial instrument to be classified as a financial liability if the issuer can be required to settle the obligation in cash or another financial asset. US GAAP, on the other hand, defines a financial liability in a more specific manner. Unlike IFRS, financial instruments may potentially be equity-classified under … Read more

IFRS vs US GAAP Nonfinancial liabilities

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IFRS vs US GAAP Nonfinancial liabilities – The guidance in relation to nonfinancial liabilities (e.g., provisions, contingencies, and government grants) includes some fundamental differences with potentially significant implications.

For instance, a difference exists in the interpretation of the term “probable.” IFRS defines probable as “more likely than not,” but US GAAP defines probable as “likely to occur.” Because both frameworks reference probable within the liability recognition criteria, this difference could lead companies to record provisions earlier under IFRS than they otherwise would have under US GAAP. The use of the midpoint of a range when several outcomes are equally likely (rather than the low-point estimate, as used in US GAAP) might also lead to higher expense recognition … Read more

IFRS vs US GAAP Taxation

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IFRS vs US GAAP Taxation – Both US GAAP and IFRS base their deferred tax accounting requirements on balance sheet temporary differences, measured at the tax rates expected to apply when the differences reverse. Discounting of deferred taxes is also prohibited under both frameworks. Although the two frameworks share many fundamental principles, they are at times applied in different manners and there are different exceptions to the principles under each framework.

This may result in differences in income tax accounting between the two frameworks. Some of the more significant differences relate to the allocation of tax expense/benefit to financial statement components (“intraperiod allocation”), income tax accounting with respect to share-based payment arrangements, and some elements of accounting Read more

IFRS vs US GAAP Financial assets

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IFRS vs US GAAP Financial assets – Both the FASB and the IASB have finalized major projects in the area of financial instruments. With the publication of IFRS 9, Financial Instruments, in July 2014, the IASB completed its project to replace the classification and measurement, as well as the impairment guidance for financial instruments. In January 2016, the FASB issued its new recognition and measurement guidance – Accounting Standards Update 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, and in June 2016, the FASB issued its new impairment guidance – Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326).

The new classification and measurement guidance was effective for both US GAAP … Read more