IFRS vs US GAAP Financial Statement presentation

US GAAP

IFRS

Generally accepted accounting principles are a set of thousands of U.S. GAAP pronouncements (accounting standards and guidelines) created and maintained by the U.S. Financial Accounting Standards Board (FASB). In 2008 the FASB issued the FASB Accounting Standards Codification which reorganized these U.S. GAAP pronouncements into roughly 90 accounting topics

Since the FASB established GAAP guidelines in 1973, the U.S. Securities and Exchange Commission and the American Institute of Certified Public Accountants have adopted GAAP as official standards of financial accounting.

Both require all public and some privately held businesses, as well as external auditors, to adhere to GAAP standards in all aspects of financial reporting and auditing.

The overall objective is to create consistency in financial reporting and financial statements and ensure financial statements contain reliable, concise, and understandable information.

IFRS Standards (and the predecessor IAS Standards with the same status) are (were) set by the International Accounting Standards Board (Board) and are used primarily by publicly accountable companies—those listed on a stock exchange and by financial institutions, such as banks.

Authoritative interpretations of the Standards, which provide further guidance on how to apply them, are developed by the IFRS Interpretations Committee and called IFRIC Interpretations (and the predecessor SIC Interpretations).

The IASB was founded on April 1, 2001, as the successor to the International Accounting Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (IFRS Standards), previously known as International Accounting Standards (IAS) and promoting the use and application of these standards.

US GAAP

IFRS

GAAP guidelines require businesses to use accrual-basis accounting to comply with its matching principle guideline. In accrual accounting, revenue and expenses are reported in the period in which a sale is made or an expense is incurred regardless of when money is received or the expense is paid.

For example, a credit sale is reported as sales revenue on the date the sale is made, even though the business won’t receive payment until a future date.

The accrual-basis accounting in IFRS is the same as in US GAAP, but in practice it could be that US GAAP Financial Statements are showing less net income or lower asset valuations due to an explicit application of conservatism (see below).

In the Conceptual Framework IASB formulated the following (more balanced) approach:

In order for information to represent an economic phenomenon faithfully, that information must reflect the substance of the economic phenomenon and not merely its legal form.

That information must also be neutral. Neutrality is supported by the exercise of prudence, which is the exercise of caution when making judgements under conditions of uncertainty. Because neutrality means ‘depiction without bias’ prudence is not biased towards recognising fewer assets and more liabilities–assets and liabilities should be neither overstated nor understated.

The GAAP costing principle requires financial statements to report capital assets according to their original purchase cost. There are no allowances for inflation or asset appreciation, but rather amounts reported on financial statements are referred to as historical cost amounts.

In the Conceptual Framework IASB introduced the two main measurement bases (historical cost and current value, which includes fair value), the information they contain and the aspects to be considered when selecting a measurement basis.

The Conceptual Framework details ways of enhancing faithful representation one being to use more than one measurement base, for example one recognition method for the statement of financial position (generally historical cost) and another in the notes (generally fair value).

US GAAP

IFRS

GAAP standards include three basic assumptions affecting all financial statements:

1. All financial statements must display data in U.S. dollars. If for any reason transactions can’t be displayed using the U.S. monetary system, the transaction can’t be included in the report.
2. Reporting periods can vary from a few months to one year. In addition, estimated amounts are allowed in quarterly or semi-annual financial statements. Regardless of the chosen reporting period, however, all statements must specifically define the reporting period, such as “the three months ended September 30, 2013” in the statement header.
3. The going concern principle assumes the business isn’t considering or in the process of liquidation. This assumption is what allows a business to defer certain prepaid expenses until future accounting periods.

IFRS differs significantly from US GAAp mainly because IFRS are used in over 140 countries all over the world and the more principle based nature of IFRS:

1. IFRS uses functional currency and presentation currency, based on the context of a business (national or international).
2. Reporting periods are in general for a 12-month period, with comparatives covering a similar period. Other (shorter) periods are covered by IAS 34 Interim Financial Reporting.
3. The going concern principle is the same for IFRS.

US GAAP

IFRS

The GAAP full disclosure principle requires financial statements to fully disclose any and all information an investor, lender or private individual might need to assess the current financial state of the business. If the information is too complex to include within the body of the statement, it must be included as a footnote and attached to the statement.

Examples include an explanation of the business’s accounting policies, which is most often the first footnote item, and explanations regarding unusual transactions or events, such as a pending merger or plans to acquire another business, that may affect business operations.

The primary purpose of financial information remains to be useful to existing and potential investors, lenders and other creditors (subsequently referred to as “users”) when making decisions about the financing of the entity (whether by holding equity or debt instruments) and exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.

As a result of the more principle based approach for IFRS disclosure are many this more extensive and less specific, however the balance between aggregation and detailing data is sensitive.

US GAAP

IFRS

The GAAP materiality principle gives a business the option to expense the entire cost of a miscellaneous purchase in the year it’s purchased instead of extending the cost over its useful lifetime.

There are specific guidelines as to what constitutes “insignificant,” but GAAP guidelines state that “professional judgment is needed to decide whether an amount is insignificant or immaterial.”

The principle of materiality also allows financial statements to show rounded rather than exact dollar amounts.

IAS 1 and IAS 8 state that omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements.

Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.

IFRS is more principle based and US GAAP more rules based in this respect.

The principle of conservatism applies when there are two acceptable options for reporting an item. In a case such as this, conservatism requires an accountant to choose the option that will result in less net income or lower asset valuations.

In the Conceptual Framework IASB formulated the following (more balances) approach:

In order for information to represent an economic phenomenon faithfully, that information must reflect the substance of the economic phenomenon and not merely its legal form.

That information must also be neutral. Neutrality is supported by the exercise of prudence, which is the exercise of caution when making judgements under conditions of uncertainty. Because neutrality means ‘depiction without bias’ prudence is not biased towards recognising fewer assets and more liabilities–assets and liabilities should be neither overstated nor understated.

US GAAP

IFRS

Comparative financial statements need not be presented. A single year may be presented and, in practice, a single year is often presented by private companies.

Public companies must 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.

An entity under US GAAP is not required to disclose the registered office in its financial statements.

One year of comparatives is required for all numerical information in the financial statements, with limited exceptions in disclosures. In limited note disclosures and the statement of equity, more than one year of comparative information is required.

A third balance sheet also is required for first time adopters of IFRS and in situations where a restatement or reclassification has occurred.

Restatements or reclassifications in this context are in relation to a change in accounting policies or accounting estimates, errors or changes in presentation of previously issued financial statements.

An entity in its financial statements should include the domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business), if different from the registered office.

US GAAP

IFRS

There is no general requirements within US GAAP address the presentation of specific performance measures. SEC regulations define certain key measures and require the presentation of certain headings and subtotals.

Additionally, public companies are prohibited from disclosing non-GAAP measures in the financial statements and accompanying notes.

Certain traditional concepts such as “operating profit” are not defined; therefore, diversity in practice exists regarding line items, headings and subtotals presented on the income statement.

Entities that disclose an operating result should include all items of an operating nature, including those that occur irregularly or infrequently or are unusual in amount, within that caption.

IFRS permits the presentation of additional line items, headings and subtotals in the statement of comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance. IFRS has requirements on how the subtotals should be presented when they are provided.

US GAAP

IFRS

No general requirement within US GAAP to classify income statement items by function or nature although there are requirements based on the specific cost incurred (e.g., restructuring charges, shipping and handling costs). However, SEC registrants are generally required to present expenses based on function (e.g., cost of sales, administrative).

Entities may present expenses based on either function or nature (e.g., salaries, depreciation). However, if function is selected, certain disclosures about the nature of expenses must be included in the notes.

US GAAP

IFRS

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 entity’s 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.

Discontinued operations classification is for components held for sale or disposed of and the component represents a separate major line of business or geographical area, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of or a subsidiary acquired exclusively with an intention to resell.

US GAAP

IFRS

Although US GAAP does not use the term ‘exceptional items’, significant unusual or infrequently occurring items are reported as components of income separate from continuing operations, either on the face of the statement of operations or in the notes to the financial statements.

‘Extraordinary items’ are defined as being both infrequent and unusual and are rare in practice.

Entities may utilize one of three formats in their presentation of comprehensive income:

• A single primary statement of income and comprehensive income
• A two statement approach (a statement of income and a statement of comprehensive income)
• A separate category highlighted within the primary statement of changes in shareholders equity.

The term ‘exceptional items’ is not used or defined. However, the separate disclosure is required (either on the face of the comprehensive/separate income statement or in the notes) of items of income and expense that are of such size, nature, or incidence that their separate disclosure is necessary to explain the performance of the entity for the period.

‘Extraordinary items’ are prohibited.

US GAAP

IFRS

In June 2011 the FASB issued ASU No 201-05, Presentation of Comprehensive Income. These amendments are effective for Public entities for annual periods beginning on or after 15 December 2011 and for Non-Public entities’ annual periods beginning on or after 15 December 2012.

Upon adoption of the new standard, entities will present items of net income and other comprehensive income either in one single statement of comprehensive income or in two separate but consecutive statements. The option to present other comprehensive income and its components in the statement of changes in equity will be eliminated.

In December 2011 the FASB issued an ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of items out of Accumulated Other Comprehensive Income. ASU No. 2011-12 defers indefinitely the requirements for companies to present reclassification adjustments out of accumulated OCI by component in both the statement where net income is presented and the statement.

In June 2011 the IASB issued amendments to IAS 1 Presentation of Financial Statements on the presentation of other comprehensive income (OCI).These amendments are effective for annual periods beginning on or after 1 July 2012.

Upon adoption of the amendments, entities will still be permitted to present items of net income and other comprehensive income or in two separate but consecutive statements. The amendment will, however, require items included in other comprehensive income that may be recycled into profit or loss in future periods to be presented separately from those that will not be recycled.

US GAAP

IFRS

The guidance states that “it is a general principle of accounting that the offsetting of assets and liabilities in the balance sheet is improper except where a right of set-off exists.” A right of set-off is a debtor’s legal right, by contract or otherwise, to discharge all or a portion of the debt owed to another party by applying against the debt an amount that the other party owes to the debtor. A debtor having a valid right of set-off may offset the related asset and liability and report the net amount. A right of set-off exists when all of the following conditions are met:

• Each of two parties owes the other determinable amounts
• The reporting party has the right to set off the amount owed with the amount owed by the other party
• The reporting party intends to set off
• The right of set-off is enforceable by law.

The guidance provides an exception to the previously described intent condition for derivative instruments executed with the same counterparty under a master netting arrangement. An entity may offset:

1. fair value amounts recognized for derivative instruments and
2. fair value amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instruments recognized at fair value.

Entities must adopt an accounting policy to offset fair value amounts under this guidance and apply that policy consistently.

Repurchase agreements and reverse-repurchase agreements that meet certain conditions are permitted, but not required, to be offset in the balance sheet.

A right of set-off is a debtor’s legal right, by contract or otherwise, to settle or otherwise eliminate all or a portion of an amount due to a creditor by applying against that amount an amount due from the creditor.

Two conditions must exist for an entity to offset a financial asset and a financial liability (and thus present the net amount on the balance sheet). The entity must both:

• Currently have a legally enforceable right to set off the recognized amounts
• Intend either to settle on a net basis or to realize the asset and settle the liability simultaneously.

In unusual circumstances, a debtor may have a legal right to apply an amount due from a third party against the amount due to a creditor, provided that there is an agreement among the three parties that clearly establishes the debtor’s right of set off.

Master netting arrangements do not provide a basis for offsetting unless both of the criteria described earlier have been satisfied. If both criteria are met, offsetting is required.

US GAAP

IFRS

The balance sheet offsetting disclosures are limited to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement.

The disclosure requirements are applicable for (1) all recognized financial instruments that are set off in the financial statements and (2) all recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in the financial statements.

US GAAP

IFRS

The presentation of a classified balance sheet is required, with the exception of certain industries such as real estate.

The presentation of a classified balance sheet is required, except when a liquidity presentation is more relevant.

US GAAP

IFRS

Entities may classify debt instruments due within the next 12 months as non-current at the balance sheet date provided that agreements to refinance or to reschedule payments on a long term basis are completed before the financial statements are issued.

The reporting entity may be able to classify the obligation as long-term if a private entity is out of compliance with its debt covenants as at the end of its reporting period and the violation is waived/resolved by the creditor prior to the financial statements being issued or available to be issued.

If completed after the balance sheet date, neither an agreement to refinance or reschedule payments on a long term basis nor the negotiation of a debt covenant waiver would result in non-current classification of debt, even if executed before the financial statements are issued.

US GAAP

IFRS

A short term obligation may be excluded from current liabilities if the entity intends to refinance the obligation on a long term basis and the intent to refinance on a long term basis is supported by an ability to consummate the refinancing as demonstrated by meeting certain requirements.

The refinancing does not need to be with the same counterparty.

If an entity expects and has the discretion to refinance or roll an obligation for at least 12 months after the reporting period under an existing loan financing, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period.

The refinancing should be with the same counterparty.

US GAAP

IFRS

Before the adoption of ASU 2015-17, Balance Sheet Classification of Deferred Taxes, deferred taxes are classified as current or non-current, generally based on the nature of the related asset or liability.

After the adoption of ASU 2015-17, all deferred tax assets and liabilities will be classified as non-current. (ASU 2015-17 is effective for public business entities (PBEs) in annual periods beginning after 15 December 2016, and interim periods within those annual periods.

For other entities, 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.)

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

US GAAP

IFRS

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. A third balance sheet is also required in the year an entity first applies IFRS.

US GAAP

IFRS

Under US GAAP, restricted cash is presented together with cash and cash equivalents on the statement of cash flows. The statement of cash flows shows the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

As a result, transfers between restricted cash and unrestricted cash are not presented in the statement of cash flows and direct changes in restricted cash are not disclosed as non-cash transactions.

Entities are, however, required to reconcile the total amount of cash, cash equivalent, and restricted cash presented on the statement of cash flows to the balance sheet, as well as disclose the nature and extent of the restrictions.

Entities need to consider whether restricted funds meet the definition of cash and cash equivalents. This is to ensure that only those items that are available to meet short-term cash commitments are classified as cash or cash equivalents. Funds that do not meet the criteria should not be presented as part of cash and cash equivalents.

Bank overdrafts are not included in cash and cash equivalents; changes in the balances of bank overdrafts are classified as financing cash flows.

Cash and cash equivalents may also include bank overdrafts repayable on demand that form an integral part of an entity’s cash management. Short-term bank borrowings are not included in cash or cash equivalents and are considered to be financing cash flows.

There is no requirement for expenditures to be recognized as an asset in order to be classified as investing activities.

Only expenditures that result in a recognized asset are eligible for classification as investing activities.

US GAAP is prescriptive on the cash flow classification of certain items. For example, specific guidance exists in areas such as distributions received from equity method investees, debt prepayments and extinguishments costs and sales of trade receivables.

IFRS is generally less prescriptive in the classification of certain items in the statement of cash flows. The general principle is that cash flows are classified in the manner most appropriate to the business.

Dividends paid are required to be classified in the financing section of the cash flow statement and interest paid (and expensed), interest received, and dividends received from investments are required to be classified as cash flows from operations. If the indirect method is used, amounts of interest paid (net of amounts capitalized) during the period must be disclosed.

Interest and dividends received should be classified in either operating or investing activities. Interest and dividends paid should be classified in either operating or financing cash flows.

The total amount of interest paid during a period, whether expensed or capitalized, is disclosed in the statement of cash flows.

Taxes paid are generally classified as operating cash flows.

Taxes paid should be classified within operating cash flows unless specific identification with a financing or investing activity exists.

If the indirect method is used, amounts of taxes paid during the period must be disclosed.

When taxation cash flows are disclosed under different activities, disclosure of the total amount of tax paid in relation to income is required.

US GAAP

IFRS

Statement of changes in shareholders’ equity are presented either as a primary statement or within the notes to the financial statements.

A statement of changes in equity is presented as a primary statement for all entities.

US GAAP

IFRS

A currency translation reserve is released through the income statement in the following situations:

• When control of a foreign entity, as defined, is lost, the entire Currency translation reserve balance is released.
• Complete or substantially complete liquidation of a foreign entity, as defined, results in full release of the Currency translation reserve.
• When a portion of an equity method investment that is itself a foreign entity, as defined, is sold but significant influence or joint control is retained, a portion of the Currency translation reserve is released, on a proportionate basis.
• When a reporting entity has an investment in a foreign entity accounted for by the equity method, and the reporting entity increases its stake in the subject foreign entity such that control is acquired. It is treated as if the equity method investment were sold, and used to purchase a controlling interest in the foreign entity.When significant influence or joint control over an equity method investee is lost, a proportionate amount of Currency translation reserve is released into the income statement (through the level at which significant influence or joint control is lost). The remaining Currency translation reserve balance becomes part of the carrying value of the investment retained.Provided the equity security does not qualify for the measurement alternative in ASC 321, the retained equity interests should be carried at fair value with changes in value recorded in net income. Any initial difference between the investment’s carrying value and fair value should be recognized in net income.

The triggers for the Currency translation reserve release noted in the US GAAP column apply for IFRS, except with regard to the loss of significant influence or joint control, when IFRS requires that the entire balance of Currency translation reserve be released into the income statement.

However, due to the remeasurement of the retained interest to fair value under ASC 321, the net profit or loss impact might be the same. In addition, when a partial liquidation occurs, an entity has an accounting policy choice whether to:

1. treat such an event as a partial disposal and release a portion of the Currency translation reserve on a proportionate basis or
2. not recognize any disposal as the parent continues to own the same percentage share of the subsidiary.

Under US GAAP, release of the Currency translation reserve is only appropriate on complete or substantially complete liquidation.

If a company settles or partially settles an intercompany transaction for which settlement was not previously planned (and therefore had been considered of a long-term-investment nature), the related foreign currency exchanges gains and losses previously included in the Currency translation reserve are not released to the income statement, unless the repayment transaction effectively constitutes a substantial liquidation of the foreign entity.

Where a subsidiary that is a foreign operation repays a quasi-equity loan, but there is no change in the parent’s proportionate percentage shareholding, there is an accounting policy choice regarding whether the Currency translation reserve should be released.

US GAAP

IFRS

Equity is required to be translated at historical rates.

IFRS does not specify how to translate equity items. Entities have a policy choice to use either the historical rate or the closing rate. The chosen policy should be applied consistently. If the closing rate is used, the resulting exchange differences are recognized in equity and thus the policy choice has no impact on the amount of total equity.

US GAAP

IFRS

For SEC registrants, disclosure of the application of critical accounting policies and significant estimates is normally made in the Management’s Discussion and Analysis section of SEC filings such as Forms 10-K or 20-F.

Within the notes to the financial statements, entities are required to disclose both:

• The judgments that management has made in the process of applying its accounting policies that have the most significant effect on the amounts recognized in those financial statements
• Information about the key assumptions concerning the future—and other key sources of estimation uncertainty at the balance sheet date—that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year

US GAAP

IFRS

There are no specific requirements of capital management disclosures under US GAAP.

For SEC registrants, disclosure of capital resources is normally made in the Management’s Discussion and Analysis section of SEC filings such as Forms 10-K or 20-F.

Entities are required to disclose the following:

• Qualitative information about their objectives, policies, and processes for managing capital
• Summary quantitative data about what they manage as capital
• Changes in the above from the previous period
• Whether during the period they complied with any externally imposed capital requirements to which they are subject and, if not, the consequences of such non-compliance

The above disclosure should be based on information provided internally to key management personnel.

US GAAP

IFRS

Current practice is not to include shares issuable pursuant to conversion of a mandatorily convertible instrument in the computation of basic EPS, unless the instrument is determined to be a participating security (in which case it would be included in the calculation of the basic EPS numerator).

Such shares should be included in the computation of diluted EPS using the if-converted method.

Ordinary shares that are issuable on the conversion of a mandatorily convertible instrument should be included in basic EPS from the date the contract is entered into, since the issuance of ordinary shares for such instrument is solely dependent on the passage of time.

US GAAP

IFRS

In computing diluted EPS, the treasury stock method is applied each interim period to instruments such as options and warrants. US GAAP requires that the number of incremental shares included in the year-to-date EPS denominator be computed by using the average number of incremental shares from each interim diluted EPS computation.

Specific rules apply when there are mixtures of net profit and net loss in different interim periods.

The guidance states that dilutive potential common shares shall be determined independently for each period presented, not a weighted average of the dilutive potential common shares included in each interim computation.

US GAAP

IFRS

Certain securities give the issuer a choice of either cash or share settlement. These contracts would typically follow the if-converted or treasury stock method, as applicable. US GAAP contains the presumption that contracts that may be settled in common shares or in cash at the election of the entity will be settled in common shares.

However, that presumption may be overcome if past experience or a stated policy provides a reasonable basis to believe it is probable that the contract will be settled in cash.

Contracts that can be settled in either common shares or cash at the election of the issuer are always presumed to be settled in common shares and are included in diluted EPS if the effect is dilutive; that presumption may not be rebutted.

US GAAP

IFRS

Contingently convertible debt securities with a market price trigger (e.g., debt instruments that contain a conversion feature that is triggered upon an entity’s stock price reaching a predetermined price) should always be included in diluted EPS computations if dilutive—regardless of whether the market price trigger has been met. That is, this type of contingency feature should be ignored.

The potential common shares arising from contingently convertible debt securities would be included in the dilutive EPS computation only if the contingency condition was met as of the reporting date.

US GAAP

IFRS

The two-class method is applied to all instruments that participate in dividends with common stock according to a predetermined formula. It applies regardless of whether the instrument is convertible or non-convertible. It also applies to both instruments classified as liabilities and those classified as equity.

The two-class method applies to equity instruments that participate in dividends with ordinary shares according to a predetermined formula; it does not apply to participating instruments classified as liabilities. Also, the two-class method is only explicitly required to be applied to participating equity instruments that are not convertible to ordinary shares.

A reporting entity should only allocate losses to participating securities if, based on the contractual terms of the participating securities, the securities have a contractual obligation to share in the losses of the reporting entity on a basis that is objectively determinable.

No explicit guidance limits allocation of losses to participating securities.

US GAAP

IFRS

There is no hierarchy of indicators to determine the functional currency of an entity. In those instances in which the indicators are mixed and the functional currency is not obvious, management’s judgment is required to determine the currency that most faithfully portrays the primary economic environment of the entity’s operations.

Primary and secondary indicators should be considered in the determination of the functional currency of an entity. If indicators are mixed and the functional currency is not obvious, management should use its judgment to determine the functional currency that most faithfully represents the economic results of the entity’s operations by focusing on the currency of the economy that determines the pricing of transactions (not the currency in which transactions are denominated).

US GAAP

IFRS

Under US GAAP inflation-adjusted financial statements are not permitted. Instead, the financial statements of a foreign entity in a highly inflationary functional currency were the reporting currency.

Once a reporting entity determines that it has a foreign entity operating in a highly inflationary economy, the reporting currency should be considered the foreign entity’s functional currency on a prospective basis. The new accounting basis of monetary and non-monetary assets and liabilities should be the last translated balances prior to the designation as highly inflationary.

IFRS require financial statements prepared in the currency of a hyper-inflationary economy to be stated in terms of the measuring unit current at the end of the reporting period.

Prior year comparatives must be restated in terms of the measuring unit current at the end of the latest reporting period.

US GAAP

IFRS

A disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents

1. a strategic shift that has (or will have) a major effect on an entity’s operations and financial results or
2. a business that on acquisition meets the criteria to be classified as held for sale.

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale and

1. represents a separate major line of business or geographic area of operations,
2. is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
3. is a subsidiary acquired exclusively with a view to resale.

US GAAP

IFRS

A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

A component of an entity may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group.

A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

In other words, a component of an entity will have been a cash-generating unit or a group of cash generating units while being held for use.

US GAAP

IFRS

There is no specific requirement to disclose commitments to related parties under US GAAP.

Disclosure of related party transactions includes commitments if a particular event occurs or does not occur in the future, including recognized and unrecognized executory contracts.

Commitments to members of key management personnel would also need to be disclosed.

US GAAP

IFRS

Disclosure of the compensation of key management personnel is not required within the financial statements.

SEC regulations require key management compensation to be disclosed outside the financial statements

The compensation of key management personnel is disclosed within the financial statements in total and by category of compensation.

Other transactions with key management personnel also must be disclosed.

US GAAP

IFRS

There are no exemptions available to reporting entities from the disclosure requirements for related party transactions with governments and/or government-related entities.

A partial exemption is available to reporting entities from the disclosure requirements for related party transactions and outstanding balances with both:

• A government that has control, joint control, or significant influence over the reporting entity
• Another entity that is a related party because the same government has control, joint control, or significant influence over both the reporting entity and the other entity

US GAAP

IFRS

Entities that utilize a matrix form of organizational structure are required to determine their operating segments on the basis of products or services offered, rather than geography or other metrics.

Entities that utilize a matrix form of organizational structure are required to determine their operating segments by reference to the core principle (i.e., an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates).

US GAAP

IFRS

The operator should not account for these arrangements as leases.

For the operator’s revenue and costs relating to the construction, upgrade, or operation services, the standard refers the operator to the revenue recognition and other applicable guidance.

In the absence of specific guidance, the operator needs to determine if it is able to recognize an asset for the consideration to be received by the operator in exchange for construction and upgrade services, and/or defer the costs associated with such services.

An intangible asset would not be recognized as the consideration received for construction services.

Generally, the operator would not account for these arrangements as leases, unless the operator has a right to use some physically separable, independent, and cash generating portion of the infrastructure, or if the facilities are used to provide purely ancillary unregulated services. In these cases, there may in substance be a lease from the grantor to the operator, which should be accounted for in accordance with IFRS 16.

The operator will account for construction or upgrade services and operation services in accordance with IFRS 15.

The consideration to be received by the operator in exchange for construction or upgrade services may result in the recognition of a financial asset, an intangible asset or a combination of both. It is necessary to account for each component separately.

The operator recognizes a financial asset to the extent that it has an unconditional right to receive a specified or determinable amount of cash or other financial assets for the construction services.

The operator recognizes an intangible asset to the extent that it has a right to charge fees to users of the public services.

Accordingly, determining who is the customer in a service concession arrangement depends on the nature of the consideration received by the operating entity and the facts and circumstances of the arrangement.

Additionally, in some of these arrangements, the operator will pay the grantor to enter into an operating agreement. This would be considered consideration payable to a customer under US GAAP because the grantor is determined to be the customer of the operating services in all service concession arrangements.

This may result in an asset that will be amortized against revenue over the term of the operating agreement.

Additionally, in some of these service concession arrangements, the operator will make payments to the grantor.

If payments are for a right to a separate good or service, the operator applies the applicable IFRS guidance for that good or service.

If payments are for the right to use a separate asset, the operator assesses whether the arrangement contains a lease.

If the service concession arrangement results in the operator having only a contractual right to receive cash from the grantor, the operator accounts for those payments as a reduction of the transaction price under IFRS 15.

If the service concession arrangement results in the operator having only a right to charge users of the public service, the operator has received an intangible asset in exchange for the payments to be made to the grantor.

The operator may have a contractual obligation to maintain or restore the infrastructure to a specified condition before it is returned to the grantor at the end of the arrangement, which should be recognized and measured in accordance with IAS 37.

US GAAP

IFRS

Each interim period is viewed as an integral part of an annual period. As a result, certain costs that benefit more than one interim period may be allocated among those periods, resulting in deferral or accrual of certain costs. For example, certain inventory cost variances may be deferred on the basis that the interim statements are an integral part of an annual period.

Each interim period is viewed as a discrete reporting period. A cost that does not meet the definition of an asset at the end of an interim period is not deferred and a liability recognized at an interim reporting date must represent an existing obligation.

For example, inventory cost variances that do not meet the definition of an asset cannot be deferred. However, income taxes are accounted for based on an annual effective tax rate (similar to US GAAP).