Ifrs Usgaap

11269 bd IFRS US GAAP booklet 3/10/05 10:02 am Page a
Audit
IFRSs and US GAAP

A pocket comparison
September 2005
An IAS Plus guide
. . .
Audit Tax Consulting Financial Advisory .
11269 bd IFRS US GAAP booklet 3/10/05 10:02 am Page b
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11269 bd IFRS US GAAP booklet 3/10/05 10:02 am Page 1
A short history of convergence

Harmonising global accounting standards
From its inception in 1973, the former International Accounting Standards
Committee (IASC) worked towards harmonising global accounting standards by
developing standards that could serve as a model on which national standard
setters could base their own requirements. The IASC was replaced by the
International Accounting Standards Board (IASB) effective in 2001. Its mission
became one of convergence of global accounting standards – development of a
single set of high quality, understandable and enforceable global accounting
standards that require high quality, transparent and comparable information in
financial statements and other financial reporting to help participants in the
world’s capital markets and other users make economic decisions.
Convergence with US GAAP
The Norwalk agreement

In October 2002, following a joint meeting at the offices of the US Financial
Accounting Standards Board (FASB) in Norwalk, Connecticut, the FASB and the
IASB formalised their commitment to the convergence of generally accepted
accounting principles in the United States (US GAAP) and International Financial
Reporting Standards (IFRSs) by issuing a memorandum of understanding
(sometimes called ‘the Norwalk agreement’). The two boards pledged to use
their best efforts to:
• make their existing financial reporting standards fully compatible as soon as is
practicable; and
• coordinate their future work programmes to ensure that once achieved,
compatibility is maintained.
“Compatible” means that the two sets of standards do not contain conflicts.
Compatible does not mean word-for-word identical standards.
Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 provided some impetus and support for the
Norwalk agreement. Section 108 of the Act permits the US Securities and
Exchange Commission (SEC) to recognise standards established by a
private-sector accounting standard setter (i.e. FASB) provided that the standard
setter considers “the extent to which international convergence on high quality
accounting standards is necessary or appropriate in the public interest and for
the protection of investors”. Section 109 of the Act provides US Government
funding to the SEC-recognised standard setter.
1
Why the emphasis on convergence of IFRSs and US GAAP?

To a large extent, national standards in most countries of the world have been
based either on IFRSs or US GAAP. Despite the tendencies of national standard
setters to make small or large changes to those standards, they cannot and do
not ignore those two substantial and advanced bodies of literature in developing
their own national standards. Therefore, a sensible way to achieve a single set of
global accounting standards in a reasonable time span is to work towards
convergence of IFRSs and US GAAP – in turn causing a ‘trickle down effect’ in
those countries that continue to maintain their national GAAPs. This is the
approach that the IASB has adopted.
The IASB-FASB convergence process

The IASB and the FASB have various joint initiatives to accomplish the goal of
convergence, including:
• twice-yearly joint board meetings;
• aligned agendas, including explicit consideration of convergence potential in
all agenda decisions;
• joint staffing of major projects;
• short-term projects to revise their individual standards to eliminate as many
inconsistencies as possible;
• a convergence research project seeking to identify all of the substantive
differences between US GAAP and IFRSs and to develop strategies for
resolving them. Any recognition, measurement, presentation or disclosure
topic in which a specific accounting treatment would be permissible under
one basis of accounting but would not be permissible under the other basis
of accounting is included in the project scope; and
• coordination between their respective interpretive bodies (FASB’s Emerging
Issues Task Force and the IASB’s International Financial Reporting
Interpretations Committee).
Between December 2003 and March 2004, the IASB amended the majority of
the standards that it inherited from its predecessor, and it also issued several
new standards. Many of those changes were in the interest of convergence.
The current international standard on business combinations and goodwill
(IFRS 3), for instance, is virtually identical to the FASB’s recent standards. Likewise
for the IASB’s standard on assets held for disposal (IFRS 5).
2
Short-term convergence projects

Specific short-term convergence projects currently under way include:
• By the IASB – provisions, segment reporting, government grants.
• By the FASB – earnings per share, fair value option for financial instruments,
and research and development.
• Both boards – income taxes.
The following short-term convergence projects have been completed by the

FASB:
• Financial Accounting Standard (FAS) 154, Accounting changes and error
corrections.
• FAS 153, Exchanges of productive assets.
• FAS 151, Inventory.
Ongoing joint major projects include business combinations phase II, revenue
recognition, performance reporting, and the conceptual framework.
3
Comparison of IFRSs and

US GAAP
The table on the following pages sets out some of the differences between IFRSs
and US GAAP as of 1 September 2005.
The summary does not attempt to capture all of the differences that exist or that
may be material to a particular entity’s financial statements. Our focus is on
differences that are commonly found in practice.
The significance of these differences – and others not included in this list – will
vary with respect to individual entities depending on such factors as the nature
of the entity’s operations, the industry in which it operates, and the accounting
policy choices it has made. Reference to the underlying accounting standards
and any relevant national regulations is essential in understanding the specific
differences.
The rate of progress being achieved by both the FASB and the IASB in their
convergence agendas means that a comparison between standards can only
reflect the position at a particular point in time. You can keep up to date on
later developments via our IAS Plus website, which sets out the IASB agendas
and timetables, as well as project summaries and updates.
Abbreviations used in this publication are as follows:
FAS Financial Accounting Standard (US)

FASB Financial Accounting Standards Board (US)
GAAP Generally Accepted Accounting Principles
GAAS Generally Accepted Auditing Standards
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
IAS(s) International Accounting Standard(s)
IFRIC International Financial Reporting Interpretations
Committee
IFRS(s) International Financial Reporting Standard(s)
SEC Securities and Exchange Commission (US)
SPE(s) Special Purpose Entity(ies)
End-note references indicated in superscript in the comparison table are

located on page 28.
4
Comparison of IFRSs and US GAAP
IAS/
IFRS Topic IFRSs US GAAP
_ General More “principles- More ”rules-based”

approach based” standards with standards with specific
limited application application guidance.
guidance.
IAS 1 Financial Specific line items Certain standards

statement required. require specific
presentation presentation of
certain items. Public
companies are subject
to SEC rules and
regulations, which require
specific line items.
IAS 1 Comparative One year No specific requirement

prior year comparative under US GAAP to
financial financial present comparatives.
statements1 information Generally at least one
required. year of comparative
financial information is
presented. Public
companies are subject to
SEC rules and
regulations, which
generally require two
years of comparative
financial information.
IAS 1 Reporting Total presented in Can be presented in

“comprehensive the statement of statements of income,
income”1 changes in equity. comprehensive income or
changes in shareholders’
equity, or within the
notes to the financial
statements.
5
IAS/
IAS 1 Departure from Permitted in Not directly addressed in

a standard “extremely rare” US GAAP literature,
when circumstances to although an auditor may,
compliance achieve a fair under Generally
would be presentation. Specific Accepted Auditing
misleading disclosures are Standards (GAAS) rule
required. 203, conclude that by
applying a certain GAAP
requirement the financial
statements are
misleading, thereby
allowing for an
“override”.2
IAS 1 Classification Non-current if Non-current if

of liabilities on refinancing is refinancing is completed
refinancing1 completed before before date of issuance
balance sheet date. of the financial
statements.
IAS 1 Classification Non-current if the Non-current if the lender

of liabilities due lender has granted a has granted a waiver for
on demand 12-month waiver a period greater than one
due to violation before the balance year (or operating cycle,
of debt sheet date. if longer) before the
covenant1 issuance of the financial
statements or when it is
probable that the
violation will be corrected
within the grace period,
if any, prescribed in the
long-term debt
agreement.
IAS 1 Extraordinary Prohibited. Extraordinary items are

items1 permitted, but are
restricted to items that
are both infrequent in
occurrence and unusual
in nature.
6
IAS/
IAS 2 Reversal of Required, if certain Prohibited.

inventory criteria are met.
write-downs
IAS 2 Measuring Permitted only for Similar, but not restricted

inventory at net producers' inventories to producers and broker-
realisable value of agricultural and traders.
even if above forest products and
cost mineral ores and for
broker-dealers'
inventories of
commodities.
IAS 2 Method for LIFO is prohibited. LIFO is permitted.

determining
inventory cost
IAS 7 Classification May be classified as Must be classified as an

of interest an operating, operating activity.
received and investing or financing
paid in the cash activity.
flow statement1
IAS 7 Inclusion of Included if they form Excluded.

bank overdrafts an integral part of an
in cash entity's cash
management.
IAS 11 Method of Cost recovery Completed contract

accounting for method. method.
construction
contracts when
the percentage
of completion
cannot be
determined
7
IAS/
IAS 12 Classification Always non-current. Classification is split

of deferred tax between current and
assets and non-current components
liabilities3 based on the classification
of underlying asset or
liability, or on the
expected reversal of items
not related to an asset or
liability.
IAS 12 Subsequent First reduce goodwill First reduce goodwill to

recognition of to zero, any excess zero, then any other non-
a deferred tax credited to net profit current intangible assets
asset after a or loss. to zero, any excess
business credited to net profit or
combination3 loss.
IAS 12 Reconciliation Required for all Required for public

of actual and entities applying companies only;
expected tax IFRSs; expected tax expected tax expense is
expense3 expense is computed computed by applying
by applying the the domestic federal
applicable tax rate(s) statutory tax rates to
to accounting profit, pre-tax income from
disclosing also the continuing operations.
basis on which the Non-public companies
applicable tax rate(s) must disclose the nature
is(are) computed. of the reconciling items
but not amounts.
IAS 12 Calculation of Deferred tax is Deferred tax is computed

tax benefits computed based on based on the GAAP
related to the tax deduction for expense recognised, and
share-based the share-based trued up at realisation of
payments3 payment under the the tax benefit.
applicable tax law
(i.e. intrinsic value).
IAS 12 Impact of Deferred tax effect is Deferred tax effect is

temporary recognised at the recognised at the seller’s
differences buyer’s tax rate. tax rate, as if the
related to transaction had not
intercompany occurred.
profits3
8
IAS/
IAS 12 Initial Deferred tax not No similar exemption.

recognition recognised for taxable
exemption3 temporary differences
that arise from the
initial recognition of
an asset or liability in
a transaction that is
(a) not a business
combination, and (b)
does not affect
accounting profit or
taxable profit. Nor are
changes in this
unrecognised
deferred tax asset or
liability subsequently
recognised.
IAS 12 Other specific Does not have all the US GAAP has some six
exemptions to exemptions special exemptions from
the basic comparable to those providing deferred tax
principle that in US GAAP. including goodwill,
deferred tax is leveraged leases, most
recognised for undistributed earnings of
all temporary subsidiaries, and
differences3 intangible development
costs in the oil and gas
industry.
IAS 12 Tax rate for Use enacted or Use enacted tax rate.
measuring 'substantively
deferred tax enacted' tax rate.
assets and
liabilities4
IAS 12 Measurement Must use rate Generally, US GAAP

of deferred applicable to requires the use of the
tax on undistributed profits. higher of the distributed
undistributed and the undistributed
earnings of a rate.
subsidiary 3
9
IAS/
IAS 12 Changes in The tax effects of SFAS 109 prohibits

deferred taxes items credited or ‘backwards tracing’ and
that were charged directly to would require allocation
originally equity during the to continuing operations.
charged or current year are
credited to allocated directly to
equity equity. A deferred tax
(‘backwards item originally
tracing’) 3 recognised by a
charge or credit to
shareholders' equity
may change either
from changes in
assessments of
recovery of deferred
tax assets or from
changes in tax rates,
laws, or other
measurement
attributes. Consistent
with the initial
treatment, IAS 12
requires that the
resulting change in
deferred taxes also be
charged or credited
directly to equity.
IAS 14 Basis of Lines of business and Components for which

reportable geographical areas. information is reported
segments5 internally to top
management, which may
or may not be based on
lines of business or
geographical areas.
IAS 14 Types of Required disclosures Only one basis of

segment for both “primary” segmentation, although
disclosures5 and “secondary” certain “enterprise-wide”
segments. disclosures are required
such as revenue from
major customers and
revenue by country.
10
IAS/
IAS 14 Accounting Amounts are based Amounts are based on

basis for on IFRS measures. whatever basis is used
reportable for internal reporting
segments5 purposes. These amounts
should be reconciled to
the relevant amounts
contained in the financial
statements.
IAS 14 Segment result5 Defined segment No definition of segment

result. result.
IAS 16 Basis of May use either Generally required to use

property, plant, revalued amount or historical cost.
and equipment historical cost.
Revalued amount is
fair value at date of
revaluation less
subsequent
accumulated
depreciation and
impairment losses.
IAS 16 Major Generally accounted Generally expensed.

inspection or for as part of the cost
overhaul costs of an asset.
IAS 16 Measuring the Current net selling Generally the discounted

residual value price assuming the present value of expected
of property, asset were already of proceeds on future
plant and the age and in the disposal.
equipment condition expected at
the end of its useful
life.
IAS 17 Present value Generally would use Lessors must use the
of minimum the rate implicit in the implicit rate to discount
lease lease to discount minimum lease payments.
payments6 minimum lease Lessees generally would
payments. use the incremental
borrowing rate to
discount minimum lease
payments unless the
implicit rate is known and
is the lower rate.
11
IAS/
IAS 17 Recognition of The gain is recognised Generally, the gain is

a gain on a sale immediately. amortised over the lease
and leaseback term.
transaction
where the
leaseback is an
operating
lease6
IAS 17 Disclosure of Less detailed More detailed disclosure.

lease disclosure.
maturities6
IAS 18 Revenue General principles More specific guidance,

recognition are consistent with particularly industry-
guidance7 US GAAP, but IFRSs specific issues. In
contain limited addition, public
detailed or companies must follow
industry-specific more detailed guidance
guidance. provided by the SEC.
IAS 19 Termination No distinction Recognise special (one-

benefits8 between “special” time) termination
and other termination benefits generally when
benefits. Termination they are communicated
benefits recognised to employees unless
when the employer is employees will render
demonstrably service beyond a
committed to pay. “minimum retention
period” in which case
the liability is recognised
ratably over the future
service period. Recognise
contractual termination
benefits when it is
probable that employees
will be entitled and the
amount can be
reasonably estimated.
12
IAS/
IAS 19 Measurement A curtailment gain or Unrecognised actuarial

of gain or loss loss comprises (a) the gains and losses arising
on curtailment change in the present subsequent to transition
of a benefit value of the defined do not affect the
plan benefit obligation, curtailment gain or loss,
(b) any resulting while the amount of gain
change in fair value of or loss would be offset
the plan assets, and by any portion of the
(c) a pro rata share of unrecognised transition
any related actuarial asset or liability.
gains and losses,
unrecognised
transition amount,
and past service cost
that had not
previously been
recognised.
IAS 19 Timing of Both curtailment A curtailment loss is

recognition of gains and losses are recognised when it is
gains/losses on recognised when the probable that a
curtailment of entity is demonstrably curtailment will occur
a benefit plan committed and a and the effects are
curtailment has been reasonably estimable.
announced. A curtailment gain is
recognised when the
relevant employees are
terminated or the plan
suspension or
amendment is adopted,
which could occur after
the entity is
demonstrably committed
and a curtailment is
announced.
IAS 19 Recognition of Recognised Generally amortised over

past service immediately. the remaining service
cost related to period or life expectancy.
benefits that
have vested
13
IAS/
IAS 19 Multi-employer Should be accounted Accounted for as a

plan that is a for as a defined defined contribution
defined benefit benefit plan if the plan.
plan required information
is available, otherwise
as a defined
contribution plan.
IAS 19 Minimum No minimum liability At a minimum, the

liability requirement. unfunded accumulated
recognition for benefit obligation is
benefits under recognised.
defined benefit
plans
IAS 19 Limitation on Pension assets cannot No limitation on the

recognition of be recognised in amount that can be
pension assets excess of the net total recognised.
of unrecognised past
service cost and
actuarial losses plus
the present value of
benefits available
from refunds or
reduction of future
contributions to the
plan.
IAS 19 Recognising Permitted. Not permitted.

actuarial gains
and losses,
when they
arise, directly in
the statement
of equity
14
IAS/
IAS 23 Borrowing Capitalisation is an Capitalisation is

costs related to available accounting mandatory.
assets that take policy choice.
a substantial
time to
complete
IAS 23 Types of Includes interest, Generally includes only

borrowing certain ancillary costs, interest.
costs eligible and exchange
for differences that are
capitalisation regarded as an
adjustment of
interest.
IAS 23 Income on Reduces borrowing Does not reduce

temporary costs eligible for borrowing costs eligible
investment of capitalisation. for capitalisation except
funds in limited circumstances.
borrowed for
construction of
an asset
IAS 27 Basis for Control (look to Approach depends on

consolidation governance and risk the type of entity. For
9; 10
and benefits). voting interests, entities
generally look to majority
voting rights. For variable
interest entities, look to a
risks and rewards model.
IAS 27 Special purpose Consolidate if If SPE is not a “qualifying

entities9;10 “controlled”. SPE”, then consolidation
Generally follow the generally based on
same principles as for majority voting interests
commercial entities in (if SPE is a voting interest
determining whether entity) or based on a risks
or not control exists. and rewards model (if
SPE is a variable interest
entity). Special rules
apply for consolidation of
“qualifying SPEs”.
15
IAS/
IAS 27 Different Reporting date Reporting date difference

reporting dates difference cannot be generally should not be
of parent and more than three more than three months.
subsidiaries9 months. Must adjust Must disclose effects of
for any significant any significant
intervening intervening transactions.
transactions.
IAS 27 Different Must conform No specific requirement

accounting policies. to conform policies.
policies of
parent and
subsidiaries9
IAS 27 Accounting for Either cost method or Investments in

investments in use IAS 39 (i.e. apply subsidiaries may be
subsidiaries in the financial presented either using
parent’s instrument rules) but equity or cost method.
separate not equity method.
financial
statements9
IAS 27 Presentation In equity. Outside of equity,

of minority between liabilities and
interest9 equity.
IAS 28 Different Reporting date Reporting date difference

reporting dates difference cannot be generally should not be
of investor and more than three more than three months.
associate months. Must adjust Must disclose any
for any significant significant intervening
intervening transactions.
transactions.
IAS 28 Different Must conform No specific requirement

accounting policies. to conform policies.
policies of
investor and
associate
16
IAS/
IAS 28 Accounting for Either cost method or Equity method.

investments in use IAS 39 (i.e. apply
associates in the financial
parent’s instrument rules) but
separate not equity method.
financial
statements
IAS 29 Adjusting Adjust using a general Adjust the financial

financial price level index statements as if the
statements of before translating. reporting currency of the
an entity that parent was the entity’s
operates in a functional currency.
hyperinflationary
economy
IAS 31 Investments in May use either the Generally use the equity
joint ventures equity method or method (except in
proportionate construction and oil and
consolidation. gas industries).
IAS 32 Classification of Split the instrument Classify the entire

convertible debt into its liability and instrument as a liability.
instruments equity components However, the intrinsic
and measure the value of the conversion
liability at fair value feature at the
with the equity commitment date of the
component instrument, if any, should
representing the be recognised as
residual. additional paid-in capital.
IAS 32 Offsetting Permitted when and Prohibited.

amounts due only when a legally
from and owed enforceable right and
to two the intention to settle
different net exist.
parties
17
IAS/
IAS 33 Disclosures of Basic and diluted Basic and diluted income

earnings per income from from continuing
share (EPS) continuing operations operations, discontinued
per share and net operations, extraordinary
profit or loss per items, cumulative effect
share. of a change in
accounting policy, and
net profit or loss per
share.
IAS 33 Calculation of Apply the treasury Average the individual

year-to-date stock method on a interim period
(YTD) diluted YTD basis, that is, do incremental shares.
EPS12 not average the
individual interim
period calculations.
IAS 33 Contracts that Assume always that Include based on

may be settled the contracts will be rebuttable presumption
in ordinary settled in shares. that the contracts will be
shares or in settled in shares.
cash, at issuer's
option12
IAS 34 Interim Interim period is a Interim period is an
reporting – discrete reporting integral part of the full
revenue and period (with certain year (with certain
expense exceptions). exceptions).
recognition
IAS 36 Impairment Impairment is Impairment is recorded

methodology recorded when an when an asset's carrying
for long-term asset's carrying amount exceeds the
assets other amount exceeds the expected future cash
than goodwill higher of the asset's flows to be derived from
that are subject value-in-use the asset on an
to amortisation (discounted present undiscounted basis.
value of the asset's
expected future cash
flows) and fair value
less costs to sell.
18
IAS/
IAS 36 Measurement Based on the Based on fair value.

of impairment recoverable amount
loss for long- (the higher of the
term assets asset's value-in-use
other than and fair value less
goodwill that costs to sell).
are subject to
amortisation
IAS 36 Level of Cash generating unit Reporting unit – either

impairment (CGU) – the lowest an operating segment or
testing for level to which one organisational level
goodwill and goodwill can be below.
other allocated.
indefinite-life
assets
IAS 36 Calculating One-step: compare Two steps.

impairment of recoverable amount 1. Compare fair value of
goodwill of a CGU (higher of the reporting unit with
(a) fair value less its carrying amount
costs to sell and including goodwill.
(b) value-in-use) to If fair value is greater
carrying amount. than carrying amount,
no impairment (skip
step 2).
2. Compare “implied fair
value” of goodwill
with its carrying
amount recording an
impairment loss for
the difference.
IAS 36 Calculating Goodwill and other Goodwill is included in

impairment of indefinite-life the CGU. Other
indefinite-life intangible assets are indefinite-life intangible
intangible included in a CGU. assets are tested
assets other The CGU is tested for separately.
than goodwill impairment.
19
IAS/
IAS 36 Subsequent Required for all Prohibited.

reversal of an assets, other than
impairment goodwill, if certain
loss criteria are met.
IAS 37 Measurement Best estimate to settle Best estimate to settle

of provisions8 the obligation, which the obligation. If no one
generally involves the item is more likely than
expected value another, use the low end
method. Discounting of the range of possible
required. amounts. Most provisions
are not discounted.
IAS 37 Measurement Use the current, risk- Use the current, credit-
of decomm- adjusted rate to adjusted risk-free rate to
issioning discount the provision discount the provision
provisions8 when initially when initially recognised.
recognised. Adjust Do not adjust the rate in
the rate at each future periods.
reporting date.
IAS 37 Recognition of Recognise if a Recognise when a

restructuring detailed formal plan is transaction or event
provisions8 announced or occurs that leaves an
implementation of entity little or no
such a plan has discretion to avoid the
started. future transfer or use of
assets to settle the
liability. An exit or
disposal plan, by itself,
does not create a present
obligation to others for
costs expected to be
incurred under the plan.
IAS 37 Disclosures that “In extremely rare Disclosure is required.

may prejudice cases” amounts and
seriously the details need not be
position of the disclosed, but
entity in a disclosure is required
dispute8 of the general nature
of the dispute and
why the details have
not been disclosed.
20
IAS/
IAS 38 Development Capitalise, if certain Expense (except for

costs13 criteria are met. certain website
development costs and
certain costs associated
with developing internal
use software).
IAS 38 Subsequent Capitalised if it meets Expense.

expenditure on the definition of
purchased in- development and
process R&D certain criteria are
met.
IAS 38 Revaluation of Permitted only if the Generally prohibited.

intangible intangible asset trades
assets in an active market.
IAS 39 Option to Option is allowed if No such option.

designate any certain criteria are
financial asset met.
or financial
liability to be
measured at
fair value
through profit
or loss
IAS 39 Investments in Measured at fair value Measured at cost less

unlisted equity if reliably measurable; “other than temporary”
instruments otherwise at cost. impairments, if any.
IAS 39 Reclassification Prohibited. Permitted but expected

of financial to be rare.
instruments
into or out of
the trading
category
IAS 39 Classification Puttable debt No such prohibition

of financial instruments cannot exists.
assets as held- be classified as held-
to-maturity to-maturity.
21
IAS/
IAS 39 Effect of selling Prohibited from using Prohibited from using

investments held-to-maturity held-to-maturity
classified as classification for the classification. SEC
held-to- next two years. indicates that prohibition
maturity is generally for two years.
IAS 39 Subsequent Required for loans Prohibited for held-to-

reversal of an and receivables, held- maturity and available-
impairment to-maturity, and for-sale securities.
loss recognised available-for-sale debt Reversals of valuation
in the income instruments, if certain allowances on loans are
statement criteria are met. recognised in the income
statement.
IAS 39 Derecognition Combination of risks Derecognise assets when

of financial and rewards and transferor has
assets control approach. surrendered control over
Can derecognise part the assets. One of the
of an asset. No conditions is legal
“isolation in isolation. No partial
bankruptcy” test. derecognition.
Partial derecognition
allowed only if
specific criteria are
complied with.
IAS 39 Use of No such category of Necessary for

“Qualifying SPEs. derecogntion of financial
SPEs”10 assets if transferee is not
free to sell or pledge
transferred assets.
IAS 39 Use of "partial- Allowed. Although not explicitly

term hedges" prohibited, these items
(hedge of a fair would most probably fail
value exposure the correlation
for only a part requirement of FAS 133
of the term of and hence not qualify for
a hedged item) hedge accounting.
22
IAS/
IAS 39 Hedging Can qualify for hedge Cannot qualify for hedge
foreign accounting. accounting.
currency risk
in a held-to-
maturity
investment
IAS 39 Assume perfect Prohibited. Must Allowed for hedge of

effectiveness of always measure interest rate risk in a debt
a hedge if effectiveness. instrument if certain
critical terms conditions are met –
match “Shortcut Method”.
IAS 39 Application of Several differences exist between IFRSs and US

the effective GAAP on this topic. Given the case-by-case
interest rate nature of such calculations, IFRSs and US GAAP
method specialists should be consulted as and when a
comparative calculation is required.
IAS 39 Impairment of All impairments must Impairment is recognised

debt and be recognised, no only when the decline
securities matter how in fair value is not
temporary. temporary.
IAS 39 Use of "basis Fair value hedge – Fair value hedge –

adjustment" required. required.
Cash flow hedge of a Cash flow hedge of a
transaction resulting transaction resulting in
an asset or liability –
in a financial asset or
liability – same as USgain/loss on hedging
GAAP. instrument that had been
reported in equity
Cash flow hedge of a
remains in equity and
transaction resulting
reclassified into earnings
in a non-financial
in the same period the
asset or liability –
acquired asset or
choice of US GAAP or
incurred liability affects
basis adjustment.
earnings.
23
IAS/
IAS 39 Macro Fair value hedge Hedge accounting

hedging14 accounting treatment treatment is prohibited,
for a portfolio hedge though similar results
of interest rate risk is may be achieved by
allowed if certain designating specific
specified conditions assets or liabilities as
are met. hedged items.
IAS 39 Accounting for Short positions (sell) Buy and sell transactions
securities sold must use trade date are accounted for
but not yet value, i.e. no choice identically, i.e. at trade
purchased between trade date date value.
and settlement date
value as for long
positions (buy).
IAS 39 Written puts Recognise a gross Recognise a derivative
over own obligation for the together with
(treasury) present value of the subsequent changes in
shares strike price. fair value.
IAS 40 Measurement Option of (a) historical Generally required to use

basis for cost model historical cost model
investment (depreciation, (depreciation,
property impairment) or (b) fair impairment).
value model with
value changes
through profit or loss.
IAS 40 Property Accounted for as Always treated as a

interests held investment property prepayment.
under an under IAS 40 if held
operating lease for investment and if
measured at fair value
with value changes in
profit or loss.
Otherwise treated as
a prepayment.
IAS 41 Measurement Fair value with value Historical cost is generally

basis of changes recognised in used. However, fair value
agricultural profit or loss. less costs to sell is used
crops, livestock, for harvested crops and
orchards, livestock held for sale.
forests
24
IAS/
IFRS 1 First-time General principle is No specific standard.

adoption retrospective Practice is generally full
application of IFRSs in retrospective application
force at the time of unless the transition
adoption. Certain provisions in a specific
exemptions and standard require
exceptions are given otherwise.
in IFRS 1 which differ
from the transition
provisions in the
relevant standards.
IFRS 2 Date for Modified grant date Earlier of counterparty's

measuring method. commitment to perform
share-based (often a sufficiently large
payment to disincentive for non-
non- performance exists) or
employees15 actual performance.
IFRS 2 Use of historical Not permitted. Permitted.

volatility or
industry index in
measurement
for non-public
entities when
it is not
practicable to
estimate
expected
volatility 15
IFRS 2 Modification of Expense determined Expense recognised is the

an award by based on the grant fair value at the
change in date fair value plus modification date.
performance any incremental fair
condition value at the
(improbable to modification date.
probable)
(Type III
modifications)15
25
IAS/
IFRS 3 Date on which Acquisition date (date Within a reasonable

consideration on which control period before and after
in a business passes). the date the terms of the
combination is acquisition are agreed to
measured11 and announced.
IFRS 3 Recognising a Only if acquiree has Can be recognised if the

liability for a already recognised a restructuring relates to
planned post- provision under the acquired business
acquisition IAS 37. and certain conditions
restructuring11 are met.
IFRS 3 Measuring Minority’s percent of Minority interest

minority fair values. measured at fair value if
interest11 entity consolidated under
the risk and rewards
model (FIN 46);
otherwise, it is recorded
at carrying value.
IFRS 3 Purchased Can be recognised as Expense.

in process an acquired finite life
R&D11 intangible asset
(amortised), or as part
of goodwill if not
separately measurable
(not amortised but
subject to an annual
impairment test).
IFRS 3 Excess of fair Recognise Allocate on a pro rata

value of net immediately as a gain. basis to reduce the
assets acquired carrying amounts of
over the certain acquired non-
acquisition financial assets, with any
costs11 excess recognised as an
extraordinary gain.
IFRS 3 Combinations Outside the scope of Pooling of interests

of entities IFRS 3, though method is required.
under common merger accounting
control11 (pooling of interests
method) is generally
used in practice.
26
IAS/
IFRS 4 Rights and IFRS 4 addresses Several comprehensive

obligations recognition and pronouncements and
under measurement in only other comprehensive
insurance a limited way. It is an industry accounting
contracts16 interim standard guides have been
pending completion published.
of a comprehensive
project.
IFRS 4 Derivatives An embedded An embedded derivative

embedded in derivative whose whose characteristics and
insurance characteristics and risks are not closely
contracts risks are not closely related to the host
related to the host contract must be
contract but whose accounted for separately.
value is
interdependent with
the value of the
insurance contract
need not be
separated out and
accounted for as a
derivative.
IFRS 5 Definition of a A reportable business A component which may

discontinued or geographical be an operating
operation segment or major segment, a reporting
component thereof. unit, a subsidiary, or an
asset group (less
restrictive than the IASB
definition).
IFRS 5 Presentation of Post-tax income or Pre-tax and post-tax

discontinued loss is required on the income or loss is required
operations face of the income on the face of the
statement. income statement.
27
Endnotes:
1 This issue is being addressed in the joint IASB/FASB Performance Reporting
project.
2 The FASB will issue a GAAP hierarchy standard in the near future to address
the issue from an accounting framework perspective (as opposed to an
audit perspective).
3 The FASB and the IASB are addressing some IAS 12/FAS 109 differences in
their short-term convergence projects.
4 The IASB will retain “substantively enacted” but clarify that it means
“virtually certain”.
5 The joint IASB/FASB project has resulted in the IASB deciding to converge
with US statement FAS 131. An exposure draft is expected in the
4th quarter of 2005.
6 The IASB has a comprehensive project on leases on its Research Agenda.
7 A joint IASB/FASB project on revenue recognition concepts is under way.
8 The differences may change once the final revised versions of IAS 19 and
IAS 37 (exposure drafts released in June 2005) are published.
9 The differences may change once the final revised version of IAS 27
(exposure draft released in June 2005) is published.
10 The IASB has on its agenda a project on control including SPEs. This could
potentially become a joint project.
11 The differences may change once the final revised version of IFRS 3
(Business Combinations Phase II) (exposure draft released in June 2005)
is published.
12 As part of its convergence project, the FASB issued an exposure draft in
December 2003 that would eliminate these differences. The exposure draft
has not yet been finalised as a standard.
13 The FASB may address this in its short-term convergence project.
14 The FASB does not have a project to address macro hedging.
15 The differences as stated in this document are relevant provided the entity
has adopted, for US GAAP reporting purposes, FAS123R.
16 The IASB is developing a comprehensive standard on accounting for rights
and obligations under insurance contracts that is consistent with the IASB
Framework definitions of assets and liabilities.
28
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These include:
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Deloitte’s IFRS e-Learning IFRS training materials, one module for

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sized guide includes summaries of all IASB Standards
and Interpretations, updates on agenda projects, and
other IASB-related information.
Presentation and Checklist incorporating all of the presentation and

disclosure checklist 2005 disclosure requirements of Standards effective in
2005.
Model financial Model financial statements illustrating the

statements presentation and disclosure requirements of IFRSs.
iGAAP 2005 Guidance on how to apply both of these complex

Financial Instruments: Standards, including illustrative examples and
IAS 32 and IAS 39 interpretations.
Explained
First-time Adoption: Application guidance for the “stable platform”

A Guide to IFRS 1 Standards effective in 2005.
Share-based Payment: Guidance on applying IFRS 2 to many common

A Guide to IFRS 2 share-based payment transactions.
Business Combinations: Supplements the IASB’s own guidance for applying

A Guide to IFRS 3 this Standard.
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11269 bd IFRS US GAAP booklet 3/10/05 10:02 am Page a

IFRSs and US GAAP

An IAS Plus guide

IFRS Global Office

IFRS Centres of Excellence

Deloitte’s www.iasplus.com website provides comprehensive information about

A short history of convergence

Convergence with US GAAP

The Norwalk agreement

Why the emphasis on convergence of IFRSs and US GAAP?

The IASB-FASB convergence process

Short-term convergence projects

The following short-term convergence projects have been completed by the

Comparison of IFRSs and

Abbreviations used in this publication are as follows:

FAS Financial Accounting Standard (US)

End-note references indicated in superscript in the comparison table are

Comparison of IFRSs and US GAAP

_ General More “principles- More ”rules-based”

IAS 1 Financial Specific line items Certain standards

IAS 1 Comparative One year No specific requirement

IAS 1 Reporting Total presented in Can be presented in

Comparison of IFRSs and US GAAP

IAS 1 Departure from Permitted in Not directly addressed in

IAS 1 Classification Non-current if Non-current if

IAS 1 Classification Non-current if the Non-current if the lender

IAS 1 Extraordinary Prohibited. Extraordinary items are

Comparison of IFRSs and US GAAP

IAS 2 Reversal of Required, if certain Prohibited.

IAS 2 Measuring Permitted only for Similar, but not restricted

IAS 2 Method for LIFO is prohibited. LIFO is permitted.

IAS 7 Classification May be classified as Must be classified as an

IAS 7 Inclusion of Included if they form Excluded.

IAS 11 Method of Cost recovery Completed contract

Comparison of IFRSs and US GAAP

IAS 12 Classification Always non-current. Classification is split

IAS 12 Subsequent First reduce goodwill First reduce goodwill to

IAS 12 Reconciliation Required for all Required for public

IAS 12 Calculation of Deferred tax is Deferred tax is computed

IAS 12 Impact of Deferred tax effect is Deferred tax effect is

Comparison of IFRSs and US GAAP

IAS 12 Initial Deferred tax not No similar exemption.

IAS 12 Measurement Must use rate Generally, US GAAP

Comparison of IFRSs and US GAAP

IAS 12 Changes in The tax effects of SFAS 109 prohibits

IAS 14 Basis of Lines of business and Components for which

IAS 14 Types of Required disclosures Only one basis of

Comparison of IFRSs and US GAAP

IAS 14 Accounting Amounts are based Amounts are based on

IAS 14 Segment result5 Defined segment No definition of segment

IAS 16 Basis of May use either Generally required to use

IAS 16 Major Generally accounted Generally expensed.

IAS 16 Measuring the Current net selling Generally the discounted

Comparison of IFRSs and US GAAP

IAS 17 Recognition of The gain is recognised Generally, the gain is

IAS 17 Disclosure of Less detailed More detailed disclosure.

IAS 18 Revenue General principles More specific guidance,

IAS 19 Termination No distinction Recognise special (one-

Comparison of IFRSs and US GAAP

IAS 19 Measurement A curtailment gain or Unrecognised actuarial

IAS 19 Timing of Both curtailment A curtailment loss is

IAS 19 Recognition of Recognised Generally amortised over

Comparison of IFRSs and US GAAP

IAS 19 Multi-employer Should be accounted Accounted for as a