International Accounting, T. Doupnik Ch 4

Front 1

IFRS vs GAAP
Types of Differences

Back 1

Definitions
Recognition
Measurement
Alternatives
Lack of requirements or guidance
Presentation
Disclosure
IFRS - principle based
GAAP - rules based system

Front 2

PP&E

Back 2

- Derecognized gain or losses on retirement or disposal - in income
- Measurement Subsequent to Initial recognition: Cost and REVALUATION MODEL:
- can WRITE UP back (GAAP not allowed, only - down)
>>increase in value =>
> initially ->credited to Equity / other comprehenseve income/ as Revaluation surplus

>subsequently -> as income to the extend of previous expenses & any excess credited to "other comprehensive income"

>>decrease =>reduction of rev. surplus, and then charged to the income statement as Expenses => decrease in Retain Earnings
As a result under IFRS ->
> Other comprehensive income higher
> Depreciation expenses in income statement - higher & Retain earning lower
> Book Value of Net asset is higher & Gain from sale lower

Front 3

IAS 38, Intangible Assets – compared to U.S.
GAAP

Back 3

- allows purchased intangibles assets to be carried on the balance sheet at cost or revaluation (rare) model.

Intangibles acquired in a business combination – consistent with U.S. GAAP including the fact that in-process development costs are capitalized.

Internally generated intangibles
Major difference with U.S. GAAP.
U.S. GAAP (SFAS 2) requires expensing of almost all Research and Development (R&D) costs.
IAS 38 allows capitalization, also called deferral, of many development costs.:
>distinguish between research or development expenditures, otherwise - all as RE, and must be expensed as incurred
DE - as an intangible asset ( 6 criteria)
Gaap - allows recognition of Development cost as an asset only for computer software
- Internally created Goodwill can not be recognized under both!

Front 4

IAS 17, Leases

Back 4

Distinguishes between operating and finance (capital) leases in much the same way as U.S. GAAP (SFAS 13).
The criteria for classifying a lease as either operating or finance is less detailed than U.S. GAAP.
Accounting for leases is often used as an example in arguing that U.S. GAAP is rules-based and IFRS are principles-based
- Sale-leaseback / loss:
IFRS -> recognition only if due to imparement
GAAP -> immediate recognition of any loss
Gain the same - deferred.

Operating Leases/ Gain
IFRS - immediate recognition
GAAP - amortization over the lease term

Initial direct cost of the Lease
IFRS - capitalized as part of the asset
GAAP - silent / defer & amortize

Front 5

Cash Flow Statements (IAS 7)

Back 5

– Classification of dividends and interest paid is more flexible under IFRS.
DIVIDENDS PAID:
IFRS -> as operating or finance cash flow
GAAP -> financing activity

INTEREST received and paid:
IFRS -> operating, financing or investing
GAAP -> operating

Front 6

Operating Segments (IFRS 8)

Back 6

– Adopts the management approach of U.S. GAAP (SFAS 131
- similar disclosure is required for each separately reportable OS, except liabilities - don't
need to disclose under IFRS

OS is separately reportable, if meets 3 testsL revenue / profit or loss / asset test.
OS can be defined in terms of product and services or on the basis of geography.

Front 7

IAS 37, Provisions, Contingent Liabilities and Contingent Asset

Back 7

IFRS -> Provisions (recognized) vs. Contingent Liabilities (not recognized on the balance sheet)

PROVISON recognition criteria:
1. present obligation as a result of past events
2. cash outflow is probable (more likely, than not) to meet obligations
3. a reliable estimate of obligations can be made.
P. must be discounted to present value
GAAP -> only Contingent Liabilities, recognized if probable & measurable (takes lowest possible amount - conservatism); if reasonably possible or probable, but not measurable - disclosure in notes; if remote - ignore
CL some times not discounted to present value.

Contingent Asset:
Vitally certain -> Recognized
Probable -> Disclosure
Not probable -> No disclosure

IFRS allowes earlier recognition of a CA (and related gain) than GAAP (asset should be realized before it can be recognized).