9A IFRS VS GAAP Flashcards
The international Accounting Standards Committee (IASC) issued International Accounting Standards (IAS) from…
1973 to 2001
When did the IASB replace the IASC
In 2001
The IASC created the…
SIC
SIC, what does it stand for?
2) what was its purpose?
Standing Interpretations Committee
2) provide further interpretive guidance not addressed in the standards
The IASB adopted the…
Existing International Accounting Standards (IAS) and interpretations Issued by the Standing Interpretations Committee (SIC)
Since 2001 the IASB is responsible for…
Issuing IFRS
The IFRS Interpretations Committee (IFRIC) is responsible for issuing…
Interpretations of standards
The current international accounting guidelines are contained in…2
1 the IAS and IFRS pronouncements
2 with the SIC and IFRIC interpretations
US GAAP employs a…
Rules based approach
Rules based approach
Standards are explicit as to precise rules that must be followed For recognition, measurement and financial statement presentation
IFRS is considered a…
Principles based approach
Principles based approach
Sets general principles for recognition, measurement and Reporting
Allows professional judgement in applying these principles
The IFRS principles based approach should focus on…
A true and fair view or a fair representation of financial info
In 2002 the FASB and IASB agreed to work together toward…
Convergence in accounting standards
US GAAP VS IFRS: Vocabulary or definition differences
Although concepts of US GAAP and IFRS may be similar, Vocabulary and definitions are often somewhat different
Presentation refers to…
2) disclosure refers to…
Presentation of items on the financial statements
2) additional info contained in the notes of financial statements
3 general differences to be aware of when comparing GAAP to IFRS
1 vocabulary or definition differences
2 recognition and measurement differences
3 presentation and disclosure differences
Major Differences- US GAAP VS IFRS:
Financial Statement Presentation: comparative information
GAAP: no specific requirement for comparative info
IFRS: requires comparative info for prior year
Major Differences- US GAAP VS IFRS:
Financial Statement Presentation: comprehensive income
GAAP: comprehensive income may be presented as standalone statement or at bottom of income statement, changes in equity May be presented in notes
IFRS: requires separate statement of comprehensive income and Statement of changes in equity or single statement of profit or Loss and comprehensive income
Major Differences- US GAAP VS IFRS:
Financial Statement Presentation: extraordinary items
GAAP: presentation of certain items as extraordinary is required
IFRS: extraordinary items are not allowed
Major Differences- US GAAP VS IFRS:
Financial Statement Presentation: classification of deferred taxes
GAAP: deferred taxes are classified as current or Noncurrent in The balance sheet based on nature of related asset
IFRS: deferred taxes must be classified as Noncurrent in the Balance sheet
Major Differences- US GAAP VS IFRS:
Financial Statement Presentation: subsequent events evaluation
GAAP: subsequent events evaluated through the financial statement Issuance date
IFRS: subsequent events evaluated through financial statement Authorization to be issued date
Major Differences- US GAAP VS IFRS:
Revenue Recognition: construction contracts
GAAP: accounted for using percentage Completion method if certain criteria met, otherwise completed Contract method is used
IFRS: accounted for using percentage completion method if Certain criteria met, otherwise revenue recognition is limited to Cost incurred. Completed contract method not allowed
Major Differences- US GAAP VS IFRS:
Consolidated Financial Statements: subsidiary requirements
GAAP: no exemption from consolidating subsidiaries in general Purpose financial statements
IFRS: under certain restrictive situations a subsidiary (normally Required to be consolidated) may exempt from the requirement
Major Differences- US GAAP VS IFRS:
Consolidated Financial Statements: noncontrolling interest measurement
GAAP: noncontrolling interest measured at fair value including goodwill
IFRS: noncontrolling interest may be measured either at fair value including goodwill or proportionate share of value of identifiable Net assets of acquiree excluding goodwill
Major Differences- US GAAP VS IFRS:
Consolidated Financial Statements: fair value option
GAAP: fair value option allowed for equity method investments And joint ventures
IFRS: fair value option prohibited for equity method investments And joint ventures
Major Differences- US GAAP VS IFRS:
Monetary Current Assets and Current Liabilities: Short term obligations expected to be refinanced
GAAP: can be classified as Noncurrent if entity has intent and Ability to refinanced
IFRS: can be classified as Noncurrent only if entity has entered Into agreement to refinance prior to balance sheet date
Major Differences- US GAAP VS IFRS:
Monetary Current Assets and Current Liabilities: Contingencies that are probable
GAAP: contingencies that are probable (>=70%) and can be Reasonably estimated are accrued
IFRS: contingencies that are probable (>=50%) and are measurable Are considered provisions and accrued
Major Differences- US GAAP VS IFRS:
Monetary Current Assets and Current Liabilities: accrue guidelines for contingencies
GAAP: for contingencies, accrue minimum in range if no amount is more likely than another
IFRS: for contingencies, accrue the midpoint in a range if no Amount is more likely than another
Major Differences- US GAAP VS IFRS:
Inventory: LIFO
GAAP: LIFO cost flow assumption is an acceptable method
IFRS: LIFO cost flow assumption is not allowed
Major Differences- US GAAP VS IFRS:Inventory: inventory valuation
GAAP: inventories are valued at lower cost of market (betweenA ceiling and floor)
IFRS: inventories are valued at lower cost or net realizable value
Major Differences- US GAAP VS IFRS:
Inventory: impairment losses
GAAP: any impairment write downs create a new cost basis; Previously recognized impairment losses aren’t reversed
IFRS: previously recognized impairment losses are reversed
Major Differences- US GAAP VS IFRS:
Fixed Assets: revaluation
GAAP: revaluation not permitted
IFRS: revaluation of assets is permitted as an election for an Entire class of assets but must be done consistently
Major Differences- US GAAP VS IFRS:
Fixed Assets: investment property
GAAP: no separate accounting for investment property
IFRS: separate accounting is prescribed for investment property Versus property, plant and equipment
Under GAAP unless fixed assets are held for sale, they are valued using the…
Cost model
Under IFRS, fixed assets that are investment property are measured at…
Fair value
Major Differences- US GAAP VS IFRS:
Fixed Assets: allowable borrowing cost capitalization is calculated using…
GAAP: (weighted average accumulated expenditure) X (borrowing rate)
IFRS: (Actual borrowing costs) - (any earnings on investments of borrowing)
Major Differences- US GAAP VS IFRS:
Fixed Assets: biological assets
GAAP: biological assets are not a separate category
IFRS: biological assets are a separate category and not includedIn property, plant and equipment
Major Differences- US GAAP VS IFRS:
Fixed Assets: separate components of an asset
GAAP: there is no requirement to account for separate components Of an asset
IFRS: major components of an asset have significantly different Patterns of consumption or economic benefits, the entity must Allocate costs to major components and depreciate them separately
Major Differences- US GAAP VS IFRS:
Fixed Assets: impairment approach
GAAP: 2-step impairment approach
IFRS: one-step impairment approach
Major Differences- US GAAP VS IFRS:
Fixed Assets: impairment is a function of…
GAAP: impairment is a function of fair value and carrying value
IFRS: impairment is a function of recoverable amount and carrying Value
Major Differences- US GAAP VS IFRS:
Fixed Assets: impairment losses
GAAP: impairment losses are not reversed
IFRS: impairment losses may be reversed in future periods
Major Differences- US GAAP VS IFRS:
Intangible assets: development costs
GAAP: unless specific ASC guidance exists (software) development Costs are expensed
IFRS: development costs may be capitalized if specific criteria Are met
Major Differences- US GAAP VS IFRS:
Intangible assets: revaluation
GAAP: revaluation is not permitted
IFRS: revaluation of intangible assets other than goodwill is permitted although uncommon
Major Differences- US GAAP VS IFRS:
Intangible assets: goodwill impairment
GAAP: goodwill impairment may be qualitatively assessed to Determine if 2-step impairment test is necessary
IFRS: one-step impairment test for goodwill must be performed
Major Differences- US GAAP VS IFRS:
Intangible assets: impairment loss is a function of…
GAAP: impairment loss is a function of carrying value and fair Value
IFRS: impairment loss is a function of carrying value and recoverable amount
Major Differences- US GAAP VS IFRS:
Intangible assets: impairment losses
GAAP: impairment losses are not reversed
IFRS: Impairment losses, except those related to goodwill may, be Reversed
Major Differences- US GAAP VS IFRS:
Financial Investments: compound financial instruments
GAAP: compound (hybrid) financial instruments are not split into Debt and equity components unless certain requirements are met, But they may bifurcate into debt and derivative components
IFRS: compound financial interests (convertible bonds) are Split into debt, equity and derivative components (if applicable)
Major Differences- US GAAP VS IFRS:
Financial Investments: result in impairment loss
GAAP: declines in fair value below cost result in impairment loss Solely based on change in interest rate unless entity has ability And intent to hold debt till maturity
IFRS: generally, only evidence of credit default results in impairment Loss for an available for sale debt instrument
Major Differences- US GAAP VS IFRS:
Under GAAP, when an impairment is recognized for financial investments through the income statement, a new…
Cost basis is established and such losses can’t be reversed
Major Differences- US GAAP VS IFRS:
Under IFRS, impairment losses in available for sale investments…
May be reversed in future periods
Under GAAP for financial investments, unless the fair value option is elected, loans and receivables are classified as either…2 things (and how they are measured)
1 held for investment (measured at amortized cost)
2 held for sale, which is measured at lower of cost or fair value
Major Differences- US GAAP VS IFRS:
Under IFRS for financial investments, loans and receivables are measured at amortized cost unless classified into the…
Fair Value Through Profit or Loss category or the Available for Sale category, both which are carried at fair value
Major Differences- US GAAP VS IFRS:
Financial Investments: impairment losses related to AFS
GAAP: impairment losses related to AFS securities are recognized in the income statement and can’t be reversed
IFRS: Impairment losses for AFS securities are recognized in the statement of other comprehensive income and may be reversed
Major Differences- US GAAP VS IFRS:
Leased Assets: operating leases
GAAP: operating leased assets are never recorded on the balance Sheet
IFRS: assets held by lessee under operating leases may be Capitalized on the balance sheet if certain criteria are met
Major Differences- US GAAP VS IFRS:
Under GAAP, a lease for land and building that transfers ownership to the lessee or contains a bargain purchase option would be classified as a…2) if the fair value of the land at inception represents 25% or more of total fair value, the lessee must consider…
Capital lease, regardless of relative value of land
2) the components separately when evaluating the lease
Major Differences- US GAAP VS IFRS:
Under IFRS, when land and buildings are leased, elements of the lease are considered…
Separately when evaluating the lease unless the amount for the Land element is immaterial
Major Differences- US GAAP VS IFRS:
Pensions: Actuarial gains and losses
GAAP: actuarial gains and losses are recognized through the Corridor approach or recognized as they occur
IFRS: actuarial gains and losses must be recognized in other Comprehensive income immediately
Major Differences- US GAAP VS IFRS:
Pensions: prior service cost
GAAP: prior service cost is initially deferred in other comprehensive Income and recognized using the future years of service method Or average remaining service period method
IFRS: prior service cost is recognized immediately in income
Major Differences- US GAAP VS IFRS:
Income Taxes: deferred tax assets
GAAP: recognized in full, but valuation allowances reduce them to Amount that’s more likely than not to be realized
IFRS: deferred tax assets are recognized immediately only to extent It is probable that they will be realized
The IASB Framework for the Preparation and Presentation of Financial Statements establishes the…
Underlying concepts for preparing financial statements
IASB Framework for the Preparation and Presentation of Financial Statements addresses the objectives of what 7 areas?
1 financial statements 2 underlying assumptions 3 qualitative characteristics of financial statement info 4 definitions 5 recognition 6 measurement 7 capital maintenance concepts
2 Differences between IASB Framework and Statement of Financial Accounting Concepts by the FASB
1 some terms and definitions are different
2 elements of financial statements aren’t identical
IASB is not considered…
2) therefore does not override any accounting treatment required by the…
An accounting standard
2) International accounting standards (IAS) or International Financial Reporting Standards (IFRS)
Why does the IASB Framework exist?
Framework exists to assist in development of future international Accounting standards
And assist preparers in accounting for topics that don’t have Guidance in an existing standard
In September 2010, the IASB completed 2 chapters on joint conceptual framework project with the FASB. The new framework contains, which 2 identical chapters?
Ch. 1 The objective of General Purpose Financial Reporting
Ch. 3 Qualitative Characteristics of Useful Financial Information
3 significant differences between IFRS and GAAP
1 terms
2 definitions
3 elements of financial statements
how many elements does FASB SFAC 6 contain?
2) how many elements does the IASB Framework contain?
10
2) 5
10 elements of FASB SFAC 6 of financial statements
1 assets 2 liabilities 3 equity 4 investments by owners 5 distributions to owners 6 comprehensive income 7 revenues 8 expenses 9 gains 10 losses
IASB Framework 5 elements of financial statements
1 assets 2 liabilities 3 equity 4 income 5 expense
IFRS VS GAAP: income
IFRS: income is an element on financial statement, items Considered income are revenues and gains
GAAP: not element, but term used to describe calculation or To designate specific type of income
IFRS uses the term “profit”, whereas GAAP uses the term…
“Net income”
IASB’s definition of element: Asset
Resource controlled by entity as a result of past events and from Which future economic benefits are expected to flow to the entity
IASB’s definition of element:
Liability
Present obligation of entity arising from past events
The settlement of which is expected to result in outflow from entity Of resources embodying economic benefits
IASB’s definition of element: Equity
Residual interest in assets of entity after deducting all its liabilities
IASB’s definition of element: Income
Increases in economic benefits during the accounting period In the form of inflows or enhancements of assets
Or decreases of liabilities that result in increases in equity, other Than those relating to contributions from equity participants
IASB’s definition of element: Expenses
Decreases in economic benefits during the accounting period in Form of outflows or depletions of assets
Or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
Revenues arise in the normal course of business and are often referred to as…6
1 sales 2 fees 3 interest 4 dividends 5 royalties 6 rent
Gains are other items that meet the definition of income, which may or may not…
Arise in the normal course of business
The IASB Framework indicates that gains are increases in economic benefits and are no different…
In nature from revenues
IASB framework treats losses in the same way as…
No different in nature from expenses
The IASB framework indicates that when gains or losses are reported in the income statement, they are usually…
2) why?
Displayed separately
2) this knowledge may be useful to the decision maker
According to IASB Framework, gains may be reported…
2) and losses may be reported…
Net of their related expenses
2) net of their related income
The IASB Framework provides for capital maintenance adjustments. When assets or liabilities are revalued or restated and there is a corresponding increase or decrease in equity…
2) therefore certain items may be included in…
The definition of income or expense may not be met
2) equity as revaluation reserves
IASB Framework defines: recognition
Process of incorporating into the balance sheet or income statement an item that meets the definition of an element
And satisfies the criteria for recognition
2 IASB criteria for recognition
1 it’s probable that future economic benefit will flow to entity
2 item has cost or value that can be measured reliably
4 bases of measurement outlined by IASB Framework
1 historical cost
2 current cost
3 realizable (settlement) value
4 present value
Current cost (IASB)
Amount of cash or cash equivalent that would be paid if same Or equivalent asset were acquired currently
Realizable (settlement) value (IASB)
Amount of cash that could currently be obtained by settling (selling) The asset in an orderly disposal
For IFRS, measurement basis is commonly…
Historical cost
Revenue (IFRS definition)
Gross inflow of economic benefits resulting from entity’s ordinary Activities
These inflows must increase equity and not increase the contribution of owners or equity participants
Under IFRS, revenue is generated from…3
1 sale of goods
2 rendering of services
3 use of an entity’s assets by others
Under IFRS, how is revenue measured?
Measured at fair value of consideration received
Or the receivable, net of trade discounts or rebates
Under IFRS, Revenue is recognized from the sale of goods if all of the following 5 criteria are met
1 significant risks/rewards of ownership of goods transferred To buyer
2 entity doesn’t retain either continuing management or control Over goods
3 amount of revenue can be measured reliably
4 probable economic benefits will flow to entity from transaction
5 costs incurred can be measured reliably
Under IFRS, revenue can be recognized from rendering services when the outcome of rendering services can…
2) What is this method often referred to as?
Be estimated reliably
2) percentage completion method
Under IFRS, progress payments or advances from customers are not used to determine…
State of completion
Under IFRS for revenue recognition, outcomes can be estimated reliably if the following 4 criteria are met
1 amount of revenue can be measured reliably
2 it’s probable economic benefits will flow to entity
3 stage of completion at end of reporting period can be measured Reliably
4 costs incurred and costs to complete transaction can be measured Reliably
Under IFRS, if outcomes can’t be estimated reliably, how should revenue be recognized?
Using the cost recovery method
The cost recovery method recognizes revenue only to the extent that…
The expenses recognized are recoverable
IFRS VS GAAP: completed contract method (only major difference between GAAP and IFRS for revenue recognition)
permitted under GAAP
completed contract method not permitted under IFRS
Under IFRS, barter transactions aren’t recognized if…
The exchanged goods are similar in value and nature
Under IFRS, for barter transactions, if the goods are dissimilar…
Revenue is recognized at fair value of goods received
Under IFRS, for barter transactions, if the fair value of goods received can’t be measured…
Revenue is recognized at the fair value of goods or services given Up
Under IFRS, what method is used to recognize interest income?
Effective interest method
Under IFRS, How should royalties be accrued?
Accrued as provided for in the contractual agreement
Under IFRS, when are dividends recognized?
Recognized when shareholder has right to receive dividend payment
First Time Adoption of IFRS: Generally the adoption involves…
Restating assets, liabilities and equity using IFRS principles
Date of transition to IFRS
Beginning of the earliest period for which an entity presents Full comparative info under IFRS in its first IFRS financial statement
First IFRS reporting period
Latest reporting period covered by entity’s first IFRS financialStatements
First Time Adoption of IFRS:
For business combinations, first time adopter has option of…
Retrospectively adopting IFRS 3 for all periods presented
Or adjusting assets and liabilities through retained earnings in Period of adoption
First Time Adoption of IFRS: Property, Plant and Equipment: unless entity decides to use a fair value election, it will need to…
Recalculate the life-to-date depreciation it amortization of PPE or intangible assets under IFRS (time consuming)
First Time Adoption of IFRS: Property, Plant and Equipment: as an alternative to calculating the life to date depreciation or amortization, the entity may use various Methods to…2
1 Determine the fair value of assets and use those amounts At time of adoption
2 IFRS is then used going forward
First Time Adoption of IFRS: Property, Plant and Equipment: the fair value election may be applied on…
An individual item basis
Under IFRS, the percentage completion method is used when…
Rendering services can be estimated reliably
If the outcome of rendering services can’t be estimated reliably, IFRS requires the use of which revenue recognition method?
Cost recovery method
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants is... A. Revenue B. Income C. Profits D. Gains
Income
