Differences Between GAAP and IFRS Flashcards
What is IFRS?
IFRS stands for , International Financial Reporting Standards., It is a widely accepted set of accounting principles that is in use outside the USA in most countries. It has largely replaced the individual country GAAP that existed in the countries that now use IFRS. Therefore, as its name indicates, you should think of IFRS as , œInternational, GAAP compared to , œU.S., GAAP.
How do IFRS and U.S. GAAP differ on LIFO inventory?
LIFO is prohibited under IFRS, but allowed under U.S. GAAP.
How do IFRS and U.S. GAAP differ on inventory costing methods?
Under IFRS, the same cost must be applied to all inventories similar in nature. Under U.S. GAAP, the same cost method is not explicitly required for all inventories similar in nature.
How do IFRS and U.S. GAAP differ on inventory valuation?
Under IFRS, inventory is carried at the lower of cost or net realizable value. Under U.S. GAAP, inventory is carried at the lower of cost or market.
What are the requirements for revenue recognition under IFRS?
Revenue is recognized under IFRS when: the risks and rewards of ownership have been transferred, the buyer controls the goods, the revenues can be measured reliably, and it is probable that the economic benefits will flow to the company.
What are the requirements for revenue recognition under U.S. GAAP?
Revenue is recognized when it is realized or realizable, and when it is earned. This usually takes place when: there is persuasive evidence of a contractual arrangement, delivery has occurred, the revenue is fixed and determinable, and collectability is reasonably assured.
How do IFRS and U.S. GAAP differ on the completed contract method of construction contract accounting?
The completed contract method is not permitted under IFRS, but is allowed under U.S. GAAP.
How do IFRS and U.S. GAAP differ on the preferred method of service revenue recognition?
Under IFRS, revenue from service contracts is recognized in the period that the service is rendered, generally using the percentage of completion method. Under U.S. GAAP, revenue from service contracts is recognized in the period that the service is rendered, generally using the straight line method rather than the percentage of completion method.
How do IFRS and U.S. GAAP differ on the valuation basis for defined benefit plan assets?
Under IFRS, defined benefit plan assets are valued at fair value. Under U.S. GAAP, defined benefit plan assets are recorded at , œmarket related, value, which can be either fair value or a calculated value that smooths the effect of short-term market fluctuations over five years.
How do IFRS and U.S. GAAP differ on the carrying value of employee benefits on the balance sheet?
Under IFRS, the company must recognize a liability in the balance sheet equal to the present value of the defined benefit obligation plus or minus any actuarial gains and losses not yet recognized, minus unrecognized prior service costs, minus the fair value of any plan assets. Any net asset, after calculation of the above, is subject to a limitation on the amount. Under U.S. GAAP, the company recognizes the over/underfunded status as the difference between the fair value of the plan assets and the benefit obligation. Benefit obligation is the pension plan obligation for pension plans and accumulated pension plan obligation for any other postretirement plans.
How do IFRS and U.S. GAAP differ on initial valuation of R&D development costs?
Under IFRS, internal development expenditures are capitalized when technical and economic feasibility of a project can be demonstrated in accordance with specific criteria. Some of the criteria include: intent to complete the asset, and ability to sell the asset in the future. These capitalization criteria are applied to all internally developed intangible assets . U.S. GAAP, internal development expenditures are expensed as incurred unless there is a separate standard that requires capitalization. Special capitalization criteria apply to software developed for internal use and software developed for sale to third parties. Expenditures related to computer software developed for external use are capitalized once technological feasibility is established in accordance with specific criteria. Expenditures related to software developed for internal use are only capitalized during the application development stage.
How do IFRS and U.S. GAAP differ on intangible asset revaluation?
Under IFRS, revaluation to fair value of intangible assets other than goodwill is permitted for a class of intangible assets. Revaluation requires reference to an active market for the specific type of intangible. Under U.S. GAAP, revaluation is not permitted.
How do IFRS and U.S. GAAP differ on the requirement for separate evaluation of land and building to classify a lease?
Under IFRS, the land and building elements of the lease are considered separately unless the amount that would be initially recognized for the land element is immaterial. In this case the land and building would be treated as a single unit for purposes of lease classification. Under US GAAP, the land and building elements of the lease are considered jointly unless the amount that would be initially recognized for the land element is material (above 25% of the total fair value of the leased property). If the fair value of the land at inception represents 25% or more of the total fair value of the lease, the lessee must consider the land and building components separately. If the lease for land and buildings transfers ownership or contains a bargain purchase option, then the lease is automatically a capital lease regardless of the value of the land and buildings.
How do IFRS and U.S. GAAP differ on the gain recognition from the sale and leaseback of land and buildings?
Under IFRS, immediate gain recognition from the sale and leaseback of an asset is possible if the sales price is reasonable compared to fair value and the lease is classified as an operating lease. Under U.S. GAAP, immediate gain recognition from the sale and leaseback of an asset is generally prohibited unless the leaseback is considered to be , œminor.,
How do IFRS and U.S. GAAP differ on long-lived asset residual value?
Under IFRS, the residual value of the asset is the current net selling pricing assuming the asset was already at the disposal age and in the condition expected at the end of its useful life. Residual value may be adjusted upwards or downwards. Under U.S. GAAP, the residual value of the asset is the discounted present value of expected proceeds on the future disposal of the asset. Residual value may only be adjusted downwards.
