Effects of IFRS Flashcards
What are the key differences in Revenue recognition (general rule) between U.S. GAAP and IFRS?
Under U.S. GAAP, revenue is recognized when it is realized or realizable (when goods or services have been exchanged for cash or other assets) and earned (when the earning process has been substantially completed)
Under IFRS, revenue is recognized when:
a. It is probable that the economic benefits will flow to the company
b. For the sale of goods, the risk and rewards of ownership have been transferred and the company has no effective control over the goods and for rendering services
c. The stage of completion can be reliably measured
d. The revenue is recognized using the percentage-of-completion method
What are the key differences in Revenue recognition for construction contracts between U.S. GAAP and IFRS?
Under both U.S. GAAP and IFRS, revenue is recognized based on the percentage-of-completion method
However, when the percentage-of-completion method is inappropriate because the outcome of a construction contract or the stage of completion cannot be estimated reliably/reasonably:
a. Under U.S.. GAAP - the completed-contract method is used
b. Under IFRS, the completed-contract is NOT permitted. Revenue recognition is limited to recoverable costs incurred
What are the key differences in Expense recognition for share-based payments between U.S. GAAP and IFRS?
Transactions with Employees:
Under both U.S. GAAP and IFRS, the services received are measured based on the equity instruments (share options, etc.) granted at the grant date
Transaction with Nonemployees:
Under GAAP - nonemployee share-based payment transactions are measured based on the fair value of the equity instruments issued or the consideration received (whichever is more reliably measurable)
Under IFRS - nonemployee share-based payment transactions are measured at fair value of services or goods received
What are the key differences in the treatment of R&D costs between U.S. GAAP and IFRS?
Under U.S. GAAP, R&D costs are expensed as incurred and are NOT capitalized
Under IFRS:
Costs incurred during the research phase of an internal project are expensed as incurred and are NOT capitalized
Cost incurred during the development phase of an internal project can be capitalized and recognized as an intangible asset if (and only if) the company can demonstrate ALL of the following:
a. Technical feasibility to complete the intangible asset
b. Its intention to complete the intangible asset and use or sell it
c. Its ability to use or sell the intangible asset
d. Availability of resources to complete and use or sell the intangible asset
e. The way in which the asset will generate probable future economic benefits
f. Its ability to measure reliably expenditures attributable to the asset
What are the key differences in the measurement of Intangible assets between U.S. GAAP and IFRS?
Under U.S. GAAP - an intangible asset is carried at historical cost - accumulated amortization - impairment losses (cost model in IFRS). The revaluation model is NOT permitted
Under IFRS - the company must choose either the cost model or the revaluation model to account for the entire class of intangible assets
Under the revaluation model, if an intangible asset has an active market, it MUST be carried subsequent to initial recognition at a revalued amount
The amount is fair value at the date of the revaluation - any subsequent accumulated amortization & impairment losses
What are the key differences in Inventory costing methods between U.S. GAAP and IFRS?
Under U.S. GAAP - the company can use the following cost flow methods to determine the cost of inventory: FIFO, weighted-average, LIFO and specific identification
Under IFRS - LIFO is prohibited. Only FIFO, weighted-average and specific identification methods are permitted
What are the key differences in Inventory valuation and write-down methods between U.S. GAAP and IFRS?
Under U.S. GAAP - inventory is measured at the lower of cost or market:
- Market is the current cost to replace inventory; its should NOT:
a. Exceed a ceiling = NRV
b. Be less than a floor = NRV - allowance for normal profit margin - When the market is lower than the cost, a write-down for the difference should be recognized as a loss in the current period. Reversals of write-downs of inventory are prohibited in subsequent periods
Under IFRS - inventory is measured at the lower o cost or NRV. NRV = Estimated selling price in the ordinary course of business - costs of completion & disposal
a. When NRV < Cost; a write-down for the difference should be recognized
b. A write-down may be reversed in subsequent periods but NOT above the original cost. The write-down and reversal are recognized in profit or loss
What are the key differences in the treatment of Leases between U.S. GAAP and IFRS?
Essentially, the criteria to classify a lease as an operating or capital lease (finance lease in IFRS) are the same under IFRS and U.S. GAAP:
The major difference is that under IFRS, the classification depends on the SUBSTANCE of the transaction rather than the form of the contract
In leases involving land and buildings:
Under U.S. GAAP - if the FV of the land is less than 25% of the total FV of the leased property, land and building elements are accounted for as a single unit
Under IFRS - land and building elements are accounted for separately unless the land element is NOT material
What are the key differences in the measurement and depreciation of Long-lived assets between U.S. GAAP and IFRS?
Under U.S. GAAP - a long-lived assets is carried at historical cost - accumulated depreciation & impairment losses (cost model in IFRS). The revaluation model is NOT permitted
Under IFRS - the company must choose either the cost model or the revaluation model to account for an entire class of long-lived assets:
Under the revaluation model - if the fair value of an asset can be reliably measured, it MUST be carried subsequent to initial recognition at a revalued amount
The amount is fair value at the date of the revaluation - any subsequent accumulated amortization & impairment losses
Note: Under IFRS, a company is required to depreciate separately each significant part of a long-lived asset. Under U.S. GAAP, such a requirement generally does not exist
What are the key differences in the treatment of Impaired assets between U.S. GAAP and IFRS?
Under U.S. GAAP - testing for impairment occurs when events or changes in circumstances indicate that the carrying amount may NOT be recoverable
U.S. GAAP requires the following 2-step impairment test:
- Recoverability test - the carrying amount is NOT recoverable if it exceeds the sum of undiscounted cash flows expected from the use and disposition of the asset
- If the carrying value is NOT recoverable and is greater than the FV of the asset, an impairment loss is recognized. The loss = excess of the carrying amount of the asset over its FV. The loss is recognized immediately in income from continuing operations and must NOT be reversed in subsequent period
Under IFRS - the company assess at each reporting date whether an indication of impairment exists. Given such an indication, IFRS requires a one-step impairment test:
The carrying amount of the asset is compared with its recoverable amount. An impairment loss is recognized = to the excess of the carrying amount over the recoverable amount
The recoverable amount is the greater of an assets:
a. FV - costs to sell
b. Value in use = PV of CFS expected from the use and disposition of the asset
What are the key differences in the presentation of Extraordinary items on the financial statements between U.S. GAAP and IFRS?
Under U.S. GAAP - material transactions that are BOTH unusual in nature and infrequent in occurrence in the environment in which the company operates are classified as extraordinary items. Extraordinary items are reported individually in a separate section in the income statement (net of tax) after results of discontinued operations
Under IFRS, no item is classified as extraordinary
