GAAP vs. IFRS Flashcards
How are Purchased Intangibles Assets recorded?
Recorded at cost under both US GAAP and IFRS
How are R&D costs accounted for?
Under US GAAP, expensed except for equipment or facilities that are acquired and have future alternative uses.
Under IFRS, research costs expensed and developement costs capitalized
How is revenue recognized from performance of services?
GAAP: In period services have been rendered and are able to be billed.
IFRS: Use percentage of completetion method
How are fixed assets computed under GAAP and IFRS?
GAAP: Cost less accumulated depreciation and impairment.
IFRS: Cost model or revaluation model
Revaluation = FV on revaluation date less subsequent accumulated depreciation and subsequent impairment
Revaluation gains go to OCI
Revaluation losses go to Income Statement
How is the discount rate determined for Pensions?
GAAP: Uses settlement rate.
IFRS: Uses the market yields at the end of the reporting period for high-quality corporate bonds having a simillar term or maturity
Can Pension Assets and Liabilities be netted?
GAAP: No.
IFRS: Only when there is a legally enforceable right to use the assets of one plan to settle the obligations of another plan
How are investments classified?
GAAP: 1. HTM 2. AFS 3. Trading
IFRS: 1. HTM - debt measured at amortized cost 2. FV through profit or loss (if purpose is to make a quick buck)
Can impairments of investments be reversed?
GAAP: No
IFRS: Yes
What is the requirement to classiy an instrument as HTM?
GAAP: Positive ability and intent to hold
IFRS: Business model test - holding the instrument is to collect cash flows
Treatment of Investment Transfers
GAAP: Permits transfers into or out of trading classification
IFRS: 1. Does NOT permit trasnfers into/out of trading 2. Only debt instruments are allowed to be transferred between categories
Can the Fair Value Option be used to measure invesments?
GAAP: Yes
IFRS: Yes, but only certain investors (venture capitalists, mutual funds) can use option
How is impairment loss measured?
GAAP: Carrying value less fair value
IFRS: Carrying value less recoverable amount. Recoverable amount is greater of: (FMV - cost to sell) OR Value in use
What Level is Goodwill tested at?
GAAP: Reporting level
IFRS: Cash generating level
Principles vs. Policies
GAAP: Accounting Principles
IFRS: Accounting Policies
Goodwill impairement testing
GAAP: Has a qualitative ‘prestep’ and then, if needed, a 2 step approach
IFRS: One-step approach
Control is defined as?
GAAP: > 50% ownership
IFRS: can be obtained with > 50% ownership in certain circumstances i.e., potential rights, right to appoint key personnel
Defines VIEs?
GAAP: Yes
IFRS: No, but has similar concept with Special Purpose Entities
Accounting policies have to align?
GAAP: No
IFRS: Yes
How is NCI assigned?
GAAP: NCI is assigned their percentage of GW from the acquisition premium
IFRS: Parent has choice at acquisition whether to assign to GW or NCI
Does it define financial assets and liabilities separately?
GAAP: No
IFRS: Yes; financial liability may likely classify certain preferred sahres as liabilities not equity
Is there a specific category for “loans and receivables?”
GAAP: No
IFRS: Yes
Impairment testing is completed relative to what?
GAAP: Fair Value
IFRS: Recoverable amount = greater of (FMV - cost to sell) OR value in use
Does the definition of derivative include a notional amount?
GAAP: Yes
IFRS: No
Does it permit hedging a forecasted business combination that is subject to foreign exchange risk?
GAAP: No
IFRS: Yes
Does it permit hedging part of the life of a hedged item?
GAAP: No
IFRS: Yes
Can risk associated with business combination be hedged?
GAAP: No
IFRS: Foreign exchange risk can be hedged
Are part term hedges permitted?
GAAP: No
IFRS: Yes
Can non-derivative items be used as hedging instruments?
GAAP: Very limited
IFRS: Yes
Is the short-cut method permitted?
GAAP: Yes
IFRS: No
If a range of equal likely amounts is possible for a contingent loss provision, how is it recognized?
GAAP: Use the lowest amount in the range
IFRS: Use the midpoint of the range
Must they show EPS for extraordinary items?
GAAP: Yes
IFRS: No EPS for extraordinary items because there are no extraordinary items
Who uses LCM vs LCNRV?
GAAP: LCM
IFRS: LCNRV
Can it use the completed contract method?
GAAP: Yes
IFRS: No
How are Bond Issue Costs treated under US GAAP?
Under GAAP, bond issue costs are booked as an asset.
Dr. Cash
Dr. Bond Issue Costs
Dr. Discount on B/P
Cr. Bond Payable
For financial statement presentation, is specific comparative information for prior period required?
GAAP: No
IFRS: Yes
How are accounting changes accounted for under GAAP and IFRS? (i.e. accounting change in principle, estimates, errors)
Same under both methods.
Accounting principle: Retroactively
Accounting estimate: Prospectively
Errors: Restatments
Does IFRS permit the netting of deferred taxes?
IFRS permits netting of deferred taxes if they relate to the same taxing authority
Does IFRS permit deferred taxes to be classified as current and/or noncurrent?
IFRS permits deferred taxes to be classified as noncurrent
Under IFRS, interest and dividends received may be reported on the statement of cash flows as
Operating and/or Investing Activities
Under IFRS, interest and dividends paid may be reported in the statement of cash flows as
Operating and/or Financing Activities
Does GAAP and IFRS mandate interim reporting?
GAAP does. However, IFRS does not mandate interim reporting.
For IFRS reporting purposes, currencies are defined as
Foreign, functional, and presentation
What Goodwill methods are used under US GAAP and IFRS?
GAAP uses full goodwill method. IFRS uses partial goodwill method.
How does US GAAP and IFRS recognize NCI in a business acquisition?
GAAP uses the “purchase price” of the NCI. IFRS uses the FV of Net Assets & Liabilities of the NCI.
How are Bond Issue Costs treated under IFRS?
Under IFRS, bond issue costs are deducted from the carrying value of the liability and included in the debit entry to bond discount upon issuance.
Dr. Cash
Dr. Discount on B/P (bond issue costs included in here)
Cr. Bonds Payable
