IFRS & GAAP Flashcards
Who issued the IAS (International Accounting Standards)?
The IASC (International Accounting Standards Committee)
What was the committee that established interpretive guidance on standards in IAS?
SIC - Standing Interpretations Committee
Who replaced the IASC?
The IASB (the International Accounting Standards Board)
What did the IASB establish?
The IFRS (the International Financial Reporting Standards) and the IFRC (the International Financial Reporting Committee)
Who is responsible for the interpretations of the IFRS?
The IFRS Interpretations Commitee (IFRIC)
US GAAP and IFRS - how are they considered?
US GAAP is considered rules based and IFRS is considered principles based (allows more professional judgment)
Financial Statement Presentation (comparative information) - differences between US GAAP and IFRS?
GAAP does not require comparative information whiile IFRS requires comparative info for the prior year
Financial Statement Presentation (comprehensive income) - differences between US GAAP and IFRS?
GAAP states comp. income can be presented as stand-alone or at bottom of IS; changes in equity may be presented in notes
IFRS states that it requires either a separatee stmt of comp income and stmt of changes in equity or both on a single stmt
Financial Statement Presentation (extraordinary items) - differences between US GAAP and IFRS?
GAAP requires that some items be presented as extraordinary while IFRS does not
Financial Statement Presentation (deferred taxes) - differences between US GAAP and IFRS?
GAAP states that they can be classified as current or noncurrent based on nature of related asset
IFRS states that deferred taxes must be classified as noncurrent
Financial Statement Presentation (subsequent events) - differences between US GAAP and IFRS?
GAAP states that subsequent events are evaluated through the FS issuance date
IFRS states that subsequent events evaluated through FS authorization to be issued date
Revenue recognition (construction accounts) - differences between US GAAP and IFRS?
GAAP states that percentage of completion is used if certain criteria are met otherwise completed contract method
IFRS states percentage of completion is used if certain criteria are met otherwise recognition limited to the costs incurred; completed contract method not allowed
Consolidated financial statements (subsidiaries) - differences between US GAAP and IFRS?
GAAP states that there is no exemption from consolidating subsidiaries in general purpose FS
IFRS states that under certain restrictive conditions is a subsidiary exempt fromo the requirement
Consolidated financial statements (noncontrolling interest) - differences between US GAAP and IFRS?
GAAP states that noncontrolling interest is measured at FV including goodwill
IFRS states that is can be measured like GAAP or proportionate share of the value of identifiable assets and liabs of acquiree excluding goodwill
What is goodwill?
An intangible asset that arises as a result of the acquisition of one company by another for a premium value.
Consolidated financial statements (equity method investments and joint ventures) - differences between US GAAP and IFRS?
GAAP states that FV option is available but IFRS prohibits
Monetary Current Assets and Liabs (short-term obligations) - differences between US GAAP and IFRS?
GAAP: those expected to be refinanced can be classified as noncurrent if the entity has the intent and ability
IFRS: those expected to be refinanced can be classified as noncurrent only if the entity has entered into an agreement to refinance prior to balance sheet date
Monetary Current Assets and Liabs (contingencies) - differences between US GAAP and IFRS?
GAAP: if probable (>70%); accrue minimum if no amount is more likely than another
IFRS: if probable and measurable (>50%) accrue midpoinnt if no amount is more likely than another
What is a contingency?
potential negative economic event which may occur in the future.
Inventory (LIFO) - differences between US GAAP and IFRS?
GAAP: acceptable method
IFRST: not allowed
Inventory (lower of cost of market) - differences between US GAAP and IFRS?
GAAP: this is how inventory is valued
IFRS: can be valued this way or net realizable value
Inventory (impairment) - differences between US GAAP and IFRS?
GAAP: any impairment write-downs create a new cost basis; previously recognized impairment losses are not reversed; impairment is a function of FV and CV
IFRS: previously recognized impairment losses are reversed; function of recoverable amount and CV
What is impairment?
A reduction in company’s capital
Fixed Assets (revaluation) - differences between US GAAP and IFRS?
GAAP: not permitted IFRS: permitted as an election for an entire class of assets but must be done consistently
Fixed Assets (investment property v PP&E) - differences between US GAAP and IFRS?
GAAP: no separate accounting; unless held of sale, investment property is valued at cost model
IFRS: separate accounting for investment property and PP&E; investment property measured at FV
Fixed Assets (allowable borrowing cost capitalization) - differences between US GAAP and IFRS?
GAAP: calculated using weighted average accumulated expenditure times a borrowing rate
IFRS: actual borrowing costs less any earnings on investments of the borrowing
Fixed Assets (biological assets) - differences between US GAAP and IFRS?
GAAP: not a separate category from PP&E
IFRST: separate if major components of an asset have significantly different patterns of consumption or economic benefits; depreciate separately
Fixed Assets (impairment approach) - differences between US GAAP and IFRS?
GAAP: 2 step
-Impairment is assessed on the basis of undiscounted cash flows. If less than carrying amount:
-Impairment loss is measured as the amount by which the carrying amount exceeds fair value
IFRS: 1 step
-Impairment is assessed by comparing the asset’s carrying value to its recoverable amount
What is the carrying amount of an asset?
Individual asset: The net amount at which the asset is currently recorded, after:
- Accumulated amortization or depreciation
- Previously recognized impairment
Intangible Assets (development costs) - differences between US GAAP and IFRS?
GAAP: expensed
IFRS: can be capitalized if specific criteria are met
Intangible Assets (development costs) - differences between US GAAP and IFRS?
GAAP: not permitted
IFRS: permitted other than goodwill, but not common
Intangible Assets (goodwill impairment) - differences between US GAAP and IFRS?
GAAP: may be assessed to determine if two-step impairment test is necessary
IFRS: one-step impairment test for goodwill must be performed
Intangible Assets (impairment loss) - differences between US GAAP and IFRS?
GAAP: function of carrying value and FV; not reversed
IFRS: function of carrying value and the recoverable amount; can be reversed but not for goodwill
Financial Investments (compound (hybrid) financial instruments) - differences between US GAAP and IFRS?
GAAP: not split into debt and equity components unless certain items are met; but can be divided into debt and derivative components
IFRS: split into debt, equity and derivative components
Financial Investments (impairment losses) - differences between US GAAP and IFRS?
GAAP: declines in FV below cost may result in impairment loss solely based on a change in interest rate unless entity has ability and intent to hold until maturity
IFRS: only evidence of a credit default results in impairment loss for an AFS debt instrument
What is an AFS security?
A debt or equity security that is purchased with the intent of selling before it reaches maturity, or selling prior to a lengthy time period in the event the security does not have a maturity.
Financial Investments (impairment losses reversals) - differences between US GAAP and IFRS?
GAAP: losses related to AFS securities are recognized in IS and not reversed
IFRS: losses recognized in stmt of OCI (other comprehensive income) and may be reversed
Financial Investments (loans and receivables) - differences between US GAAP and IFRS?
GAAP: unless FV option is elected, classified as either held for investment, which is measured at amortized cost or held for sale, which is measured at lower of cost or FV
IFRS: measured at amortized cost unless classified into FV through P&L category or AFS category, both of which are carried at FV
Leases (operating leases) - differences between US GAAP and IFRS?
GAAP: never recorded on the balance sheet
IFRS: may be capitalized if certain requirements are met
Leases (land and building leases) - differences between US GAAP and IFRS?
GAAP: lease that transfer ownership or contains a bargain purchase option is classified as a capital lease regardless of value of land); if FV of land at inception represents 25% or more of total FV, lessee must consider the components separately
IFRS: land and buildings are leased, elements of lease are considered separate unless amount for land element is immaterial
Pensions (actuarial gains and losses) - differences between US GAAP and IFRS?
GAAP: recognized through corridor approach or recognized as they occur
IFRS: must be recognized in other comprehensive income immediately
What is the corridor approach?
Corridor rule is a materiality rule that requires disclosure of a pension actuarial gain or loss, if the gain or loss exceeds 10% of the greater of the Pension Benefit Obligation (PBO) or the fair value of plan assets. If this is the case, then the corridor rule allows this actuarial gain or loss to be amortized gradually over time into the income statement.
What is a bargain purchase option?
Allows the lessee to purchase the leased asset at the end of the lease period at a price substantially below its fair market value. Requires the lease to be classified as a capital or financing lease that must be disclosed on the lessee’s balance sheet. The objective of this classification is to prevent “off-balance sheet” financing by the lessee.
Pensions (prior service costs) - differences between US GAAP and IFRS?
GAAP: initially deferred in other comprehensive income and recognized using future years of service method or average remaining service period method
IFRS: immediately recognized in income
Income Taxes (deferred tax assets) - differences between US GAAP and IFRS?
GAAP: recognized in full but valuation allowances reduce them to the amount that isi more likely than not to be realized
IFRS: recognized only to extent it is probable that they will be realized
What is the IASB Framework?
Establishes underlying concepts for preparing financial statements
- not an accounting standard - takes no precedence over IFRS or IAS
- Compared to FASB, it only contains five elements:assets, liabs, equity, income and expense
The word “Income” in US GAAP and IFRS
GAAP: not a financial stmt element; is considered a calculation (net income, income from operations)
IFRS: revenues and gains
The word “Profit” in US GAAP and IFRS
GAAP: uses net income
IFRS: uses profit
How does the IASB define an asset?
Resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
How does the IASB define a liability?
Present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits
How does IASB define equity?
Residual interest in the assets of the entity after deducting all its liabs
How does IASB define income?
Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabs that result in is increases in equity, other than those relating to contributions from equity participants
Note: this includes revenues and gains
How does IASB define revenues and gains?
Revenue arise in normal course of business and are often referred to as sales, fees, interest, dividends, royalties and rent
Gains are other items that meet the definition of income, which may or may not arise in the normal course of business (not regarded as separate element b/c considered same as revenue by IASB). If reported in income statement, they are displayed separately
Does IASB provide for capital maintenance?
Yes - when assets or liabs are revalued or restated and there is a corresponding increase or decrease to equity, definition of income or expense may not be met. Certain items may be included in equity as revaluation reserves.
What are the 2 criteria for IASB recognition?
- Probable that a future economic benefit will flow to the entity
- The item has a cost or value that can be measured reliably
How is revenue defined by IASB?
Gross inflow of economic benefits resulting from an entity’s ordinary activities. Inflows must increase equity and not increase contribution of owners or equity participants.
Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts or rebates
Who uses the completed-contract method?
US GAAP; IFRS does not
How does IASB handler barter transactions?
If the exchanged goods/services are similar in nature in value - not recognized; if dissimilar, revenue is recognized at FV of the goods received or FV of goods exchanged
When should dividends be recognized?
When the shareholder has a right to receive the dividend payment
How is interest income recognized?
Effective interest method
What is the effective interest method?
The practice of accounting for the discount at which a bond is sold as an interest expense to be amortized over the life of the bond.
Rules for First-Time Adoption of IFRS?
- Date of transition is defined as the beginning of the earliest period for which an entity presents full comparative info
- if business combo, option to retrospectively adopt for all periods presented or adjusting the assets and liabs through RE in period of adoption
- PP&E: Recalculate the life-to-date depreciation or amortization of any PPE or intangible asset under IFRS
