IFRS vs GAAP Flashcards
What model do US GAAP and IFRS follow for revenue recognition?
Both follow the same five-step model under ASC 606 (GAAP) and IFRS 15
This model outlines the process for recognizing revenue from contracts with customers.
Can revenue be recognized before cash is received under US GAAP and IFRS?
Yes, under accrual accounting in both frameworks
Accrual accounting allows revenue recognition when earned, regardless of cash receipt.
Does IFRS allow LIFO inventory valuation?
No, IFRS prohibits LIFO
LIFO (Last In, First Out) is not permitted under IFRS accounting standards.
Can US GAAP companies use LIFO for inventory valuation?
Yes, LIFO is permitted under US GAAP
US GAAP allows the use of LIFO, which can affect tax liabilities and cash flow.
How do US GAAP and IFRS handle inventory write-down reversals?
IFRS allows reversals (up to the original write-down amount); US GAAP prohibits them
This difference can impact financial statements and asset valuations.
How are fixed assets valued under US GAAP?
Carried at historical cost, adjusted for depreciation and impairments
This method reflects the original cost of the asset over time.
Can companies revalue fixed assets under IFRS?
Yes, IFRS allows revaluation to fair value (Revaluation Model)
This provides companies the option to reflect current market values in their financial statements.
How do US GAAP and IFRS handle borrowing costs for self-constructed assets?
Both require capitalization of borrowing costs
Capitalization means including borrowing costs in the asset’s cost rather than expensing them.
What is the key difference in lease classification under IFRS and US GAAP?
US GAAP distinguishes between finance and operating leases; IFRS treats all leases as finance leases
This difference affects how leases are reported on financial statements.
Do IFRS and US GAAP require lessees to recognize right-of-use (ROU) assets and liabilities?
Yes, both require lessees to record ROU assets and lease liabilities for most leases
This requirement enhances transparency regarding lease obligations.
How do IFRS and US GAAP treat research costs?
Both require expensing research costs as incurred
This treatment ensures that research expenses are recognized in the period they occur.
How do IFRS and US GAAP treat development costs?
IFRS allows capitalization if certain criteria are met; US GAAP requires expensing all development costs
This difference can significantly impact the financial position and performance of a company.
Can goodwill be amortized under US GAAP and IFRS?
No, goodwill is not amortized under either framework
Goodwill is tested for impairment rather than being systematically expensed.
How do US GAAP and IFRS handle goodwill impairment?
IFRS: One-step approach (cash-generating unit level); US GAAP: Two-step approach (reporting unit level)
This difference can affect the timing and amount of impairment losses recognized.
How do IFRS and US GAAP handle deferred tax assets?
IFRS: Deferred tax assets recognized if probable; US GAAP: Recognized if ‘more likely than not’
This difference affects the recognition of future tax benefits.
Are tax rate changes immediately reflected under IFRS and US GAAP?
Yes, both recognize changes in the period they occur
This ensures that financial statements reflect the most current tax rates.
How do IFRS and US GAAP classify financial assets?
IFRS: Three categories (amortized cost, FVOCI, FVTPL); US GAAP: Similar but stricter on reclassifications
This classification impacts how financial assets are measured and reported.
Can financial asset reclassifications occur under US GAAP and IFRS?
IFRS allows reclassification when business models change; US GAAP generally prohibits reclassification
This flexibility under IFRS can help align financial reporting with business strategies.
How do US GAAP and IFRS classify interest paid and received?
US GAAP: Operating activities; IFRS: Choice between operating or financing (interest paid) and operating or investing (interest received)
This classification affects cash flow statements and financial analysis.
How do US GAAP and IFRS classify dividends paid and received?
US GAAP: Dividends paid (financing), dividends received (operating); IFRS: Dividends paid (financing), dividends received (operating or investing)
The classification can influence the presentation of cash flows in financial statements.
