U.S. GAAP and IFRS Flashcards
The elements of financial statements are not identical between U.S. GAAP and IFRS. What are the U.S. GAAP elements and what are the IFRS elements?
U.S. GAAP has ten elements: assets, liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenues, expenses, gains, and losses.
IFRS contains only five elements: assets, liabilities, equity, income and expense.
The definition of income varies significantly between U.S. GAAP and IFRS. What are the differences?
With U.S. GAAP, income is not a financial statement element. The term is used to describe a calculation of some type. For example, income from continuing operations, net income, etc. The term is also used to designate a special type of income, such as interest income. With IFRS, income is a financial statement element, and the items that are considered income are revenues and gains. IFRS uses the term “profit” whereas U.S. GAAP uses the term “net income”.
Under the IASB, is there any difference between revenues and gains?
The IASB framework indicates that gains are increases in economic benefits and are no different in nature from revenues.
What are the IASB’s two criteria for recognition?
The two criteria for recognition are (1) it is probable that a future economic benefit will flow to the entity, and (2) the item has a cost or value that can be measured reliably.
What are the IFRS criteria for recognizing revenue?
Revenue is recognized from the sale of goods if all five of the following criteria are met:
(1) The significant risks and rewards of ownership of the goods are transferred to the buyer
(2) The entity does not retain either a continuing managerial involvement or control over the goods
(3) The amount of revenue can be measured reliably
(4) It is probable that economic benefits will flow to the entity from the transaction, and
(5) The costs incurred can be measured reliably
Does IFRS subscribe to the percentage of completion method? If so, what criteria must be met?
Revenue can be recognized from rendering services when the outcome of rendering services can be estimated reliably. The outcomes can be estimated reliably if all of the following criteria are met:
(1) The amount of revenue can be measured reliably
(2) It is probable that economic benefits will flow to the entity
(3) The stage of completion at the end of the reporting period can be measured reliably, and
(4) The costs incurred and the costs to complete the transaction can be measured reliably.
Under IFRS, what happens if any of the conditions are not met for the percentage of completion method?
If any of these conditions are not met, then the revenue should be recognized using the cost recovery method. The cost recovery method recognizes revenue only to the extent that the expenses recognized are recoverable. Under IFRS, the completed contract method is not allowed.
The IASB and the FASB completed two chapters in a joint conceptual framework project. What are they?
SFAC 8, Chapter 1 - The Objective of General Purpose Financial Reporting
SFAC 8, Chapter 3 - Qualitative Characteristics of Useful Financial Information
