What are some of the key differences between IFRS and U.S. GAAP?

The International Financial Reporting Standards (IFRS) - the accounting standard used in more than 110 countries - has some key differences from the U.S. Generally Accepted Accounting Principles (GAAP). At the conceptually level, IFRS is considered more of a "principles based" accounting standard in contrast to U.S. GAAP which is considered more "rules based." By being more "principles based", IFRS, arguably, represents and captures the economics of a transaction better than U.S. GAAP. Some of differences between the two accounting frameworks are highlighted below: Intangibles The treatment of acquired intangible assets helps illustrate why IFRS is considered more "principles based." Acquired intangible assets under U.S. GAAP are recognized at fair value, while under IFRS, it is only recognized if the asset will have a future economic benefit and has measured reliability. Intangible assets are things like R&D and advertising costs. Inventory Costs Under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. GAAP, either LIFO or first-in, first-out (FIFO) inventory estimates can be used. The move to a single method of inventory costing could lead to enhanced comparability between countries, and remove the need for analysts to adjust LIFO inventories in their comparison analysis. Write Downs Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under U.S. GAAP, once inventory has been written down, any reversal is prohibited. (To learn more, check out International Reporting Standards Gain Global Recognition) This question was answered by Joseph Nguyen Read more: http://www.investopedia.com/ask/answers/09/ifrs-gaap.asp#ixzz2JFYeL8sX

International Financial Reporting Standards IFRS

Filed Under Accounting, Acronyms, Financial Statements

Definition of 'International Financial Reporting Standards - IFRS'

A set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. (IAS were issued from 1973 to 2000.)

Investopedia explains 'International Financial Reporting Standards - IFRS'

The goal with IFRS is to make international comparisons as easy as possible. This is difficult because, to a large extent, each country has its own set of rules. For example, U.S. GAAP are different from Canadian GAAP. Synchronizing accounting standards across the globe is an ongoing process in the international accounting community.

Read more: http://www.investopedia.com/terms/i/ifrs.asp#ixzz2JFZAeHwI

Generally Accepted Accounting Principles GAAP

Filed Under Accounting, Acronyms, Bookkeeping, Financial Statements

Definition of 'Generally Accepted Accounting Principles - GAAP'

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

Investopedia explains 'Generally Accepted Accounting Principles - GAAP'

GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary! That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements.

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IFRS and US GAAP: similarities and differences

Perspective: M&A and IFRS

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In this publication 2012 update

This publication helps readers get a broad understanding of the major differences between IFRS and US GAAP today as well as an appreciation for the level of change on the horizon. While not every difference between IFRS and US GAAP is covered here, the differences we generally consider to be the most significant and/or most common are spotlighted. Changes for our 2012 edition include:

A revised introduction reflects the current status, likely next steps, and what companies should be doing now (see page 2); More current analysis of the differences between IFRS and US GAAP including an assessment of the impact embodied within the differences (starting on page 11); and Details incorporating authoritative standards and interpretive guidance issued through September 1, 2012 (throughout).

To request a hard copy of this publication, please contact your PwC engagement team or contact us.
Background

In July 2012, the Staff of the SEC's Office of the Chief Accountant published its final report on its IFRS Work Plan. The report states that adopting IFRS as authoritative guidance in the United States is not supported by the vast majority of participants in the US capital markets, and would not be consistent with the methods of incorporation followed by other major capital markets (e.g., the endorsement process used for the European Union). On the other hand, the Staff found substantial support for exploring other methods of incorporating IFRS (that demonstrate the US commitment to the objective of a single set of high-quality, globally accepted accounting standards).

Despite the unclear adoption timeline from the SEC, we believe the impact of accounting changes resulting from the FASB's and IASB's efforts will be significant and will have broad based implications. IFRS has already influenced US GAAP and we believe this influence will continue. Four main challenges that merit companies' attention include:

Keeping pace with financial reporting change as the FASB and IASB continue their standardsetting activities; Monitoring subsidiaries' IFRS accounting requirements; Understanding how the structure of deals and transactions with non-US counterparties may be influenced by those counterparties' interest in IFRS accounting outcomes; and Ensuring accurate and complete IFRS reporting to non-US stakeholders.

International Financial Reporting Standards (IFRS) an AICPA Backgrounder

GAAP AND IFRS, STILL DIFFERENCES

Great strides have been made by the FASB and the IASB to converge the content of IFRS and U.S. GAAP. The goal is that by the time the SEC allows or mandates the use of IFRS for U.S. publicly traded companies, most or all of the key differences will have been resolved. Because of these ongoing convergence projects, the extent of the specific differences between IFRS and U.S. GAAP is shrinking. Yet significant differences do remain. For View Backgrounder example:
[PDF - 375k]

IFRS does not permit Last In First Out (LIFO) as an inventory costing method. IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely. IFRS has a different probability threshold and measurement objective for contingencies. IFRS does not permit curing debt covenant violations after year-end. IFRS guidance regarding revenue recognition is less extensive than GAAP and contains relatively little industry-specific instruction.

Perhaps the greatest difference between IFRS and U.S. GAAP is that IFRS provides much less overall detail. As an

example, IFRS fit into one book, about two inches thick while the three FASB paperbacks of pronouncements plus the paperback version of the FASB Emerging Issues Task Force consensuses measure about nine thick, and that doesnt include all of the authoritative literature. View International Financial Reporting Standards (IFRS) An AICPA Backgrounder [PDF - 375k]

Read More:

Get Ready for IFRS Worldwide Momentum SEC Leadership in International Effort AICPA Participation Two Sides of The Story What CPAs Need To Know

04/27/2010
Current Major Differences Between IFRS and US GAAP
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At last year's meeting in Pittsburgh, Pennsylvania, representatives of the G-20 renewed their commitment to complete convergence in accounting standards by June 2011less than two years away. While the group did not explicitly propose worldwide adoption of IFRS (International Financial Reporting Standards), that is the implication, because it hardly seems likely that the rest of the world will drop IFRS in favor of GAAP (US Generally Accepted Accounting Principles). The following table offers a side-by-side comparison of the two standards.
US GAAP Permits LIFO, FIFO, weighted average cost, or specific identification. Inventory carried at lower of cost or market. IFRS Permits FIFO or weighted average cost; LIFO not permitted. Inventory carried at lower of cost or net realizable value. Impact

Inventory Valuation

Companies that use LIFO must revalue inventory, which could result in major tax liabilities due to the

IRSs LIFO conformity rule. Asset Impairment Write-downs are more likely under IFRS.

Two-step impairment.

Single-step impairment.

Asset Valuation

Assets can be written down, but not written up. PP&E is valued at historical cost.

Allows upward revaluation when an active market exists for intangibles; allows revaluation of PP&E to fair value.

Book values are likely to increase under IFRS.

Revenue Recognition

Provides very specific general and industry guidance about what constitutes revenue, how revenue should be measured, and the effect of timing on recognition.

Not specific about the timing and measurement of recognition; lacks industryspecific guidance.

Revenues are likely to increase with less detailed guidance.

Contingencies

Contingent liabilities must be disclosed.

Can limit disclosure of contingent liabilities if severely prejudicial to an entitys position.

May result in fewer disclosures.

Debt Covenants

Permits curing debt covenant violations after fiscal year end.

Debt covenant violations must be cured by fiscal year end.

Debt covenants may need to be amended, resulting in related transaction costs. Development costs will be deferred and amortized. Companies are likely to consolidate more entities.

Research & Development

R&D costs must be expensed.

Allows capitalization of R&D costs.

Entity Consolidation

Consolidation is based on who has the controlling financial interest.

Consolidation is based on which entity has the power to control.

Securitization

Allows certain securitized assets and liabilities to remain off a corporations books.

IFRS requires most securitized assets and liabilities to be placed on the balance sheet.

May result in very different balance sheet values.

Financial Instrument Valuation

Fair value based on a negotiated price between a willing buyer and seller; not based on entry price.

Several fair value measurements. Fair value Financial assets and generally seen as the price at liabilities will be which an asset could be measured differently. exchanged. Allows straight-line, units of production, and both accelerated methods. Component depreciation required when asset components have different benefit patterns.

Depreciation

Methods allowed: straightline, units of production, or accelerated methods (sum of digits or declining balance). Component depreciation allowed but not commonly used.

Assets with different components will have differing depreciation schedules, which may increase or decrease assets and revenue