Ifrs Basic

US GAAP
versus IFRS
The basics
October 2016
Table of contents
Introduction..................................................................... 2
Financial statement presentation ..................................... 4
Interim financial reporting................................................ 8
Consolidation, joint venture accounting and equity
method investees/associates ........................................... 9
Business combinations................................................... 15
Inventory ....................................................................... 19
Long-lived assets ........................................................... 21
Intangible assets............................................................ 23
Impairment of long-lived assets, goodwill and
intangible assets ............................................................ 25
Financial instruments..................................................... 28
Foreign currency matters .............................................. 35
Leases ........................................................................... 37
Income taxes ................................................................. 40
Provisions and contingencies ......................................... 43
Revenue recognition ...................................................... 45
Share-based payments................................................... 48
Employee benefits other than share-based payments ..... 51
Earnings per share ......................................................... 53
Segment reporting ......................................................... 55
Subsequent events ........................................................ 56
Related parties .............................................................. 58
Appendix The evolution of IFRS ................................... 59
Introduction
Introduction
Convergence in several important areas Key updates

namely, revenue (mainly implementation of Our analysis generally reflects guidance
recently issued standards), leasing and financial effective in 2016 and finalized by the FASB and
instruments was a high priority on the the IASB as of 31 May 2016; however, we have
agendas of both the US Financial Accounting not included differences related to IFRS 9,
Standards Board (FASB) and the International Financial Instruments, Accounting Standards
Accounting Standards Board (IASB) Update (ASU) 2016-01, Recognition and
(collectively, the Boards) at the beginning of Measurement of Financial Assets and Financial
2016. However, in certain cases the Boards Liabilities, IFRS 15, Revenue from Contracts
reached different conclusions during their with customers, ASU 2014-09, Revenue from
deliberations. Therefore, even after those Contracts with Customers, IFRS 16, Leases, and
projects are complete, differences will ASU 2016-02, Leases, because of the delayed
continue to exist between US GAAP as effective date of these standards. These
promulgated by the FASB and International standards will affect wide range of topics. For
Financial Reporting Standards (IFRS) as example, IFRS 15 and ASU 2014-09 will affect
promulgated by the IASB. revenue from contracts with customers, sale of
In this guide, we provide an overview by certain nonfinancial assets and capitalization of
accounting area of where the standards are certain costs (e.g., advertisement costs), among
similar and where differences exist. We believe other items.
that any discussion of this topic should not lose Our analysis does not include any guidance
sight of the fact that the two sets of standards related to IFRS for Small and Medium-sized
are generally more alike than different for most
Entities (IFRS for SMEs) as well as Private
commonly encountered transactions, with IFRS
Company Council (PCC) alternatives that are
being largely, but not entirely, grounded in the
embedded within US GAAP.
same basic principles as US GAAP. The general
principles and conceptual framework are often We will continue to update this publication
the same or similar in both sets of standards, periodically for new developments.
leading to similar accounting results. The * * * * *
existence of any differences and their
materiality to an entitys financial statements The EY US GAAP-IFRS Differences Identifier
depends on a variety of specific factors, Tool provides a more in-depth review of
including the nature of the entity, the details of differences between US GAAP and IFRS as of
the transactions, interpretation of the more 31 May 2016. The Identifier Tool was
general IFRS principles, industry practices and developed as a resource for companies that
accounting policy elections where US GAAP need to analyze the numerous accounting
and IFRS offer a choice. This guide focuses on decisions and changes inherent in a conversion
differences most commonly found in present to IFRS. Conversion is of course more than just
practice and, when applicable, provides an an accounting exercise, and identifying
overview of how and when those differences accounting differences is only the first step in
are expected to converge. the process. Successfully converting to IFRS
also entails ongoing project management,
systems and process change analysis, tax
US GAAP versus IFRS The basics | 2

Introduction
considerations and a review of all company

agreements that are based on financial data and
measures. EY assurance, tax and advisory
professionals are available to share their
experiences and to assist companies in
analyzing all aspects of the conversion process,
from the earliest diagnostic stages through
ultimate adoption of the international standards.
To learn more about the Identifier Tool, please
contact your local EY professional.
October 2016

Financial statement presentation
Similarities changes in shareholders equity to be

There are many similarities in US GAAP and presented in the notes to the financial
IFRS guidance on financial statement statements while IFRS requires the changes in
presentation. Under both sets of standards, shareholders equity to be presented as a
the components of a complete set of financial separate statement. Further, both require that
statements include: a statement of financial the financial statements be prepared on the
position, a statement of profit and loss accrual basis of accounting (with the exception
(i.e., income statement) and a statement of of the cash flow statement) except for rare
comprehensive income (either a single circumstances. IFRS and the Conceptual
continuous statement or two consecutive Framework in US GAAP have similar concepts
statements), a statement of cash flows and regarding materiality and consistency that
accompanying notes to the financial entities have to consider in preparing their
statements. Both standards also require the financial statements. Differences between the
changes in shareholders equity to be two sets of standards tend to arise in the level
presented. However, US GAAP allows the of specific guidance provided.
Significant differences
US GAAP IFRS
Financial periods Generally, comparative financial Comparative information must be
required statements are presented; however, a disclosed with respect to the previous
single year may be presented in certain period for all amounts reported in the
circumstances. Public companies must current periods financial statements.
follow SEC rules, which typically require
balance sheets for the two most recent
years, while all other statements must
cover the three-year period ended on
the balance sheet date.
Layout of balance sheet No general requirement within IFRS does not prescribe a standard
and income statement US GAAP to prepare the balance sheet layout, but includes a list of minimum
and income statement in accordance line items. These minimum line items
with a specific layout; however, public are less prescriptive than the
companies must follow the detailed requirements in Regulation S-X.
requirements in Regulation S-X.
Balance sheet Debt for which there has been a Debt associated with a covenant
presentation of debt as covenant violation may be presented violation must be presented as current
current versus as noncurrent if a lender agreement to unless the lender agreement was
noncurrent waive the right to demand repayment reached prior to the balance sheet date.
for more than one year exists before
the financial statements are issued or
available to be issued.

US GAAP IFRS
Balance sheet Prior to the adoption of ASU 2015-17, All amounts classified as noncurrent in
classification of deferred Balance Sheet Classification of the balance sheet.
tax assets and liabilities Deferred Taxes, deferred taxes are
classified as current or noncurrent,
generally based on the nature of the
related asset or liability.
Following the adoption of ASU 2015-17,
all deferred tax assets and liabilities will
be classified as noncurrent.
(ASU 2015-17 is effective for public
business entities (PBEs) in annual
periods beginning after 15 December
2016, and interim periods within those
annual periods. For non-PBEs, it is
effective for annual periods beginning
after 15 December 2017, and interim
periods within annual periods beginning
after 15 December 2018. Early
adoption is permitted.)
Income statement No general requirement within Entities may present expenses based on
classification of US GAAP to classify income statement either function or nature (e.g., salaries,
expenses items by function or nature. However, depreciation). However, if function is
SEC registrants are generally required selected, certain disclosures about the
to present expenses based on function nature of expenses must be included in
(e.g., cost of sales, administrative). the notes.
Income statement Prior to the adoption of ASU 2015-01, Prohibited.

extraordinary items Simplifying Income Statement
criteria Presentation by Eliminating the
Concept of Extraordinary Items, the
presentation of extraordinary items
was restricted to items that are both
unusual and infrequent.
ASU 2015-01 which prohibits the
presentation of extraordinary items,
was issued in 2015. (ASU 2015-01 is
effective in annual periods, and interim
periods within those annual periods,
beginning after 15 December 2015.)

US GAAP IFRS
Income statement Prior to the adoption of ASU 2014-08, Discontinued operations classification
discontinued operations Reporting Discontinued Operations and is for components held for sale or
criteria Disclosures of Disposals of Components disposed of and the component
of an Entity, discontinued operations represents a separate major line of
classification is for components held business or geographical area, is part
for sale or disposed of, provided that of a single coordinated plan to dispose
there will not be significant continuing of a separate major line of business or
cash flows or involvement with the geographical area of or a subsidiary
disposed component. acquired exclusively with an intention
Following the adoption of ASU 2014-08, to resell.
discontinued operations classification is
for components that are held for sale or
disposed of and represent a strategic
shift that has (or will have) a major effect
on an entitys operations and financial
results. Also, a newly acquired business
or nonprofit activity that on acquisition is
classified as held for sale qualifies for
reporting as a discontinued operation.
(ASU 2014-08 is applied prospectively
and effective for annual periods
beginning on or after 15 December 2014.)
Disclosure of No general requirements within Certain traditional concepts such as

performance measures US GAAP that address the presentation operating profit are not defined;
of specific performance measures. SEC therefore, diversity in practice exists
regulations define certain key regarding line items, headings and
measures and require the presentation subtotals presented on the income
of certain headings and subtotals. statement. IFRS permits the presentation
Additionally, public companies are of additional line items, headings
prohibited from disclosing non-GAAP and subtotals in the statement of
measures in the financial statements comprehensive income when such
and accompanying notes. presentation is relevant to an
understanding of the entitys financial
performance. IFRS has requirements
on how the subtotals should be
presented when they are provided,
Third balance sheet Not required. A third balance sheet is required as of
the beginning of the earliest comparative
period when there is a retrospective
application of a new accounting policy,
or a retrospective restatement or
reclassification, that have a material
effect on the balances of the third
balance sheet. Related notes to the third
balance sheet are not required. A third
balance sheet is also required in the
year an entity first applies IFRS.

Convergence
No further convergence is planned at this time.

Interim financial reporting
Interim financial reporting
Similarities and provide for similar disclosure requirements.

ASC 270, Interim Reporting, and IAS 34, Under both US GAAP and IFRS, income taxes
Interim Financial Reporting, are substantially are accounted for based on an estimated
similar except for the treatment of certain costs average annual effective tax rates. Neither
described below. Both require an entity to apply standard requires entities to present interim
the accounting policies that were in effect in the financial information. That is the purview of
prior annual period, subject to the adoption of securities regulators such as the SEC, which
new policies that are disclosed. Both standards requires US public companies to comply with
allow for condensed interim financial statements Regulation S-X.
US GAAP IFRS
Treatment of certain Each interim period is viewed as an Each interim period is viewed as a
costs in interim periods integral part of an annual period. As a discrete reporting period. A cost that
result, certain costs that benefit more does not meet the definition of an asset
than one interim period may be at the end of an interim period is not
allocated among those periods, deferred, and a liability recognized at
resulting in deferral or accrual of an interim reporting date must
certain costs. represent an existing obligation.
Convergence

Consolidation, joint venture accounting and
Consolidation, joint venture accounting and equity method investees/associates
equity method investees/associates

Similarities An equity investment that gives an investor
ASC 810, Consolidation, contains the main significant influence over an investee (referred
guidance for consolidation of financial to as an associate in IFRS) is considered an
statements, including variable interest entities equity method investment under both
(VIEs), under US GAAP. IFRS 10, Consolidated US GAAP (ASC 323, Investments Equity
Financial Statements, contains the IFRS guidance. Method and Joint Ventures) and IFRS (IAS 28,
Investments in Associates and Joint Ventures).
Under both US GAAP and IFRS, the Further, the equity method of accounting for
determination of whether entities are such investments generally is consistent under
consolidated by a reporting entity is based on US GAAP and IFRS.
control, although there are differences in how
control is defined. Generally, all entities The characteristics of a joint venture in
subject to the control of the reporting entity US GAAP (ASC 323) and IFRS (IFRS 11,
must be consolidated (although there are limited Joint Arrangements) are similar but certain
exceptions for a reporting entity that meets differences exist. Both US GAAP and IFRS also
the definition of an investment company). generally require investors to apply the equity
method when accounting for their interests in
joint ventures.
US GAAP IFRS
Consolidation model Provides for primarily two Provides a single control model for all
consolidation models (variable entities, including structured entities
interest model and voting model). (the definition of a structured entity
The variable interest model evaluates under IFRS 12, Disclosure of Interests in
control based on determining which Other Entities, is similar to the definition
party has power and benefits. The of a VIE in US GAAP). An investor
voting model evaluates control based controls an investee when it is exposed
on existing voting rights. All entities or has rights to variable returns from its
are first evaluated as potential variable involvement with the investee and has
interest entities (VIEs). If an entity is the ability to affect those returns
not a VIE, it is evaluated for control through its power over the investee.
pursuant to the voting model.
Potential voting rights are generally Potential voting rights are considered.
not included in either evaluation. Notion of de facto control is also
The notion of de facto control is considered.
not considered.

US GAAP IFRS
Preparation of Required, although certain industry- Required, although certain industry-

consolidated financial specific exceptions exist specific exceptions exist
statements general (e.g., investment companies). (e.g., investment entities), and there is a
limited exemption from preparing
consolidated financial statements for a
parent company that is itself a wholly
owned or partially owned subsidiary, if
certain conditions are met.
Preparation of Investment companies do not Investment companies (investment

consolidated financial consolidate entities that might entities in IFRS) do not consolidate
statements Investment otherwise require consolidation entities that might otherwise require
companies (e.g., majority-owned corporations). consolidation (e.g., majority-owned
Instead, equity investments in these corporations). Instead, these
entities are reflected at fair value as a investments are reflected at fair value
single line item in the financial as a single line item in the financial
statements. A parent of an statements. However, a parent of an
investment company is required to investment company consolidates all
retain the investment company entities that it controls, including those
subsidiarys fair value accounting in controlled through an investment
the parents consolidated financial company subsidiary, unless the parent
statements. itself is an investment company.
Preparation of The reporting entity and the The financial statements of a parent and
consolidated financial consolidated entities are permitted its consolidated subsidiaries are prepared
statements different to have differences in year-ends of up as of the same date. When the parent
reporting dates of parent to three months. and the subsidiary have different
and subsidiaries The effects of significant events reporting period end dates, the subsidiary
occurring between the reporting prepares (for consolidation purposes)
dates of the reporting entity and the additional financial statements as of the
controlled entities are disclosed in the same date as those of the parent, unless
financial statements. it is impracticable.
If it is impracticable, when the difference
in the reporting period end dates of the
parent and subsidiary is three months or
less, the financial statements of the
subsidiary may be adjusted to reflect
significant transactions and events, and
it is not necessary to prepare additional
financial statements as of the parents
reporting date.
Uniform accounting Uniform accounting policies between Uniform accounting policies between
policies parent and subsidiary are not required. parent and subsidiary are required.

US GAAP IFRS
Changes in ownership Transactions that result in decreases in Consistent with US GAAP, except that
interest in a subsidiary the ownership interest of a subsidiary this guidance applies to all subsidiaries,
without loss of control without a loss of control are accounted including those that are not businesses or
for as equity transactions in the nonprofit activities and those that involve
consolidated entity (i.e., no gain or loss sales of in substance real estate or the
is recognized) when: (1) the subsidiary conveyance of oil and gas mineral rights.
is a business or nonprofit activity
(except in a sale of in substance real
estate or a conveyance of oil and gas
mineral rights) or (2) the subsidiary is
not a business or nonprofit activity, but
the substance of the transaction is not
addressed directly by other ASC Topics.
Loss of control of a For certain transactions that result in Consistent with US GAAP, except that
subsidiary a loss of control of a subsidiary, any this guidance applies to all subsidiaries,
retained noncontrolling investment in including those that are not businesses or
the former subsidiary is remeasured to nonprofit activities and those that involve
fair value on the date the control is sales of in substance real estate or
lost, with the gain or loss included in conveyance of oil and gas mineral rights.
income along with any gain or loss on
the ownership interest sold. In addition, the gain or loss resulting
This accounting is limited to the from the loss of control of a subsidiary
following transactions: (1) loss of that does not constitute a business in a
control of a subsidiary that is a business transaction involving an associate or a
or nonprofit activity (except for a joint venture that is accounted for using
sale of in substance real estate or a the equity method is recognized only to
conveyance of oil and gas mineral the extent of the unrelated investors
rights); (2) loss of control of a interests in that associate or joint
subsidiary that is not a business or venture. 2
nonprofit activity if the substance of the
transaction is not addressed directly by
other ASC Topics. This guidance also
does not apply if a parent ceases to
control a subsidiary that is in substance
real estate as a result of default on the
subsidiarys nonrecourse debt. 1
1
ASU 2014-09 Revenue from Contracts with Customers, amended this guidance in part. The FASB has proposed further
amendments. Readers should monitor developments in this area.
2
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, Amendments to IFRS 10 and IAS 28
was issued by the IASB in September 2014. In December 2015, the IASB indefinitely deferred the effective date of this
amendment. However, early adoption of this amendment is still available.

US GAAP IFRS
Loss of control of a For certain transactions that result in For transactions that result in a loss of
group of assets that a loss of control of a group of assets control of a group of assets that meet
meet the definition of that meet the definition of a business the definition of a business, any retained
a business or nonprofit activity, any retained noncontrolling investment in the former
noncontrolling investment in the group of assets is remeasured to fair
former group of assets is remeasured value on the date control is lost, with the
to fair value on the date control is lost, gain or loss included in income with any
with the gain or loss included in gain or loss on the ownership interest
income along with any gain or loss on sold.2
the ownership interest sold. There are
two exceptions: a sale of in substance
real estate, or a conveyance of oil and
gas mineral rights. 1
Equity method An investment of 20 % or more of the An investment of 20% or more of the
investments voting common stock of an investee equity of an investee (including potential
leads to a presumption that an rights) leads to a presumption that an
investor has the ability to exercise investor has the ability to exercise
significant influence over an investee, significant influence over an investee,
unless this presumption can be unless this presumption can be
overcome based on facts and overcome based on facts and
circumstances. circumstances.
When determining significant When determining significant influence,
influence, potential voting rights are potential voting rights are considered if
generally not considered. currently exercisable.
When an investor in a limited When an investor has an investment in a
partnership, LLC, trust or similar limited partnership, LLC, trust or similar
entity with specific ownership entity, the determination of significant
accounts has an interest greater than influence is made using the same general
3% to 5% in an investee, normally it principle of significant influence that is
accounts for its investment using the used for all other investments.
equity method.
ASC 825-10, Financial Instruments, Investments in associates held by
gives entities the option to account venture capital organizations, mutual
for certain equity method investments funds, unit trusts and similar entities
at fair value. If management does are exempt from using the equity
not elect to use the fair value option, method, and the investor may elect to
the equity method of accounting measure their investments in associates
is required. at fair value.
Conforming accounting policies Uniform accounting policies between
between investor and investee is investor and investee are required.
generally not permitted.

US GAAP IFRS
Joint ventures Joint ventures are generally defined Joint ventures are separate vehicles in
as entities whose operations and which the parties that have joint control
activities are jointly controlled by of the separate vehicle have rights to
their equity investors. the net assets. These rights could be
through equity investors, certain parties
with decision-making rights through
a contract.
Joint control is not defined, but it is Joint control is defined as existing when
commonly interpreted to exist when two or more parties must unanimously
all of the equity investors consent to each of the significant
unanimously consent to each of the decisions of the entity.
significant decisions of the entity.
An entity can be a joint venture, In a joint venture, the parties cannot
regardless of the rights and obligations have direct rights and obligations with
the parties sharing joint control have respect to the underlying assets and
with respect to the entitys underlying liabilities of the entity (In this case the
assets and liabilities. arrangement would be classified as a
joint operation).
The investors generally account for The investors generally account for
their interests in joint ventures using their interests in joint ventures using the
the equity method of accounting. equity method of accounting.
They also can elect to account for Investments in associates held by
their interests at fair value. venture capital organizations, mutual
funds, unit trusts and similar entities are
exempt from using the equity method
and the investor may elect to measure
its investment at fair value
Proportionate consolidation may be Proportionate consolidation is not
permitted to account for interests in permitted, regardless of industry.
unincorporated entities in certain However, when a joint arrangement
limited industries when it is an meets the definition of a joint operation
established practice (i.e., in the instead of a joint venture under IFRS, an
construction and extractive investor would recognize its share of the
industries). entitys assets, liabilities, revenues and
expenses and not apply the equity
method.

Convergence In June 2016, the FASB issued an exposure

The FASB issued final guidance that eliminates draft that is intended to clarify the accounting
the deferral of FAS 167 and makes changes to for sales of in-substance nonfinancial assets
both the variable interest model and the voting after an entity has adopted ASC 606, Revenue
model. While the ASU is aimed at asset from Contracts with Customers, which could
managers, all reporting entities will have to re- affect the scope of ASC 810, the initial
evaluate limited partnerships and similar measurement of a joint venture or equity
entities for consolidation and revise their method investment and the elimination of
documentation. It also may affect reporting profit in certain transactions.
entities that evaluate certain corporations or In June 2016, the IASB issued an exposure draft
similar entities for consolidation. For PBEs, the to eliminate diversity in practice in accounting
guidance is effective for annual periods for previously held interests in the assets and
beginning after 15 December 2015 and liabilities of a joint operation that meets the
interim periods therein. Certain differences definition of a business for transactions in which
between consolidation guidance between IFRS an entity obtains control or maintaining joint
and US GAAP (e.g., effective control, potential control of the joint operation.
voting rights) will continue to exist. In June
2016, the FASB proposed additional
amendments to the primary beneficiary
determination related to interests held through
related parties that are under common control.
A final ASU is expected in Q4 2016.
In March 2016, the FASB issued ASU 2016-07,
Investments Equity Method and Joint
Ventures (Topic 323): Simplifying the Transition
to the Equity Method of Accounting. ASU 2016-
07 eliminates the requirement that an investor
retrospectively apply equity method accounting
when an investment that it had accounted for
by another method initially qualifies for the
equity method. By eliminating retrospective
application of the equity method, ASU 2016-07
converges US GAAP with IFRS. However,
measurement differences may still exist.

Business combinations
Similarities Upon obtaining control of another entity, the

The principal guidance for business underlying transaction is measured at fair
combinations in US GAAP (ASC 805, Business value, establishing the basis on which the
Combinations) and IFRS (IFRS 3, Business assets, liabilities and noncontrolling interests
Combinations) represents the culmination of of the acquired entity are measured. As
the first major convergence project between described below, IFRS 3 provides an
the IASB and the FASB. Pursuant to ASC 805 alternative to measuring noncontrolling
and IFRS 3, all business combinations are interest at fair value with limited exceptions.
accounted for using the acquisition method. Although the new standards are substantially
converged, certain differences still exist.
US GAAP IFRS
Measurement of Noncontrolling interest is measured at Noncontrolling interest components

noncontrolling interest fair value, including goodwill. that are present ownership interests
and entitle their holders to a
proportionate share of the acquirees
net asset in the event of liquidation may
be measured at: (1) fair value, including
goodwill, or (2) the noncontrolling
interests proportionate share of the
fair value of the acquirees identifiable
net assets, exclusive of goodwill. All
other components of noncontrolling
interest are measured at fair value
unless another measurement basis is
required by IFRS. The choice is
available on a transaction-by-
transaction basis.
Acquirees operating If the terms of an acquiree operating Separate recognition of an intangible

leases lease are favorable or unfavorable asset or liability is required only if the
relative to market terms, the acquirer acquiree is a lessee. If the acquiree is the
recognizes an intangible asset or lessor, the terms of the lease are taken
liability, respectively, regardless of into account in estimating the fair value
whether the acquiree is the lessor or of the asset subject to the lease.
the lessee. Separate recognition of an intangible
asset or liability is not required.

US GAAP IFRS
Assets and liabilities Initial recognition and measurement Initial recognition and measurement
arising from Assets and liabilities arising from Liabilities arising from contingencies
contingencies contingencies are recognized at fair are recognized as of the acquisition
value (in accordance with ASC 820, date if there is a present obligation that
Fair Value Measurement and arises from past events and the fair
Disclosures) if the fair value can be value can be measured reliably.
determined during the measurement Contingent assets are not recognized.
period. Otherwise, those assets or
liabilities are recognized at
the acquisition date in accordance with
ASC 450, Contingencies, if those
criteria for recognition are met.
Contingent assets and liabilities that
do not meet either of these recognition
criteria at the acquisition date are
subsequently accounted for in
accordance with other applicable
literature, including ASC 450,
Contingencies. (See Provisions and
contingencies for differences between
ASC 450 and IAS 37).
Subsequent measurement Subsequent measurement
If contingent assets and liabilities are Liabilities subject to contingencies are
initially recognized at fair value, an subsequently measured at the higher
acquirer should develop a systematic and of: (1) the amount that would be
rational basis for subsequently measuring recognized in accordance with IAS 37,
and accounting for those assets and Provisions, Contingent Liabilities and
liabilities depending on their nature. Contingent Assets or (2) the amount
If amounts are initially recognized and initially recognized less, if appropriate,
measured in accordance with ASC 450, cumulative amortization recognized in
Contingencies, the subsequent accordance with IAS 18, Revenue.
accounting and measurement should
be based on that guidance.
Combination of entities The receiving entity records the net Outside the scope of IFRS 3, Business
under common control assets at their carrying amounts in Combinations. In practice, either follow
the accounts of the transferor an approach similar to US GAAP
(historical cost). (historical cost) or apply the acquisition
method (fair value) if there is substance
to the transaction (policy election).

US GAAP IFRS
Pushdown accounting An acquired entity can choose to apply No guidance exists, and it is unclear
pushdown accounting in its separate whether pushdown accounting is
financial statements when an acquirer acceptable under IFRS. However, the
obtains control of it or later. However, general view is that entities may not
an entitys election to apply pushdown use the hierarchy in IAS 8 to refer to
accounting is irrevocable. US GAAP and apply pushdown
accounting in the separate financial
statements of an acquired subsidiary,
because the application of pushdown
accounting will result in the recognition
and measurement of assets and
liabilities in a manner that conflicts with
certain IFRS standards and
interpretations. For example, the
application of pushdown accounting
generally will result in the recognition
of internally generated goodwill and
other internally generated intangible
assets at the subsidiary level, which
conflicts with the guidance in IAS 38.
Adjustments to An acquirer recognizes measurement- An acquirer recognizes measurement-

provisional amounts period adjustments during the period in period adjustments on a retrospective
within the measurement which it determines the amounts, basis. The acquirer revises comparative
period including the effect on earnings of any information for any prior periods
amounts it would have recorded in presented, including revisions for any
previous periods if the accounting had effects on the prior-period income
been completed at the acquisition date. statement.
Other differences may arise due to different

accounting requirements of other existing
US GAAP and IFRS literature (e.g., identifying
the acquirer, definition of control, replacement
of share-based payment awards, initial
classification and subsequent measurement of
contingent consideration, initial recognition and
measurement of income taxes, initial recognition
and measurement of employee benefits).

Convergence
The FASB and IASB issued substantially
converged standards in December 2007 and
January 2008, respectively. Both boards have
completed post-implementation reviews (PIRs)
of their respective standards and separately
discussed several narrow-scope projects.
In November 2015, the FASB issued an
exposure draft to clarify certain aspects of the
definition of a business. While the definition of a
business is currently converged, the application
of the definition by US GAAP and IFRS reporters
is often different. The FASB intends for the
clarifications to more closely align the
interpretations of what constitutes a business.
In June 2016, the IASB also issued an exposure
draft on the definition of a business as a result
of concerns raised in its PIR about the
complexity of its application. Although this is
not a joint project, the FASB and IASB proposals
are substantially converged.
In addition, the IASB has a research project on
business combinations of entities under
common control.
The accounting for leases (e.g., unfavorable or
favorable components) will be affected by the
implementation of ASU 2016-02 and IFRS 16.

Inventory
Inventory
Similarities Permissible techniques for cost measurement,

ASC 330, Inventory, and IAS 2, Inventories, such as retail inventory method, are similar
are based on the principle that the primary under both US GAAP and IFRS. Further, under
basis of accounting for inventory is cost. Both both sets of standards, the cost of inventory
define inventory as assets held for sale in the includes all direct expenditures to ready
ordinary course of business, in the process of inventory for sale, including allocable
production for such sale or to be consumed overhead, while selling costs are excluded from
in the production of goods or services. the cost of inventories, as are most storage
costs and general administrative costs.
US GAAP IFRS
Costing methods Last in, first out (LIFO) is an acceptable LIFO is prohibited. Same cost formula
method. Consistent cost formula for all must be applied to all inventories
inventories similar in nature is not similar in nature or use to the entity.
explicitly required.
Measurement Prior to the adoption of ASU 2015-11, Inventory is carried at the lower of cost
Inventory (Topic 330): Simplifying the or net realizable value. Net realizable
Measurement of Inventory, inventory is value is defined as the estimated selling
carried at the lower of cost or market. price less the estimated costs of
Market is defined as current replacement completion and the estimated costs
cost, but not greater than net realizable necessary to make the sale.
value (estimated selling price less
reasonable costs of completion, disposal
and transportation) and not less than
net realizable value reduced by a normal
sales margin.
Following the adoption of ASU 2015-11,
inventory other than that accounted
for under the LIFO or retail inventory
method (RIM) is carried at the lower of
cost and net realizable value.
Reversal of inventory Any write-down of inventory to the Previously recognized impairment losses
write-downs lower of cost or market creates a new are reversed up to the amount of the
cost basis that subsequently cannot original impairment loss when the reasons
be reversed. for the impairment no longer exist.
Permanent inventory Permanent markdowns do not affect Permanent markdowns affect the
markdowns under the the gross margins used in applying the average gross margin used in applying
retail inventory method RIM. Rather, such markdowns reduce the RIM. Reduction of the carrying cost
(RIM) the carrying cost of inventory to net of inventory to below the lower of cost
realizable value, less an allowance for or net realizable value is not allowed.
an approximately normal profit margin,
which may be less than both original
cost and net realizable value.

Inventory
Convergence
In July 2015 the FASB issued ASU 2015-11,
which requires that inventories, other than
those accounted for under the LIFO method or
RIM, be measured at the lower of cost and net
realizable value. The guidance is effective for
PBEs for fiscal years beginning after
15 December 2016, and interim periods within
those fiscal years. For all other entities, it is
effective for fiscal years beginning after
fiscal years beginning after 15 December
2017. Early adoption is permitted as of the
beginning of an interim or annual reporting
period. This ASU will generally result in
convergence in the subsequent measurement
of inventories other than those accounted for
under the LIFO method or RIM.

Long-lived assets
Long-lived assets
Similarities Depreciation
Although US GAAP does not have a Depreciation of long-lived assets is required
comprehensive standard that addresses long- on a systematic basis under both accounting
lived assets, its definition of property, plant and models. ASC 250, Accounting Changes and
equipment is similar to IAS 16, Property, Plant Error Corrections, and IAS 8, Accounting
and Equipment, which addresses tangible Policies, Changes in Accounting Estimates and
assets held for use that are expected to be used Errors, both treat changes in residual value and
for more than one reporting period. Other useful economic life as a change in accounting
concepts that are similar include the following: estimate requiring prospective treatment.
Cost Assets held for sale

Both accounting models have similar Assets held for sale criteria are similar in the
recognition criteria, requiring that costs be Impairment or Disposal of Long-Lived Assets
included in the cost of the asset if future subsections of ASC 360-10, Property, Plant
economic benefits are probable and can be and Equipment (and in ASC 205-20,
reliably measured. Neither model allows the Presentation of Financial Statements
capitalization of start-up costs, general Discontinued Operations), and IFRS 5, Non-
administrative and overhead costs or regular current Assets Held for Sale and Discontinued
maintenance. Both US GAAP and IFRS require Operations. Under both standards, the asset is
that the costs of dismantling an asset and measured at the lower of its carrying amount
restoring its site (i.e., the costs of asset or fair value less costs to sell, the assets are
retirement under ASC 410-20, Asset not depreciated and they are presented
Retirement and Environmental Obligations separately on the face of the balance sheet.
Asset Retirement Obligations or IAS 37, Exchanges of nonmonetary similar productive
Provisions, Contingent Liabilities and assets are also treated similarly under ASC 845,
Contingent Assets) be included in the cost Nonmonetary Transactions, and IAS 16,
of the asset when there is a legal obligation, Property, Plant and Equipment, both of which
but IFRS requires provision in other allow gain or loss recognition if the exchange
circumstances as well. has commercial substance and the fair value of
the exchange can be reliably measured.
Capitalized interest
ASC 835-20, Interest Capitalization of
Interest, and IAS 23, Borrowing Costs,
require the capitalization of borrowing costs
(e.g., interest costs) directly attributable to
the acquisition, construction or production of
a qualifying asset. Qualifying assets are
generally defined similarly under both
accounting models. However, there are
differences between US GAAP and IFRS in
the measurement of eligible borrowing costs
for capitalization.

Long-lived assets
US GAAP IFRS
Revaluation of assets Revaluation not permitted. Revaluation is a permitted accounting
policy election for an entire class of
assets, requiring revaluation to fair
value on a regular basis.
Depreciation of asset Component depreciation permitted but Component depreciation required if

components not common. components of an asset have differing
patterns of benefit.
Measurement of Eligible borrowing costs do not include Eligible borrowing costs include
borrowing costs exchange rate differences. Interest exchange rate differences from foreign
earned on the investment of borrowed currency borrowings to the extent that
funds generally cannot offset interest they are regarded as an adjustment to
costs incurred during the period. interest costs.
For borrowings associated with a For borrowings associated with a
specific qualifying asset, borrowing specific qualifying asset, actual
costs equal to the weighted-average borrowing costs are capitalized offset
accumulated expenditures times the by investment income earned on those
borrowing rate are capitalized. borrowings.
Costs of a major Multiple accounting models have evolved Costs that represent a replacement of
overhaul in practice for entities in the airline a previously identified component of an
industry, including expense costs as asset are capitalized if future economic
incurred, capitalize costs and amortize benefits are probable and the costs can
through the date of the next overhaul, be reliably measured. Otherwise, these
or follow the built-in overhaul approach costs are expensed as incurred.
(i.e., a type of composite depreciation).
Investment property Investment property is not separately Investment property is separately
defined and, therefore, is accounted defined in IAS 40, Investment Property,
for as held and used or held for sale. as property held to earn rent or for
capital appreciation (or both) and may
include property held by lessees under a
finance or operating lease. Investment
property may be accounted for on a
historical cost basis or on a fair value
basis as an accounting policy election.
Capitalized operating leases classified as
investment property must be accounted
for using the fair value model.
Other differences include: hedging gains and Convergence

losses related to the purchase of assets, No further convergence is planned at this time.
constructive obligations to retire assets, the
discount rate used to calculate asset retirement
costs and the accounting for changes in the
residual value.

Intangible assets
Intangible assets
Similarities research phase of research and development

Both US GAAP (ASC 805, Business are expensed as incurred under both
Combinations, and ASC 350, Intangibles accounting models.
Goodwill and Other) and IFRS (IFRS 3(R), Amortization of intangible assets over their
Business Combinations, and IAS 38, Intangible estimated useful lives is required under both
Assets) define intangible assets as US GAAP and IFRS, with one US GAAP minor
nonmonetary assets without physical exception in ASC 985-20, Software Costs of
substance. The recognition criteria for both Software to be Sold, Leased or Marketed,
accounting models require that there be related to the amortization of computer
probable future economic benefits from costs software sold to others. In both sets of
that can be reliably measured, although some standards, if there is no foreseeable limit to
costs are never capitalized as intangible assets the period over which an intangible asset is
(e.g., start-up costs). Goodwill is recognized expected to generate net cash inflows to the
only in a business combination. With the entity, the useful life is considered to be
exception of development costs (addressed indefinite and the asset is not amortized.
below), internally developed intangibles are not Goodwill is never amortized under either
recognized as assets under either ASC 350 or US GAAP or IFRS.
IAS 38. Moreover, internal costs related to the
US GAAP IFRS
Development costs Development costs are expensed as Development costs are capitalized
incurred unless addressed by guidance when technical and economic feasibility
in another ASC Topic. Development of a project can be demonstrated in
costs related to computer software accordance with specific criteria,
developed for external use are including: demonstrating technical
capitalized once technological feasibility feasibility, intent to complete the asset
is established in accordance with and ability to sell the asset in the
specific criteria (ASC 985-20). In the future. Although application of these
case of software developed for internal principles may be largely consistent
use, only those costs incurred during with ASC 985-20 and ASC 350-40,
the application development stage (as there is no separate guidance
defined in ASC 350-40, Intangibles addressing computer software
Goodwill and Other Internal-Use development costs.
Software) may be capitalized.
Advertising costs Advertising and promotional costs are Advertising and promotional costs are
either expensed as incurred or expensed as incurred. A prepayment
expensed when the advertising takes may be recognized as an asset only
place for the first time (policy choice). when payment for the goods or
Direct response advertising may be services is made in advance of the
capitalized if the specific criteria in entity having access to the goods or
ASC 340-20, Other Assets and Deferred receiving the services.
Costs Capitalized Advertising Costs,
are met.

Intangible assets
US GAAP IFRS
Revaluation Revaluation is not permitted. Revaluation to fair value of intangible

assets other than goodwill is a permitted
accounting policy election for a class of
intangible assets. Because revaluation
requires reference to an active market
for the specific type of intangible, this
is relatively uncommon in practice.
Convergence (subsequent accounting for goodwill and

In May 2016, the FASB proposed simplifying the identifiable intangible assets).
accounting for goodwill impairment to reduce The accounting for certain intangible assets
the cost and complexity of the goodwill transactions (e.g., advertisement costs) will be
impairment test. The FASB is deliberating a affected by the implementation of ASU 2014-09
separate project to further reduce the cost and and IFRS 15.
complexity of the subsequent accounting for
goodwill (e.g., considering an amortization
approach). The FASB also is deliberating a
project on accounting for identifiable intangible
assets in a business combination with the
objective of evaluating whether certain
identifiable intangible assets acquired in a
business combination should be subsumed into
goodwill.
The IASB has a similar project on its research
agenda to consider improvements to the
impairment requirements for goodwill that was
added in response to the findings in its PIR of
IFRS 3. Currently, these are not joint projects
and generally are not expected to converge the
guidance on accounting for goodwill
impairment. In the IASBs research project on
goodwill and impairment, the IASB plans to
similarly consider the subsequent accounting
for goodwill. The IASB also is considering which
intangible assets should be recognized apart
from goodwill, as part of the research project on
goodwill and impairment. The IASB and FASB
have tentatively planned to make joint decisions
on joint papers on both of these projects

Impairment of long-lived assets, goodwill and
Impairment of long-lived assets, goodwill and intangible assets
intangible assets
Similarities down and an impairment loss recognized.
Under both US GAAP and IFRS, long-lived ASC 350, Intangibles Goodwill and Other,
assets are not tested annually, but rather when Impairment or Disposal of Long-Lived Assets
there are similarly defined indicators of subsections of ASC 360-10, Property, Plant
impairment. Both standards require goodwill and Equipment, and IAS 36, Impairment of
and intangible assets with indefinite useful lives Assets, apply to most long-lived and intangible
to be tested at least annually for impairment assets, although some of the scope exceptions
and more frequently if impairment indicators listed in the standards differ. Despite the
are present. In addition, both US GAAP and similarity in overall objectives, differences exist
IFRS require that the impaired asset be written in the way impairment is tested, recognized
and measured.
US GAAP IFRS
Method of determining Two-step approach requires that a One-step approach requires that
impairment long-lived recoverability test be performed first impairment loss calculation be performed
assets (carrying amount of the asset is if impairment indicators exist.
compared with the sum of future
undiscounted cash flows generated
through use and eventual disposition).
If it is determined that the asset is not
recoverable, an impairment loss
calculation is required.
Impairment loss The amount by which the carrying The amount by which the carrying
calculation long-lived amount of the asset exceeds its fair amount of the asset exceeds its
assets value, as calculated in accordance with recoverable amount; recoverable
ASC 820, Fair Value Measurement. amount is the higher of: (1) fair value
less costs to sell and (2) value in use
(the present value of future cash flows
in use, including disposal value).
Assignment of goodwill Goodwill is assigned to a reporting unit, Goodwill is allocated to a cash-

which is defined as an operating generating unit (CGU) or group of CGUs
segment or one level below an that represents the lowest level within
operating segment (component). the entity at which the goodwill is
monitored for internal management
purposes and cannot be larger than an
operating segment (before aggregation)
as defined in IFRS 8, Operating Segments.

US GAAP IFRS
Method of determining Companies have the option to Qualitative assessment is not

impairment goodwill qualitatively assess whether it is more permitted. One-step approach requires
likely than not that the fair value of a that an impairment test be done at the
reporting unit is less than its carrying CGU level by comparing the CGUs
amount. If so, a two-step approach carrying amount, including goodwill,
requires a recoverability test to be with its recoverable amount.
performed first at the reporting unit level
(carrying amount of the reporting unit is
compared with the reporting unit fair
value). If the carrying amount of the
reporting unit exceeds its fair value, then
impairment testing must be performed.
Method of determining Companies have the option to Qualitative assessment is not

impairment indefinite- qualitatively assess whether it is more permitted. One-step approach requires
lived intangibles likely than not that an indefinite-lived that an impairment test be done at the
intangible asset is impaired. If a CGU level by comparing the CGUs
quantitative test is performed, the carrying amount, including goodwill,
quantitative impairment test for an with its recoverable amount.
indefinite-lived intangible asset
requires a comparison of the fair value
of the asset with its carrying amount. If
the carrying amount of an intangible
asset exceeds its fair value, a company
should recognize an impairment loss in
an amount equal to that excess.
Impairment loss The amount by which the carrying Impairment loss on the CGU (amount
calculation goodwill amount of goodwill exceeds the implied by which the CGUs carrying amount,
fair value of the goodwill within its including goodwill, exceeds its
reporting unit. recoverable amount) is allocated first
to reduce goodwill to zero, then,
subject to certain limitations, the
carrying amount of other assets in the
CGU are reduced pro rata, based on the
carrying amount of each asset.
Level of assessment Indefinite-lived intangible assets If the indefinite-lived intangible asset

indefinite-lived separately recognized should be does not generate cash inflows that are
intangible assets assessed for impairment individually largely independent of those from
unless they operate in concert with other assets or groups of assets, then
other indefinite-lived intangible assets the indefinite-lived intangible asset
as a single asset (i.e., the indefinite- should be tested for impairment as part
lived intangible assets are essentially of the CGU to which it belongs, unless
inseparable). Indefinite-lived intangible certain conditions are met.
assets may not be combined with other
assets (e.g., finite-lived intangible
assets or goodwill) for purposes of an
impairment test.

US GAAP IFRS
Impairment loss The amount by which the carrying The amount by which the carrying
calculation indefinite- amount of the asset exceeds its fair amount of the asset exceeds its
lived intangible assets value. recoverable amount.
Reversal of loss Prohibited for all assets to be held Prohibited for goodwill. Other assets
and used. must be reviewed at the end of each
reporting period for reversal indicators.
If appropriate, loss should be reversed
up to the newly estimated recoverable
amount, not to exceed the initial
carrying amount adjusted for
depreciation.
Convergence The IASB has a similar project on its research

Neither the IASB nor the FASB has any current agenda to consider improvements to the
plans to converge the guidance on impairment impairment requirements for goodwill that was
of long-lived assets. added in response to the findings in its PIR of
IFRS 3. Currently, these are not joint projects
In May 2016, the FASB proposed simplifying and generally are not expected to converge the
the accounting for goodwill impairment to guidance on accounting for goodwill
reduce the cost and complexity of the goodwill impairment. In the IASBs research project on
impairment test. The FASB is deliberating a goodwill and impairment, the IASB plans to
separate project to further reduce the cost and similarly consider the subsequent accounting
complexity of the subsequent accounting for for goodwill. The IASB also is considering which
goodwill (e.g., considering an amortization intangible assets should be recognized apart
approach). The FASB also is deliberating a from goodwill, as part of the research project on
project on accounting for identifiable goodwill and impairment. The IASB and FASB
intangible assets in a business combination have tentatively planned to make joint decisions
with the objective of evaluating whether on joint papers on both of these projects
certain identifiable intangible assets acquired (subsequent accounting for goodwill and
in a business combination should be subsumed identifiable intangible assets).
into goodwill.

Financial instruments
Similarities IFRS 7, Financial Instruments: Disclosures; and

The US GAAP guidance for financial instruments IFRS 13, Fair Value Measurement.
is located in numerous ASC Topics, including Both US GAAP and IFRS (1) require financial
ASC 310, Receivables; ASC 320, Investments instruments to be classified into specific
Debt and Equity Securities; ASC 470, Debt; categories to determine the measurement of
ASC 480, Distinguishing Liabilities from Equity; those instruments, (2) clarify when financial
ASC 815, Derivatives and Hedging; ASC 820, instruments should be recognized or
Fair Value Measurement; ASC 825, Financial derecognized in financial statements, (3) require
Instruments; ASC 860, Transfers and the recognition of all derivatives on the balance
Servicing; and ASC 948, Financial Services sheet and (4) require detailed disclosures in
Mortgage Banking. the notes to the financial statements for the
IFRS guidance for financial instruments, on the financial instruments reported in the balance
other hand, is limited to IAS 32, Financial sheet. Both sets of standards also allow hedge
Instruments: Presentation; IAS 39, Financial accounting and the use of a fair value option.
Instruments: Recognition and Measurement;
US GAAP IFRS
Debt vs. equity
Classification US GAAP specifically identifies certain Classification of certain instruments

instruments with characteristics of with characteristics of both debt and
both debt and equity that must be equity is largely based on the
classified as liabilities. contractual obligation to deliver cash,
assets or an entitys own shares.
Economic compulsion does not
constitute a contractual obligation.
Certain other contracts that are Contracts that are indexed to, and
indexed to, and potentially settled in, potentially settled in, an entitys own
an entitys own stock may be classified stock are classified as equity if settled
as equity if they either: (1) require only by delivering a fixed number of
physical settlement or net-share shares for a fixed amount of cash.
settlement, or (2) give the issuer a
choice of net-cash settlement or
settlement in its own shares.
Compound (hybrid) Compound (hybrid) financial instruments Compound (hybrid) financial

financial instruments (e.g., convertible bonds) are not split into instruments are required to be split
debt and equity components unless into a debt and equity component and,
certain specific requirements are met, if applicable, a derivative component.
but they may be bifurcated into debt The derivative component is accounted
and derivative components, with the for using fair value accounting.
derivative component accounted for
using fair value accounting.

US GAAP IFRS
Recognition and measurement

Impairment recognition Declines in fair value below cost may Generally, only objective evidence of
available-for-sale (AFS) result in an impairment loss being one or more credit loss events result
debt instruments recognized in the income statement on in an impairment being recognized in
an AFS debt instrument due solely to a the statement of comprehensive
change in interest rates (risk-free or income for an AFS debt instrument.
otherwise) if the entity has the intent The impairment loss is measured as
to sell the debt instrument or it is more the difference between the debt
likely than not that it will be required instruments amortized cost basis and
to sell the debt instrument before its fair value.
its anticipated recovery. In this
circumstance, the impairment loss is
measured as the difference between
the debt instruments amortized cost
basis and its fair value.
When a credit loss exists, but (1) the
entity does not intend to sell the debt
instrument, or (2) it is not more likely
than not that the entity will be required
to sell the debt instrument before the
recovery of the remaining cost basis,
the impairment is separated into the
amount representing the credit loss and
the amount related to all other factors.
The amount of the total impairment
related to the credit loss is recognized
in the income statement and the
amount related to all other factors is
recognized in other comprehensive
income, net of applicable taxes.
When an impairment loss is recognized Impairment losses for AFS debt
in the income statement, a new cost instruments may be reversed through
basis in the instrument is established the statement of comprehensive income
equal to the previous cost basis less the if the fair value of the instrument
impairment recognized in earnings, and increases in a subsequent period and
therefore, impairment losses recognized the increase can be objectively related
in the income statement cannot be to an event occurring after the
reversed for any future recoveries. impairment loss was recognized.

US GAAP IFRS
Impairment Impairment of an AFS equity instrument Impairment of an AFS equity

recognition available- is recognized in the income statement instrument is recognized in the
for-sale (AFS) equity if the equity instruments fair value is statement of comprehensive income
instruments not expected to recover sufficiently in when there is objective evidence that
the near term to allow a full recovery of the AFS equity instrument is impaired
the entitys cost basis. An entity must and the cost of the investment in the
have the intent and ability to hold an equity instrument may not be
impaired equity instrument until such recovered. A significant or prolonged
near-term recovery; otherwise an decline in the fair value of an equity
impairment loss must be recognized in instrument below its cost is considered
the income statement. objective evidence of an impairment.
Impairment recognition The impairment loss of a HTM The impairment loss of an HTM
held-to-maturity (HTM) instrument is measured as the instrument is measured as the
debt instruments difference between its fair value and difference between the carrying
amortized cost basis. The amount of amount of the instrument and the
the total impairment related to the present value of estimated future cash
credit loss is recognized in the income flows discounted at the instruments
statement, and the amount related to original effective interest rate.
all other factors is recognized in other
comprehensive income.
The carrying amount of an HTM The carrying amount of the instrument
investment after recognition of an is reduced either directly or through
impairment is the fair value of the debt the use of an allowance account.
instrument at the date of the impairment.
The new cost basis of the debt instrument
is equal to the previous cost basis less
the impairment recognized in the
income statement.
The impairment recognized in other The amount of impairment loss is
comprehensive income is accreted to the recognized in the statement of
carrying amount of the HTM instrument comprehensive income.
through other comprehensive income
over its remaining life.

US GAAP IFRS
Derivatives and hedging
Definition of a derivative To meet the definition of a derivative, The IFRS definition of a derivative does
and scope exceptions an instrument must have one or more not include a requirement that a
underlyings, one or more notional notional amount be indicated, nor is
amounts or payment provisions or net settlement a requirement. Certain
both, must require no initial net of the scope exceptions under IFRS
investment, as defined, and must be differ from those under US GAAP.
able to be settled net, as defined.
Certain scope exceptions exist for
instruments that would otherwise meet
these criteria.
Hedging a risk The risk components that may be Allows risks associated with only a
component of a financial hedged are specifically defined by the portion of the instruments cash flows
instrument literature, with no additional flexibility. or fair value (such as one or more
selected contractual cash flows or
portions of them or a percentage of the
fair value) provided that effectiveness
can be measured: that is, the portion is
separately identifiable and reliably
measurable.
Hedge effectiveness The shortcut method for interest rate The shortcut method for interest rate
swaps hedging recognized debt swaps hedging recognized debt is not
instruments is permitted. permitted.
The long-haul method of assessing and Under IFRS, assessment and
measuring hedge effectiveness for a fair measurement of hedge effectiveness
value hedge of the benchmark interest considers only the change in fair value
rate component of a fixed rate debt of the designated hedged portion of the
instrument requires that all contractual instruments cash flows, as long as the
cash flows be considered in calculating portion is separately identifiable and
the change in the hedged items fair reliably measurable.
value even though only a component of
the contractual coupon payment is the
designated hedged item.
Hedge effectiveness Permitted. Not permitted.

inclusion of options
time value

US GAAP IFRS
Derecognition
Derecognition of Derecognition of financial assets Derecognition of financial assets is
financial assets (i.e., sales treatment) occurs when based on a mixed model that considers
effective control over the financial transfer of risks and rewards and
asset has been surrendered: control. Transfer of control is
The transferred financial assets are considered only when the transfer of
legally isolated from the transferor risks and rewards assessment is not
Each transferee (or, if the conclusive. If the transferor has neither
transferee is a securitization entity retained nor transferred substantially
or an entity whose sole purpose is to all of the risks and rewards, there is
facilitate an asset-backed financing, then an evaluation of the transfer of
each holder of its beneficial control. Control is considered to be
interests), has the right to pledge or surrendered if the transferee has the
exchange the transferred financial practical ability to unilaterally sell the
assets (or beneficial interests) transferred asset to a third party
without restrictions. There is no legal
The transferor does not maintain isolation test.
effective control over the transferred
financial assets or beneficial interests
(e.g., through a call option or
repurchase agreement)
The derecognition criteria may be The derecognition criteria may be
applied to a portion of a financial asset applied to a portion of a financial asset
only if it mirrors the characteristics of if the cash flows are specifically
the original entire financial asset. identified or represent a pro rata share
of the financial asset or a pro rata
share of specifically identified cash
flows.
Loans and receivables
Measurement effective Requires catch-up approach, Requires the original effective interest
interest method retrospective method or prospective rate to be used throughout the life of the
method of calculating the interest for instrument for all financial assets and
amortized cost-based assets, liabilities, except for certain reclassified
depending on the type of instrument. financial assets, in which case the effect
of increases in cash flows are recognized
as prospective adjustments to the
effective interest rate.
Measurement loans Unless the fair value option is elected, Loans and receivables are carried at
and receivables loans and receivables are classified as amortized cost unless classified into
either: (1) held for investment, which the fair value through profit or loss
are measured at amortized cost, or category or the available for sale
(2) held for sale, which are measured category, both of which are carried at
at the lower of cost or fair value. fair value on the balance sheet.

US GAAP IFRS
Fair value measurement
Day one gains and losses Entities are not precluded from Day one gains and losses on financial
recognizing day one gains and losses on instruments are recognized only when
financial instruments reported at fair their fair value is evidenced by a
value even when all inputs to the quoted price in an active market for an
measurement model are not identical asset or liability (i.e., a level 1
observable. Unlike IFRS, US GAAP or level 2 input) or based on a valuation
contains no specific requirements technique that uses only data from
regarding the observability of inputs, observable markets.
thereby potentially allowing for the
recognition of gains or losses at initial
recognition of an asset or liability even
when the fair value measurement is
based on a valuation model with
significant unobservable inputs
(i.e., Level 3 measurements).
Practical expedient for Entities are provided a practical No practical expedient to assume that
alternative investments expedient to estimate the fair value of NAV represents the fair value of
certain alternative investments (e.g., a certain alternative investments.
limited partner interest in a Private
Equity fund) using net asset value per
share (NAV) or its equivalent.
Other differences include: (1) definitions of a Convergence

derivative and embedded derivative, (2) cash
The FASB and the IASB have been engaged
flow hedge basis adjustment and effectiveness
in projects to simplify and improve the
testing, (3) normal purchase and sale exception,
accounting for financial instruments.
(4) foreign exchange gain and/or losses on AFS
investments, (5) recognition of basis adjustments Classification and measurement
when hedging future transactions, (6) macro The IASB issued the final version of IFRS 9,
hedging, (7) hedging net investments, (8) cash Financial Instruments in July 2014. In January
flow hedge of intercompany transactions, 2016, the FASB issued Accounting Standards
(9) hedging with internal derivatives, Update (ASU) 2016-01, Financial Instruments
(10) impairment criteria for equity investments, Overall (Subtopic 825-10): Recognition and
(11) puttable minority interest, (12) netting and Measurement of Financial Assets and Financial
offsetting arrangements, (13) unit of account Liabilities, which will require entities to measure
eligible for derecognition and (14) accounting equity investments (except those accounted for
for servicing assets and liabilities. under the equity method, those that result in
consolidation of the investee and certain other
investments) at fair value and recognize any
changes in fair value in net income. A
measurement alternative will be available for

equity investments that lack a readily allowance for credit losses that reflects the
determinable fair value. The ASU does not portion of the amortized cost balance the
change the guidance for classifying and entity does not expect to collect over the life of
measuring investments in debt securities. all financial assets that are debt instruments
measured at amortized cost. Available-for-sale
The ASU will also require entities to record
debt securities will be subject to todays
changes in instrument-specific credit risk for
impairment model with a few modifications,
financial liabilities measured under the fair
including the use of an allowance to recognize
value option in other comprehensive income. It
credit losses, as opposed to a direct write-
also makes other targeted amendments to
down of the amortized cost as is done today.
certain disclosure requirements and other
The FASBs final standard has tiered effective
aspects of current US GAAP.
dates starting in 2019 for calendar-year
The FASB ultimately decided to make only entities. Early adoption in 2018 is permitted
targeted amendments in response to feedback for all calendar-year entities.
it received on two earlier proposals, resulting
Hedge accounting
in a significant departure from the joint model
IFRS 9 introduces a substantial overhaul of the
it developed with the IASB and the final version
hedge accounting model that aligns the
of IFRS 9. As a result, entities that report under
accounting treatment with risk management
US GAAP will use a significantly different model
activities. The aim of the new standard is to
for classifying and measuring financial
allow entities to better reflect these activities in
instruments than entities that report under IFRS.
their financial statements and provide users of
ASU 2016-01 is effective for calendar-year the financial statements with better information
PBEs beginning in 2018. For all other about risk management and the effect of hedge
calendar-year entities, it is effective for annual accounting on the financial statements.
periods beginning in 2019 and interim periods
In September 2016 the FASB issued an
beginning in 2020. Non-PBEs can adopt the
exposure draft to make certain targeted
standard at the same time as PBEs, and both
improvements to its hedge accounting model
PBEs and non-PBEs can early adopt certain
in an effort to make the accounting easier for
provisions.
companies to apply and for users of the
Impairment financial statements to understand.
The FASB initially worked with the IASB to
This section has not been updated for IFRS 9,
develop new guidance, but the Boards
ASU 2016-01 or ASU 2016-13 because of
ultimately were unable to reach a converged
their delayed effective dates.
solution. The FASBs ASU 2016-13, Financial
Instruments Credit Losses (Topic 326):
Measurement of Credit Losses on Financial
Instruments was issued in June 2016, and
differs from the three-stage impairment model
the IASB finalized as part of IFRS 9. Under the
FASBs approach, an entity will record an

Foreign currency matters
Similarities resulting from changes in exchange rates

ASC 830, Foreign Currency Matters, and reported in income. Except for the translation
IAS 21, The Effects of Changes in Foreign of financial statements in hyperinflationary
Exchange Rates, are similar in their approach economies, the method used to translate
to foreign currency translation. Although the financial statements from the functional
criteria to determine an entitys functional currency to the reporting currency generally is
currency are different under US GAAP and the same. In addition, both US GAAP and IFRS
IFRS, both ASC 830 and IAS 21 generally require remeasurement into the functional
result in the same determination (i.e., the currency before translation into the reporting
currency of the entitys primary economic currency. Assets and liabilities are translated
environment). In addition, although there are at the period-end rate and income statement
differences in accounting for foreign currency amounts generally are translated at the
translation in hyperinflationary economies average rate, with the exchange differences
under ASC 830 and IAS 29, Financial reported in equity. Both sets of standards also
Reporting in Hyperinflationary Economies, require certain foreign exchange effects
both sets of standards require the identification related to net investments in foreign
of hyperinflationary economies and generally operations to be accumulated in shareholders
consider the same economies to be equity (i.e., the cumulative translation
hyperinflationary. adjustment portion of other comprehensive
income). In general, these amounts are
Both US GAAP and IFRS require foreign reflected in income when there is a sale,
currency transactions to be remeasured into complete liquidation or abandonment of the
an entitys functional currency with amounts foreign operation.
US GAAP IFRS
Translation/functional Local functional currency financial The functional currency must be

currency of foreign statements are remeasured as if the maintained. However, local functional
operations in a functional currency was the reporting currency financial statement amounts
hyperinflationary currency (US dollar in the case of a US not already measured at the current
economy parent) with resulting exchange rate at the end of the reporting period
differences recognized in income. (current and prior period) are indexed
using a general price index
(i.e., restated in terms of the
measuring unit current at the balance
sheet date with the resultant effects
recognized in income), and are then
translated to the reporting currency at
the current rate.

US GAAP IFRS
Consolidation of foreign A bottom-up approach is required in The method of consolidation is not

operations order to reflect the appropriate foreign specified and, as a result, either the
currency effects and hedges in place. direct or the step-by-step method
As such, an entity should be of consolidation is used. Under the
consolidated by the enterprise that direct method, each entity within
controls the entity. Therefore, the the consolidated group is directly
step-by-step method of consolidation translated into the functional currency
is used, whereby each entity is of the ultimate parent and then
consolidated into its immediate parent consolidated into the ultimate parent
until the ultimate parent has (i.e., the reporting entity) without regard
consolidated the financial statements to any intermediate parent. The choice
of all the entities below it. of consolidation method used could
affect the cumulative translation
adjustments deferred within equity at
intermediate levels, and therefore the
recycling of such exchange rate
differences upon disposal of an
intermediate foreign operation.
Convergence

Leases
Leases
Similarities Under both US GAAP and IFRS, a lessee would

The overall accounting for leases under record a capital (finance) lease by recognizing
US GAAP and IFRS (ASC 840, Leases and an asset and a liability, measured at the lower
IAS 17, Leases, respectively) is similar, of the present value of the minimum lease
although US GAAP has more specific application payments or fair value of the asset. A lessee
guidance than IFRS. Both focus on classifying would record an operating lease by
leases as either capital (IAS 17 uses the term recognizing expense generally on a straight-
finance) or operating, and both separately line basis over the lease term. Any incentives
discuss lessee and lessor accounting. under an operating lease are amortized on a
straight-line basis over the term of the lease.
Lessee accounting (excluding real estate)
US GAAP provides criteria (ASC 840) and IFRS Lessor accounting (excluding real estate)
provides indicators (IAS 17) to determine Lessor accounting under ASC 840 and IAS 17
whether a lease is capital or operating. The is similar and uses the above tests to determine
criteria or indicators of a capital lease are whether a lease is a sales-type/direct financing
similar in that both standards include the lease (referred to as a finance lease under
transfer of ownership to the lessee at the end IAS 17) or an operating lease. ASC 840
of the lease term and a purchase option that, specifies two additional criteria (i.e., collection
at inception, is reasonably expected to be of lease payments is reasonably predictable
exercised. ASC 840 requires capital lease and no important uncertainties surround the
treatment if the lease term is equal to or amount of unreimbursable costs to be incurred
greater than 75% of the assets economic life, by the lessor) for a lessor to qualify for sales-
while IAS 17 requires such treatment when the type/direct financing lease accounting that
lease term is a major part of the assets IAS 17 does not. Although not specified in
economic life. ASC 840 specifies capital lease IAS 17, it is reasonable to expect that if these
treatment if the present value of the minimum conditions exist, the same conclusion may be
lease payments equals or exceeds 90% of the reached under both standards. If a lease is a
assets fair value, while IAS 17 uses the term sales-type/direct financing (finance) lease,
substantially all of the fair value. In practice, the leased asset is replaced with a lease
while ASC 840 specifies bright lines in certain receivable. If a lease is classified as operating,
instances, IAS 17s general principles are rental income is recognized generally on a
interpreted similarly to the bright-line tests. straight-line basis over the lease term and the
As a result, lease classification is often the leased asset is depreciated by the lessor over
same under ASC 840 and IAS 17. its useful life.

Leases
US GAAP IFRS
Lease of real estate A lease of land and buildings that The land and building elements of the
transfers ownership to the lessee or lease are considered separately when
contains a bargain purchase option evaluating all indicators unless the
would be classified as a capital lease by amount that would initially be
the lessee, regardless of the relative recognized for the land element is
value of the land. immaterial, in which case they would
be treated as a single unit for purposes
of lease classification.
If the fair value of the land at inception There is no 25% test to determine
represents less than 25% of the total whether to consider the land and
fair value of the lease, the lessee building separately when evaluating
accounts for the land and building certain indicators.
components as a single unit for
purposes of evaluating the 75% and
90% tests noted above.
Otherwise, the lessee must consider
the land and building components
separately for purposes of evaluating
other lease classification criteria.
(Note: Only the building is subject to
the 75% and 90% tests in this case).
Recognition of a gain or If the seller-lessee retains only a minor Gain or loss is recognized immediately,
loss on a sale and use of the leased asset through the subject to adjustment if the sales price
leaseback when the sale-leaseback, the sale and leaseback differs from fair value.
leaseback is an are accounted for as separate
operating leaseback transactions based on their respective
(non-real estate) terms (unless rentals are unreasonable
in relation to market conditions).
If a seller-lessee retains more than a
minor use of the leased asset but less
than substantially all of it, and the
profit on the sale exceeds the present
value of the minimum lease payments
due under the operating leaseback,
that excess is recognized as profit at
the date of sale. All other profit is
deferred and generally amortized over
the lease term.
(Note: If real estate is involved, the
specialized rules are very restrictive
with respect to the sellers continuing
involvement, and they may not allow
for recognition of the sale).

Leases
US GAAP IFRS
Recognition of gain or The seller-lessee is presumed to have Gain or loss deferred and amortized
loss on a sale-leaseback retained substantially all of the over the lease term.
when the leaseback is a remaining use of the leased asset when
capital leaseback the leaseback is classified as a capital
lease. In such cases, the profit on sale
is deferred.
Sale and leaseback of If real estate is involved, while the There is no real estate specific
real estate above model generally applies, the guidance for sale and leaseback
specialized rules also must be applied. transactions under IFRS.
Those rules are very restrictive with
respect to the sellers continuing
involvement, and they may not allow
for recognition of the sale.
Other differences include: (1) the treatment of Convergence

a leveraged lease by a lessor under ASC 840 In early 2016, the IASB and the FASB each
(IAS 17 does not have such classification), issued a new lease accounting standard, IFRS 16,
(2) real estate sale-leasebacks, (3) real estate Leases, and ASC 842, Leases. Both standards
sales-type leases, (4) leases of land and (5) the require lessees to recognize most leases on
rate used to discount minimum lease payments their balance sheets as lease liabilities with
to the present value for purposes of determining corresponding right-of-use assets. However,
lease classification and subsequent recognition there are significant differences between the
of a capital lease, including in the event of standards (e.g., lessees do not classify leases
a renewal. under IFRS and can elect to account for leases
of low-value assets under a model similar to
todays operating leases).
This section has not been updated for these
standards and the related consequential
amendments because of their delayed
effective dates.

Income taxes
Income taxes
Similarities temporary differences arising from non-

ASC 740, Income Taxes, and IAS 12, Income deductible goodwill are not recorded under both
Taxes, require entities to account for both US GAAP and IFRS, and tax effects of items
current tax effects and expected future tax accounted for directly in equity during the
consequences of events that have been current year are allocated directly to equity.
recognized (i.e., deferred taxes) using an asset Neither US GAAP nor IFRS permits the
and liability approach. Deferred taxes for discounting of deferred taxes.
US GAAP IFRS
Tax basis Tax basis is a question of fact under the Tax basis is generally the amount
tax law. For most assets and liabilities, deductible or taxable for tax purposes.
there is no dispute on this amount; The manner in which management
however, when uncertainty exists, it is intends to settle or recover the
determined in accordance with carrying amount affects the
ASC 740-10-25. determination of tax basis.
Taxes on intercompany Requires taxes paid on intercompany Requires taxes paid on intercompany
transfers of assets that profits to be deferred and prohibits the profits to be recognized as incurred
remain within a recognition of deferred taxes on and requires the recognition of
consolidated group temporary differences between the tax deferred taxes on temporary
bases of assets transferred between differences between the tax bases of
entities/tax jurisdictions that remain assets transferred between entities/tax
within the consolidated group. jurisdictions that remain within the
consolidated group.
Uncertain tax positions ASC 740-10-25 requires a two-step IFRS does not include specific guidance.
process, separating recognition from IAS 12, Income Taxes indicates that tax
measurement. A benefit is recognized assets and liabilities should be
when it is more likely than not to be measured at the amount expected to be
sustained based on the technical merits paid based on enacted or substantively
of the position. Detection risk is enacted tax legislation. Some adopt a
precluded from being considered in one-step approach that recognizes all
the analysis. The amount of benefit to uncertain tax positions at an expected
be recognized is based on the largest value. Others adopt a two-step
amount of tax benefit that is greater approach that recognizes only those
than 50% likely of being realized upon uncertain tax positions that are
ultimate settlement. considered more likely than not to
result in a cash outflow. Practice varies
regarding the consideration of
detection risk in the analysis.

Income taxes
US GAAP IFRS
Initial recognition Does not include an exemption like that Deferred tax effects arising from the
exemption under IFRS for non-recognition of initial recognition of an asset or liability
deferred tax effects for certain assets are not recognized when: (1) the
or liabilities. amounts did not arise from a business
combination, and (2) upon occurrence,
the transaction affects neither accounting
nor taxable profit (e.g., acquisition of
non-deductible assets).
Recognition of deferred Recognized in full (except for certain Amounts are recognized only to the
tax assets outside basis differences), but extent it is probable (similar to more
valuation allowance reduces asset to likely than not under US GAAP) that
the amount that is more likely than not they will be realized.
to be realized.
Calculation of deferred Enacted tax rates must be used. Enacted or substantively enacted tax
tax asset or liability rates as of the balance sheet date must
be used.
Classification of deferred Prior to the adoption of ASU 2015-17: All amounts classified as noncurrent in
tax assets and liabilities Current or noncurrent classification, the balance sheet.
in balance sheet based on the nature of the related
asset or liability, is required.
After the adoption of ASU 2015-17:
Deferred tax liabilities and assets must
be classified as noncurrent in the
balance sheet.
Recognition of deferred Recognition not required for Recognition required unless the
tax liabilities from investment in a foreign subsidiary or reporting entity has control over the
investments in foreign corporate JV that is essentially timing of the reversal of the temporary
subsidiaries or joint permanent in duration, unless it difference and it is probable (more
ventures (JVs) (often becomes apparent that the difference likely than not) that the difference will
referred to as outside will reverse in the foreseeable future. not reverse in the foreseeable future.
basis differences)
Other differences include: (1) the allocation of deferred taxes when different tax rates apply
subsequent changes to deferred taxes to to distributed or undistributed profits and
components of income or equity, (2) the (4) the recognition of deferred tax assets on
calculation of deferred taxes on foreign basis differences in domestic subsidiaries and
nonmonetary assets and liabilities when the domestic joint ventures that are permanent
local currency of an entity is different than its in duration.
functional currency, (3) the measurement of

Income taxes
Convergence
The Boards have abandoned plans for a joint
convergence project. However, the IASB and
FASB have separately undertaken projects
that have resulted in further alignment in
various areas of accounting for income taxes.
In October 2015, the IFRS Interpretations
Committee issued a proposed interpretation
that would provide guidance on accounting for
current and deferred tax liabilities and assets
in circumstances in which there is uncertainty
over income tax treatments. Developments on
this proposal should be monitored.
In November 2015, the FASB issued
ASU 2015-17, Balance Sheet Classification of
Deferred Taxes. ASU 2015-17 requires entities
to classify all deferred tax assets and liabilities
as noncurrent on the balance sheet instead of
separating deferred taxes into current and
noncurrent amounts. For PBEs, ASU 2015-17
is effective for annual periods beginning after
those annual periods. For non-PBEs, it is
effective for annual periods beginning after
annual periods beginning after 15 December
2018. Early adoption is permitted.
In an exposure draft released in January 2015,
the FASB proposed requiring companies to
immediately recognize income tax effects on
intercompany transaction in their income
statements, eliminating the current exception
that requires companies to defer the income tax
effects of certain intercompany transactions. In
June 2016, the FASB decided it was determined
that the current exception would be retained
only for transfers of inventory within a
consolidated group. A final standard is expected
in 2016.
US GAAP versus IFRS The basics 42

Provisions and contingencies
Similarities non-authoritative, the guidance in two Concept

While the sources of guidance under US GAAP Statements in US GAAP (CON 5, Recognition
and IFRS differ significantly, the general and Measurement in Financial Statements of
recognition criteria for provisions are similar. Business Enterprises, and CON 6, Elements of
IAS 37, Provisions, Contingent Liabilities and Financial Statements) is similar to the specific
Contingent Assets, provides the overall recognition criteria provided in IAS 37. Both
guidance for recognition and measurement US GAAP and IFRS require recognition of a loss
criteria of provisions and contingencies. While based on the probability of occurrence,
there is no equivalent single standard under although the definition of probability is
US GAAP, ASC 450, Contingencies, and a different under US GAAP and IFRS. Both
number of other standards deal with specific US GAAP and IFRS prohibit the recognition of
types of provisions and contingencies provisions for costs associated with future
(e.g., ASC 410, Asset Retirement and operating activities. Further, both US GAAP and
Environmental Obligations; ASC 420, Exit or IFRS require disclosures about a contingent
Disposal Cost Obligations). In addition, although liability whose occurrence is more than remote
but does not meet the recognition criteria.
US GAAP IFRS
Recognition threshold A loss must be probable (in which A loss must be probable (in which
probable is interpreted as likely) to be probable is interpreted as more likely
recognized. While ASC 450 does not than not) to be recognized. More likely
ascribe a percentage to probable, it is than not refers to a probability of
intended to denote a high likelihood greater than 50%.
(e.g., 70% or more).
Discounting provisions Provisions may be discounted only Provisions should be recorded at the
when the amount of the liability and estimated amount to settle or transfer
the timing of the payments are fixed the obligation taking into consideration
or reliably determinable, or when the the time value of money. The discount
obligation is a fair value obligation rate to be used should be a pre-tax
(e.g., an asset retirement obligation rate (or rates) that reflect(s) current
under ASC 410-20). The discount rate market assessments of the time value
to be used is dependent upon the nature of money and the risks specific to
of the provision, and may vary from the liability.
that used under IFRS. However, when
a provision is measured at fair value,
the time value of money and the risks
specific to the liability should be
considered.

US GAAP IFRS
Measurement of Most likely outcome within range Best estimate of obligation should be
provisions range of should be accrued. When no one accrued. For a large population of
possible outcomes outcome is more likely than the others, items being measured, such as
the minimum amount in the range of warranty costs, best estimate is
outcomes should be accrued. typically expected value, although
midpoint in the range may also be used
when any point in a continuous range is
as likely as another. Best estimate for a
single obligation may be the most likely
outcome, although other possible
outcomes should still be considered.
Restructuring costs Under ASC 420, Exit or Disposal Cost Once management has demonstrably
Obligations once management has committed (i.e., a legal or constructive
committed to a detailed exit plan, each obligation has been incurred) to a
type of cost is examined to determine detailed exit plan, the general
when recognized. Involuntary employee provisions of IAS 37, Provisions,
termination costs under a one-time Contingent Liabilities and Contingent
benefit arrangement are recognized Assets apply. Costs typically are
over future service period, or recognized earlier than under US GAAP
immediately if there is no future service because IAS 37 focuses on the exit
required. Other exit costs are expensed plan as a whole, rather than individual
when incurred. cost components of the plan.
Convergence

Revenue recognition
Revenue recognition
Similarities Significant differences

Revenue recognition under both US GAAP and Despite the similarities, differences in revenue
IFRS is tied to the completion of the earnings recognition may exist, in part, as a result of
process and the realization of assets from such differing levels of specificity between the two
completion. Under IAS 18 Revenue, revenue is GAAPs. There is extensive guidance under
defined as the gross inflow of economic benefits US GAAP, which can be very prescriptive and
during the period arising in the course of the often applies only to specific industries. For
ordinary activities of an entity when those example, under US GAAP, there are specific
inflows result in increases in equity, other than rules for the recognition of software revenue
increases relating to contributions from equity and sales of real estate, while comparable
participants. Under US GAAP (which is primarily guidance does not exist under IFRS. In
included in ASC 605, Revenue Recognition), addition, the detailed US rules often contain
revenues represent actual or expected cash exceptions for particular types of transactions.
inflows that have occurred or will result from the Further, public companies in the US must follow
entitys ongoing major operations. Under both additional guidance provided by the SEC staff.
US GAAP and IFRS, revenue is not recognized Conversely, two primary standards (IAS 18
until it is both realized (or realizable) and earned. and IAS 11 Construction Contracts) and their
Ultimately, both US GAAP and IFRS base revenue related Interpretations exist under IFRS, which
recognition on the transfer of risks and rewards, contains general principles and illustrative
and both attempt to determine when the examples of specific transactions. Exclusive of
earnings process is complete. Both sets of the industry-specific differences between the
standards contain revenue recognition criteria two GAAPs, following are the major differences
that, while not identical, are conceptually similar. in revenue recognition.
For example, under IFRS, one recognition
criterion is that the amount of revenue can be
measured reliably, while US GAAP requires
that the consideration to be received from the
buyer be fixed or determinable.

Revenue recognition
US GAAP IFRS
Sale of goods Public companies must follow SAB Revenue is recognized only when risks
Topic 13, Revenue Recognition, which and rewards of ownership have been
requires that delivery has occurred (the transferred, the seller retains neither
risks and rewards of ownership have continuing managerial involvement to
been transferred), there is persuasive the degree usually associated with
evidence of an arrangement, the fee is ownership nor effective control over
fixed or determinable and collectibility the goods sold, revenues can be
is reasonably assured. measured reliably, it is probable that
the economic benefits will flow to the
company and the costs incurred or to
be incurred in respect of the
transaction can be measured reliably.
Rendering of services Certain types of service revenue, Revenue may be recognized in

primarily relating to services sold accordance with long-term contract
with software, have been addressed accounting whenever revenues, costs
separately in US GAAP literature. and the stage of completion can be
All other service revenue should measured reliably and it is probable
follow SAB Topic 13. Application of that economic benefits will flow to
long-term contract accounting the company.
(ASC 605-35, Revenue Recognition
Construction-Type and Production-Type
Contracts) generally is not permitted for
non-construction services.
Multiple elements Specific criteria are required in order IAS 18 requires recognition of revenue
for each element to be a separate unit for each separately identifiable
of accounting, including delivered component of a single transaction if
elements must have standalone value. separation reflects the substance of the
If those criteria are met, revenue for transaction; conversely, two or more
each element of the transaction may be transactions may be grouped together
recognized when the element is delivered. when their commercial effects are
linked. IAS 18 does not provide specific
criteria for making the determination on
how to identify separate components in
a single transaction.
Deferred receipt of Discounting to present value is Considered to be a financing

receivables required only in limited situations. agreement. The value of revenue to be
recognized is determined by
discounting all future receipts using an
imputed rate of interest.

Revenue recognition
US GAAP IFRS
Construction contracts Construction contracts are accounted Under IAS 11, construction contracts
for using the percentage-of-completion are accounted for using the
method if certain criteria are met. percentage-of-completion method if
Otherwise, the completed contract certain criteria are met. Otherwise,
method must be used. revenue recognition is limited to
recoverable costs incurred. The
completed contract method is
not permitted.
Construction contracts may be, but Construction contracts are combined
are not required to be, combined or or segmented if certain criteria are
segmented if certain criteria are met. met. Criteria under IFRS differ from
those in US GAAP.
Convergence
The FASB and the IASB issued converged
revenue recognition standards in May 2014
that will supersede virtually all existing
revenue guidance under US GAAP and IFRS,
which is described above. The core principle is
that an entity would recognize revenue to
depict the transfer of promised goods or
services to customers at an amount that
reflects the consideration the entity expects to
be entitled to in exchange for those goods or
services. Recently, the Boards amended their
respective standards to address several
implementation issues raised by constituents.
The Boards did not agree on the nature and
breadth of all of the changes to their revenue
standards; however, the Boards expect the
amendments to result in similar outcomes in
many circumstances.
Note that this section has not been updated for
these standards. Refer to the paragraphs
above for the effective dates.

Share-based payments
Similarities companies. Both ASC 718 and IFRS 2 define

The US GAAP guidance for share-based the fair value of the transaction as the amount
payments, ASC 718, Compensation Stock at which the asset or liability could be bought or
Compensation, and ASC 505-50, Equity sold in a current transaction between willing
Equity-Based Payments to Non-Employees, is parties. Further, they require the fair value of
largely converged with the guidance in IFRS 2, the shares to be measured based on a market
Share-Based Payment. Both require a fair price (if available) or estimated using an option-
value-based approach for measuring and pricing model. In the rare cases in which fair
accounting for share-based payment value cannot be determined, both sets of
arrangements whereby an entity (1) acquires standards allow the use of intrinsic value, which
goods or services in exchange for issuing share is remeasured until settlement of the shares. In
options or other equity instruments addition, the treatment of modifications and
(collectively referred to as shares in this settlements of share-based payments is similar
guide), or (2) incurs liabilities that are based, in many respects. Finally, both standards
at least in part, on the price of its shares or require similar disclosures in the financial
that may require settlement in its shares. statements to provide investors with sufficient
Under both US GAAP and IFRS, this guidance information to understand the types and extent
applies to transactions with both employees to which the entity is entering into share-based
and non-employees and is applicable to all payment transactions.
US GAAP IFRS
Forfeitures Upon adopting ASU 2016-09, There is no accounting policy election

CompensationStock Compensation under IFRS. Initial accruals of
(Topic 718): Improvements to compensation cost are based on the
Employee Share-Based Payment estimated number of instruments for
Accounting , 3 entities will have to elect which the requisite service is expected
whether to account for forfeitures by to be rendered. That estimate should
(1) recognizing forfeitures of awards as be revised if subsequent information
they occur (e.g., when an award does indicates that the actual number of
not vest because the employee leaves instruments is likely to differ from
the company) or (2) estimating the previous estimates.
number of awards expected to be
forfeited and adjusting the estimate
when subsequent information indicates
that the estimate is likely to change.
3
For PBEs, ASU 2016-09 is effective for fiscal years beginning after 15 December 2016, and interim periods within those
years. For all other entities, it is effective for fiscal years beginning after 15 December 2017, and interim periods within
fiscal years beginning after 15 December 2018. Early adoption is permitted, but all of the guidance must be adopted in the
same period.

US GAAP IFRS
Performance period A performance condition where the A performance condition is a vesting

different from service performance target affects vesting can condition that must be met while the
period be achieved after the employees counterparty is rendering service. The
requisite service period. Therefore, the period of time to achieve a
period of time to achieve a performance condition must not extend
performance target can extend beyond beyond the end of the service period. If
the end of the service period. a performance target can be achieved
after the employees requisite service
period, it would be accounted for as a
non-vesting condition that affects the
grant date fair value of the award.
Transactions with non- The US GAAP definition of an employee IFRS has a more general definition of
employees focuses primarily on the common law an employee that includes individuals
definition of an employee. who provide services similar to those
rendered by employees.
The fair value of: (1) the goods or Fair value of the transaction should be
services received, or (2) the equity based on the fair value of the goods or
instruments granted, whichever is services received, and only on the fair
more reliably measurable, is used to value of the equity instruments granted
value the transaction. in the rare circumstance that the fair
value of the goods and services cannot
be reliably estimated.
Measurement date is the earlier of: Measurement date is the date the
(1) the date at which a commitment entity obtains the goods or the
for performance by the counterparty counterparty renders the services.
is reached, or (2) the date at which the No performance commitment
counterpartys performance is complete. concept exists.
Measurement and Entities make an accounting policy Entities must recognize compensation
recognition of expense election to recognize compensation cost cost on an accelerated basis and each
awards with graded for awards containing only service individual tranche must be separately
vesting features conditions either on a straight-line basis measured.
or on an accelerated basis, regardless of
whether the fair value of the award is
measured based on the award as a
whole or for each individual tranche.
Equity repurchase Liability classification is not required if Liability classification is required (no
features at employees employee bears risks and rewards of six-month consideration exists).
election equity ownership for at least six
months from the date the shares are
issued or vest.

US GAAP IFRS
Deferred taxes Prior to the adoption of ASU 2016-09, Calculated based on the estimated tax
calculated based on the cumulative GAAP deduction determined at each
expense recognized and trued up or down reporting date (e.g., intrinsic value).
upon realization of the tax benefit.
After the adoption of ASU 2016-09,
calculated based on the cumulative
GAAP expense recognized.
Prior to the adoption of ASU 2016-09, If the tax deduction exceeds cumulative
if the tax benefit exceeds the deferred compensation cost for an individual
tax asset, the excess (windfall benefit) is award, deferred tax based on the
credited directly to shareholders excess is credited to shareholders
equity. Any shortfall of the tax benefit equity. If the tax deduction is less than
below the deferred tax asset is charged or equal to cumulative compensation
to shareholders equity to the extent of cost for an individual award, deferred
prior windfall benefits, and to tax taxes are recorded in income.
expense thereafter.
entities will recognize all excess tax
benefits and tax deficiencies by
recording them as income tax expense
or benefit in the income statement.
Modification of vesting If an award is modified such that the Compensation cost is the grant date
terms that are service or performance condition, fair value of the award, together with
improbable of which was previously improbable of any incremental fair value at the
achievement achievement, is probable of achievement modification date. The determination
as a result of the modification, the of whether the original grant date fair
compensation cost is based on the fair value affects the accounting is based
value of the modified award at the on the ultimate outcome (i.e., whether
modification date. Grant date fair value the original or modified conditions are
of the original award is not recognized. met) rather than the probability of
vesting as of the modification date.
Convergence No further convergence is planned at this time.

In June 2016, the IASB issued three
amendments to IFRS 2 on the effects of vesting
conditions on the measurement of a cash-
settled share-based payment, classification of a
share-based payment settled net of withholding
tax obligations, and accounting for a modification
to a share-based payment that changes the
classification from cash-settled to equity-
settled. Two of these amendments would more
closely align the guidance with US GAAP.

Employee benefits other than share-
Employee benefits other than share-based payments
based payments
Similarities defined benefit plans has many similarities as
ASC 715, Compensation Retirement Benefits, well, most notably that the defined benefit
ASC 710, Compensation General, ASC 712, obligation is the present value of benefits that
Compensation Nonretirement Postemployment have accrued to employees for services
Benefits, and IAS 19, Employee Benefits, are rendered through that date, based on actuarial
the principal sources of guidance in accounting methods of calculation. Both US GAAP and
for employee benefits other than share-based IFRS require the funded status of the defined
payments under US GAAP and IFRS, benefit plan to be recognized on the balance
respectively. Under both US GAAP and IFRS, sheet as the difference between the present
the cost recognized for defined contribution value of the benefit obligation and the fair
plans is based on the contribution due from the value of plan assets, although IAS 19 limits the
employer in each period. The accounting for net asset recognized for overfunded plans.
US GAAP IFRS
Actuarial method used Different methods are required Projected unit credit method is
for defined benefit plans depending on the characteristics of the required in all cases.
plans benefit formula.
Calculation of the Calculated using the expected long- A concept of an expected return on
expected return on plan term rate of return on invested assets plan assets does not exist in IFRS. A
assets and the market-related value of the net interest expense (income) on the
assets (based on either the fair value of net defined benefit liability (asset) is
plan assets at the measurement date recognized as a component of defined
or a calculated value that smooths benefit cost, based on the discount rate
changes in fair value over a period not used to determine the obligation.
to exceed five years, at the employers
election).
Treatment of actuarial May be recognized in net income as Must be recognized immediately in

gains and losses they occur or deferred in other other comprehensive income. Gains
comprehensive income and and losses are not subsequently
subsequently amortized to net income recognized in net income.
through a corridor approach.
Recognition of prior Initially deferred in other Immediate recognition in net income.

service costs or credits comprehensive income and
from plan amendments subsequently recognized in net income
over the average remaining service
period of active employees or, when all
or almost all participants are inactive,
over the average remaining life
expectancy of those participants.

Employee benefits other than share-based payments
US GAAP IFRS
Settlements and Settlement gain or loss is recognized in Settlement gain or loss is recognized in
curtailments net income when the obligation is net income when it occurs. Fewer
settled. Curtailment loss is recognized events qualify as settlements under
in net income when the curtailment is IFRS. Change in the defined benefit
probable of occurring and the loss is obligation from a curtailment is
estimable, while curtailment gain is recognized in net income at the earlier
recognized in net income when the of when it occurs or when related
curtailment occurs. restructuring costs or termination
benefits are recognized.
Multi-employer post- Accounted for similar to a defined Accounted for as either a defined
retirement plans contribution plan. contribution or defined benefit plan
based on the terms (contractual and
constructive) of the plan. If a defined
benefit plan, must account for the
proportionate share of the plan similar
to any other defined benefit plan unless
sufficient information is not available.
Convergence

Earnings per share
Earnings per share
Similarities statement, both use the treasury stock method

Entities whose common shares are publicly for determining the effects of stock options
traded, or that are in the process of issuing and warrants in the diluted EPS calculation,
such shares in the public markets, must and both use the if-converted method for
disclose substantially the same earnings per determining the effects of convertible debt on
share (EPS) information under ASC 260 and the diluted EPS calculation. Although both
IAS 33 (both titled Earnings Per Share). Both US GAAP and IFRS use similar methods of
standards require the presentation of basic calculating EPS, there are a few detailed
and diluted EPS on the face of the income application differences.
US GAAP IFRS
Contracts that may be Such contracts are presumed to be Such contracts are always assumed to
settled in shares or cash settled in shares unless evidence is be settled in shares.
at the issuers option provided to the contrary (i.e., the
issuers past practice or stated policy
is to settle in cash).
Computation of year-to- For year-to-date and annual Regardless of whether the period is
date and annual diluted computations when each period is profitable, the number of incremental
EPS for options and profitable, the number of incremental shares is computed as if the entire
warrants (using the shares added to the denominator is the year-to-date period were the period
treasury stock method) weighted average of the incremental (that is, do not average the current
and for contingently shares that were added to the quarter with each of the prior quarters).
issuable shares denominator in each of the quarterly
computations.
Treasury stock method Prior to the adoption of ASU 2016-09, For options, warrants and their
assumed proceeds under the treasury equivalents, IAS 33 currently does not
stock method include the income tax explicitly require assumed proceeds to
effects, if any, on additional paid-in include the income tax effects on
capital at exercise. additional paid-in capital.
assumed proceeds under the treasury
stock method exclude the income tax
effects of share-based payment awards
because they are no longer recognized
in additional paid-in capital.
Treatment of contingently Potentially issuable shares are included Potentially issuable shares are
convertible debt in diluted EPS using the if-converted considered contingently issuable and
method if one or more contingencies are included in diluted EPS using the if-
relate to a market price trigger converted method only if the
(e.g., the entitys share price), even if contingencies are satisfied at the end
the market price trigger is not satisfied of the reporting period.
at the end of the reporting period.

Earnings per share
Convergence
In March 2016-09, the FASB issued
ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting, which
changes the accounting for the tax effects of
share-based payments and will have a
consequential effect on the calculation of
assumed proceeds for share-based payments
subsequent to adoption. Specifically, when
calculating assumed proceeds in the
computation of diluted EPS for share-based
payments using the treasury stock method,
companies will exclude excess tax benefits
because they are no longer recognized in
additional paid-in capital. IAS 33 currently
does not explicitly require the income tax
effects of such awards in the calculation of the
treasury stock method. The guidance in the
ASU is effective for PBEs for fiscal years
beginning after 15 December 2016, and
interim periods within those fiscal years. For all
other entities, it is effective for fiscal years
beginning after 15 December 2017, and
interim periods within fiscal years beginning
after 15 December 2018. This part of the
ASU will be applied prospectively, and early
adoption is permitted.

Segment reporting
Segment reporting
Similarities with public reporting requirements and are

The requirements for segment reporting under based on a management approach in
both ASC 280, Segment Reporting, and identifying the reportable segments. The two
IFRS 8, Operating Segments, apply to entities standards are largely converged, and only
limited differences exist.
US GAAP IFRS
Determination of Entities with a matrix form of All entities determine segments based
segments organization (i.e., in some public on the management approach,
entities, the chief operating decision regardless of form of organization.
maker (CODM) is responsible for
different product and service lines
worldwide, while other CODMs are
responsible for specific geographic
areas) must determine segments based
on products and services.
Disclosure of segment Entities are not required to disclose If regularly reported to the CODM,
liabilities segment liabilities even if reported to segment liabilities are a required
the CODM. disclosure.
Disclosure of long-lived For the purposes of entity-wide If a balance sheet is classified

assets geographic area disclosures, the according to liquidity, non-current
definition of long-lived assets implies assets are assets that include amounts
hard assets that cannot be readily expected to be recovered more than
removed, which would exclude 12 months after the balance sheet
intangible assets. date.These non-current assets often
includes intangible assets.
Disclosure of Entities must disclose whether Entities must disclose whether

aggregation operating segments have been operating segments have been
aggregated. aggregated and the judgments made in
applying the aggregation criteria,
including a brief description of the
operating segments that have been
aggregated and the economic
indicators that have been assessed in
determining economic similarity.
Convergence

Subsequent events
Subsequent events
Similarities at the balance sheet date usually results in an

Despite differences in terminology, the adjustment to the financial statements. If the
accounting for subsequent events under event occurring after the balance sheet date
ASC 855, Subsequent Events, and IAS 10, but before the financial statements are issued
Events after the Reporting Period, is largely relates to conditions that arose after the
similar. An event that occurs during the balance sheet date, the financial statements
subsequent events period that provides are not adjusted, but disclosure may be
additional evidence about conditions existing necessary to keep the financial statements
from being misleading.
US GAAP IFRS
Date through which Subsequent events are evaluated Subsequent events are evaluated
subsequent events must through the date the financial through the date that the financial
be evaluated statements are issued (SEC registrants statements are authorized for issue.
and conduit bond obligors) or available to Depending on an entitys corporate
be issued (all entities other than SEC governance structure and statutory
registrants and conduit bond obligors). requirements, authorization may come
Financial statements are considered from management or a board of
issued when they are widely distributed directors.
to shareholders or other users in a form
that complies with US GAAP. Financial
statements are considered available to
be issued when they are in a form that
complies with US GAAP and all necessary
approvals have been obtained.
Reissuance of financial If the financial statements are reissued, IAS 10, Events after the Reporting
statements events or transactions may have Period, does not specifically address the
occurred that require disclosure in the reissuance of financial statements and
reissued financial statements to keep recognizes only one date through
them from being misleading. However, which subsequent events are evaluated,
an entity should not recognize events that is, the date that the financial
occurring between the time the financial statements are authorized for issuance,
statements were issued or available to even if they are being reissued. As a
be issued and the time the financial result, only one date will be disclosed
statements were reissued unless the with respect to the evaluation of
adjustment is required by US GAAP or subsequent events, and an entity could
regulatory requirements (e.g., stock have adjusting subsequent events in
splits, discontinued operations, or the reissued financial statements.
effect of adopting a new accounting
standard retrospectively would give rise
to an adjustment).

Subsequent events
US GAAP IFRS
Entities must disclose both the date If financial statements are reissued as a
that the financial statements were result of adjusting subsequent events
originally issued and the date that they or an error correction, the date the
were reissued if the financial reissued statements are authorized for
statements were revised due to an reissuance is disclosed.
error correction, a Type I subsequent
IAS 10 does not address the
event or retrospective application of
presentation of re-issued financial
US GAAP.
statements in an offering document
when the originally issued financial
statements have not been withdrawn,
but the re-issued financial statements
are provided either as supplementary
information or as a re-presentation of
the originally issued financial statements
in an offering document in accordance
with regulatory requirements.
Short-term loans Short-term loans are classified as long- Shortterm loans refinanced after the
refinanced with long- term if the entity intends to refinance balance sheet date may not be
term loans after balance the loan on a long-term basis and, prior reclassified to long-term liabilities
sheet date to issuing the financial statements, the unless the entity expected and had the
entity can demonstrate an ability to discretion to refinance the obligation
refinance the loan by meeting specific for at least 12 months at the balance
criteria. sheet date.
Convergence

Related parties
Related parties
Similarities and the amounts involved (including

The reporting objective of both ASC 850 and outstanding balances) be disclosed for related
IAS 24 (both titled Related Party Disclosures) is party transactions. Neither standard contains
to make financial statement users aware of the any measurement or recognition requirements
effect of related-party transactions on the for related-party transactions. ASC 850 does
financial statements. The definitions of a not require disclosure of compensation of key
related party are broadly similar, and both management personnel as IAS 24 does, but the
standards require that the nature of the financial statement disclosure requirements of
relationship, a description of the transaction IAS 24 are similar to those required by the SEC
outside the financial statements.
US GAAP IFRS
Scope ASC 850, Related Party Disclosures, IAS 24, Related Party Disclosures,
requires disclosure of all material provides a partial exemption from the
related party transactions, other than disclosure requirements for transactions
compensation arrangements, expense between government-related entities as
allowances and other similar items in well as with the government itself.
the ordinary course of business.
Convergence

Appendix The evolution of IFRS
This appendix summarizes key events in the Phase I The early years
evolution of international accounting standards.
1973: International Accounting 1999: IASC Board approved a
Standards Committee (IASC) formed. restructuring that resulted in the current
The IASC was founded to formulate and International Accounting Standards Board
publish International Accounting Standards (IASB). The constituted IASB structure
(IAS) that would improve financial reporting comprises: (1) the IFRS Foundation, an
and that could be accepted worldwide. independent organization with 22 trustees
In keeping with the original view that who appoint the IASB members, exercise
the IASCs function was to prohibit oversight and raise the funds needed,
undesirable accounting practices, the (2) a Monitoring Board that provides a
original IAS permitted several alternative formal link between the trustees and public
accounting treatments. authorities, (3) the IASB (Board), which has
16 independent Board members, up to three
1994: IOSCO (International Organization
of whom may be part-time members, with
of Securities Commissions) completed
sole responsibility for setting accounting
its review of IASC standards and
standards, (4) the IFRS Advisory Council and
communicated its findings to the IASC.
(5) the IFRS Interpretations Committee
The review identified areas that required
which is mandated with interpreting IFRS,
improvement before IOSCO would consider
and providing timely guidance on matters
recommending IAS for use in cross-border
not addressed by current standards.
listings and offerings.
2000: IOSCO recommended that
1994: IASC Advisory Council formed to
multinational issuers be allowed to use
oversee the IASC and manage its finances.
IAS in cross-border offerings and listings.
1995: IASC developed its Core Standards
April 2001: IASB assumed standard-
Work Program. IOSCOs Technical
setting responsibility. The IASB met with
Committee agreed that the Work Program
representatives from eight national
would result, upon successful completion,
standard-setting bodies to coordinate
in IAS comprising a comprehensive core
agendas and discuss convergence, and
set of standards. The European Commission
adopted existing IAS standards and SIC
(EC) supported this agreement between
Interpretations.
IASC and IOSCO and associated itself with
the work of the IASC toward international February 2002: IFRIC assumed
harmonization of accounting standards. responsibility for interpretation of IFRS.
1997: Standing Interpretations Committee
(SIC) established to interpret IAS.

Phase II 2002 to 2005 Phase III 2006 to present

July 2002: EC required EU-listed February 2006: FASB and IASB published
companies to prepare their consolidated a Memorandum of Understanding (MOU).
financial statements in accordance with The MOU reaffirmed the Boards shared
IFRS as endorsed by the EC, generally objective to develop high quality, common
from 2005 onward. This was a critical accounting standards, and further
milestone that drove the expanded use elaborated on the Norwalk Agreement. The
of IFRS. Boards agreed to proceed along two tracks:
(1) a series of short-term projects designed
September 2002: FASB and IASB
to eliminate major differences in focused
execute the Norwalk Agreement and
areas and (2) the development of new
document a Memorandum of
common standards for accounting practices
Understanding. The Boards agreed to use
regarded as candidates for improvement.
best efforts to make their existing standards
fully compatible as soon as practicable and August 2006: CESR/SEC published a
to coordinate future work programs. joint work plan. The regulators agreed that
they could share issuer-specific matters,
December 2004: EC issued its
following set protocols, and that their
Transparency Directive. This directive
regular reviews of issuer filings would be
required non-EU companies with listings on
used to identify IFRS and US GAAP areas
an EU exchange to use IFRS unless the
that raise questions about quality and
Committee of European Securities
consistent application.
Regulators (CESR) determined that national
GAAP was equivalent to IFRS. CESR said November 2007: SEC eliminated the
in 2005 that US GAAP was equivalent, US GAAP reconciliation for foreign
subject to certain additional disclosure private issuers that use IFRS to file their
requirements. financial statements with the SEC.
April 2005: SEC published the Mid-2007, through 2008: SEC explored
Roadmap. An article published by the the use of IFRS by US companies. The SEC
SEC Chief Accountant discussed the issued a Concept Release seeking comment
possible elimination of the US GAAP on the possible use of IFRS by US domestic
reconciliation for foreign private issuers registrants. In November 2008 the SEC
that use IFRS by 2009, if not sooner. issued for comment an updated proposed
Roadmap.

February 2010: SEC reaffirmed its November 2011: SEC staff issued
commitment to a single set of high-quality two papers as part of its Work Plan:
global accounting standards. In February An Analysis of IFRS in Practice and
2010, the SEC voted unanimously to publish A Comparison of US GAAP and IFRS.
a statement reaffirming its commitment to The SEC staff papers provide additional
the goal of a single set of high-quality global information for the SEC to review before it
accounting standards and expressing support makes its decision.
for the continued convergence of US GAAP July 2012: SEC staff issued its final
and IFRS. The SEC said that after executing a progress report on its Work Plan for
Work Plan to address certain questions, it the Consideration of Incorporating
would be able to make an informed decision International Financial Reporting
about whether and, if so, how and when to Standards into the Financial Reporting
further incorporate IFRS into the US financial System for U.S. Issuers (The Final Report).
reporting system. The report summarized what the staff
October 2010: SEC issued a Progress learned in carrying out the work plan.
Report on its Work Plan. The report does not include a
May 2011: SEC staff published a paper recommendation to the Commission about
detailing a possible approach for whether or how to incorporate IFRS into the
incorporating IFRS into the US financial US financial reporting system.
reporting system. The SEC staff said the The report notes that the Commission still
approach could achieve the goal of a single needs to analyze and consider the threshold
set of high-quality accounting standards and question whether and, if so, how and
could minimize the cost and effort needed when IFRS should be incorporated into the
to incorporate IFRS into the US financial US financial reporting system.
reporting system.
As a result, we do not expect a decision
Spring through fall 2011: Convergence from the Commission in the near term.
schedule delayed. The FASB and the IASB
extend their timetables for completing their December 2014: SEC Chief Accountant
priority convergence projects beyond their expressed an interest in voluntary
target of June 2011. The Boards decided disclosure of IFRS information. In his
to re-expose proposals on revenue speech at the 2014 AICPA National
recognition and leases. Conference on Current SEC and PCAOB
Developments, the SEC Chief Accountant
July 2011: SEC staff sponsored a said the SEC staff is exploring a new
roundtable to discuss benefits or alternative that would allow US issuers to
challenges in potentially incorporating voluntarily disclose IFRS information as a
IFRS into the financial reporting system supplement to their US GAAP financial
for US issuers. The participants discussed statements without including reconciliation
investors understanding of IFRS, the impact to the most directly comparable US GAAP
on smaller public companies and on the measure.
benefits and challenges in potentially
incorporating IFRS into the financial
reporting system for US issuers.

IFRS resources
EY offers a variety of online resources that things to consider as you research the
provide more detail about IFRS as well as potential impact of IFRS on your company.
www.ey.com/ifrs AccountingLink
EYs global website contains a variety of free AccountingLink, at ey.com/us/accountinglink, is
resources, including: a virtual newsstand of US technical accounting
guidance and financial reporting thought
IFRS Developments announces significant
leadership. It is a fast and easy way to get
decisions on technical topics that have a
access to the publications produced by EYs
broad audience, application or appeal.
US Professional Practice Group as well as the
Applying IFRS Applying IFRS provides more latest guidance proposed by the standard setters.
detailed analyses of proposals, standards or AccountingLink is available free of charge.
interpretations and discussion of how to
Global Accounting & Auditing
apply them.
Information Tool (GAAIT)
Other technical publications including a GAAIT-Client Edition contains EYs comprehensive
variety of publications focused on specific proprietary technical guidance, as well as all
standards and industries. standard setter content. GAAIT-Client Edition
is available through a paid subscription.
International GAAP Illustrative Financial
Statements a set of illustrative interim International GAAP
and annual financial statements that Written by EY and updated annually, this is a
incorporates applicable presentation and comprehensive guide to interpreting and
disclosure requirements. Also provided is a implementing IFRS and provides insights into
range of industry-specific illustrative how complex practical issues should be resolved
financial statements. in the real world of global financial reporting.
International GAAP Disclosure checklist
a checklist designed to assist in the
preparation of financial statements in
accordance with IFRS, as issued by the
IASB, and in compliance with the disclosure
requirements of IFRS.
From here you can also locate information
about free web-based IFRS training and our
Thought center webcast series.
Please contact your local EY representative for information about any of these resources.

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About EYs International Financial Reporting Standards Group

A global set of accounting standards provides the global economy with one
measure to assess and compare the performance of companies. For
companies applying or transitioning to International Financial Reporting
Standards (IFRS), authoritative and timely guidance is essential as the
standards continue to change. The impact stretches beyond accounting and
reporting, to key business decisions you make. We have developed
extensive global resources people and knowledge to support our clients
applying IFRS and to help our client teams. Because we understand that
you need a tailored service as much as consistent methodologies, we work
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US GAAP

Convergence in several important areas Key updates

US GAAP versus IFRS The basics | 2

considerations and a review of all company

US GAAP versus IFRS The basics | 3

Similarities changes in shareholders equity to be

US GAAP versus IFRS The basics | 4

Income statement Prior to the adoption of ASU 2015-01, Prohibited.

US GAAP versus IFRS The basics | 5

Disclosure of No general requirements within Certain traditional concepts such as

US GAAP versus IFRS The basics | 6

US GAAP versus IFRS The basics | 7

Similarities and provide for similar disclosure requirements.

US GAAP versus IFRS The basics | 8

equity method investees/associates

US GAAP versus IFRS The basics | 9

Preparation of Required, although certain industry- Required, although certain industry-

Preparation of Investment companies do not Investment companies (investment

US GAAP versus IFRS The basics | 10

US GAAP versus IFRS The basics | 11

US GAAP versus IFRS The basics | 12

US GAAP versus IFRS The basics | 13

Convergence In June 2016, the FASB issued an exposure

US GAAP versus IFRS The basics | 14

Similarities Upon obtaining control of another entity, the

Measurement of Noncontrolling interest is measured at Noncontrolling interest components

Acquirees operating If the terms of an acquiree operating Separate recognition of an intangible

US GAAP versus IFRS The basics | 15

US GAAP versus IFRS The basics | 16

Adjustments to An acquirer recognizes measurement- An acquirer recognizes measurement-

Other differences may arise due to different

US GAAP versus IFRS The basics | 17

US GAAP versus IFRS The basics | 18

Similarities Permissible techniques for cost measurement,

US GAAP versus IFRS The basics | 19

US GAAP versus IFRS The basics | 20

Cost Assets held for sale

US GAAP versus IFRS The basics | 21

Depreciation of asset Component depreciation permitted but Component depreciation required if

Other differences include: hedging gains and Convergence

US GAAP versus IFRS The basics | 22

Similarities research phase of research and development

US GAAP versus IFRS The basics | 23

Revaluation Revaluation is not permitted. Revaluation to fair value of intangible

Convergence (subsequent accounting for goodwill and

US GAAP versus IFRS The basics | 24

Assignment of goodwill Goodwill is assigned to a reporting unit, Goodwill is allocated to a cash-

US GAAP versus IFRS The basics | 25

Method of determining Companies have the option to Qualitative assessment is not

Method of determining Companies have the option to Qualitative assessment is not

Level of assessment Indefinite-lived intangible assets If the indefinite-lived intangible asset

US GAAP versus IFRS The basics | 26

Convergence The IASB has a similar project on its research

US GAAP versus IFRS The basics | 27

Similarities IFRS 7, Financial Instruments: Disclosures; and

Debt vs. equity

Classification US GAAP specifically identifies certain Classification of certain instruments

Compound (hybrid) Compound (hybrid) financial instruments Compound (hybrid) financial

US GAAP versus IFRS The basics | 28

Recognition and measurement

US GAAP versus IFRS The basics | 29

Impairment Impairment of an AFS equity instrument Impairment of an AFS equity

US GAAP versus IFRS The basics | 30

Derivatives and hedging