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o FASB Accounting Standards Codification
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o Key Differences Between U.S. GAAP and IFRSs
Uncertainty in income taxes
Asset retirement obligations
Contingencies
Discontinued operations
Earnings per share
Embedded derivatives
Employee stock ownership plans
Fair value option (after adoption of IFRS 9): Key differences between U.S. GAAP and IFRSs
Fair value option (before adoption of IFRS 9): Key differences between U.S. GAAP and IFRSs
Goodwill and other intangible assets
Impairment of long-lived assets to be held and used or to be disposed of by sale
Income taxes
Inventories
Investments in debt and equity securities (after adoption of IFRS 9)
Investments in debt and equity securities (before adoption of IFRS 9): Key differences
between U.S. GAAP and IFRSs
Issuers' accounting for debt and equity capital transactions
Leases
Loan receivables (after adoption of IFRS 9)
Loan receivables (before adoption of IFRS 9)
Offsetting of financial assets and financial liabilities in the balance sheet
Sales of real estate
Statement of cash flows
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Key Differences Between U.S. GAAP and IFRSs
 o Uncertainty in income taxes
o Asset retirement obligations
o Contingencies
o Discontinued operations
o Earnings per share
o Embedded derivatives
o Employee stock ownership plans
o Fair value option (after adoption of IFRS 9): Key differences between U.S. GAAP and IFRSs
o Fair value option (before adoption of IFRS 9): Key differences between U.S. GAAP and IFRSs
o Goodwill and other intangible assets
o Impairment of long-lived assets to be held and used or to be disposed of by sale
o Income taxes
o Inventories
o Investments in debt and equity securities (after adoption of IFRS 9)
o Investments in debt and equity securities (before adoption of IFRS 9): Key differences between
U.S. GAAP and IFRSs
o Issuers' accounting for debt and equity capital transactions
o Leases
o Loan receivables (after adoption of IFRS 9)
o Loan receivables (before adoption of IFRS 9)
o Offsetting of financial assets and financial liabilities in the balance sheet
o Sales of real estate
o Statement of cash flows

Loan receivables (after adoption of IFRS 9): Key differences between U.S. GAAP
and IFRSs
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IFRS 9, Financial Instruments, was issued in November 2009, replacing the requirements of IAS
39, Financial Instruments: Recognition and Measurement, for classifying and measuring financial
assets. In October 2010, IFRS 9 (2010) was issued to (1) incorporate new requirements on account-
ing for financial liabilities and (2) carry over certain requirements that were previously included in
IAS 39 for derecognizing financial assets and financial liabilities. The IASB voted in July 2013 to
eliminate IFRS 9's mandatory effective date.
IFRS 9 (2013) was issued in November 2013 to include a new general hedge accounting model and
to allow early adoption of its accounting treatment of fair value changes attributable to own credit
risk on financial liabilities measured at fair value through profit or loss under the fair value option.
The IASB tentatively decided at its February 2014 meeting to set January 1, 2018, as the effective
date for the mandatory application of IFRS 9. Early application is permitted.
Entities have the option of adopting IFRS 9 (2009) without applying the provisions of IFRS 9
(2010). Likewise, entities have the option of adoption IFRS 9 (2010) without applying the provi-
sions of IFRS 9 (2013). However, an entity adopting IFRS 9 (2010) must apply all the provisions of
IFRS 9 (2009), and an entity adopting IFRS 9 (2013) must apply all the provisions of IFRS 9
(2010).
In this comparison, it is assumed that an entity has adopted IFRS 9 (any version).

Under U.S. GAAP, ASC 310 is the primary source of guidance on loan receivables.
Under IFRSs, IFRS 9 and IAS 39 are the primary sources of guidance on classifying and mea-
suring loan receivables while IAS 39 is the primary source of guidance on impairment and
income recognition of loan receivables.
This comparison does not address differences in the recognition and measurement of loan re-
ceivables that are accounted for as investments in debt securities under U.S. GAAP.
The table below summarizes these differences and is followed by a detailed explanation of each
difference.

U.S. GAAP IFRSs

A debt instrument (e.g., a loan receivable or

Generally, loan receivables are classified as
either held for sale (HFS) or held for invest-
ment (HFI). Depending on their classifica-
tion, loan receivables are measured at either
(1) the lower of cost or fair value (for HFS
loans) or (2) amortized cost (for HFI loans).
Classifica- Loan receivables are also eligible for elec-
tion and tion of the fair value option under ASC 825-
measure- 10, in which case they would be carried at
ment of loan fair value, with changes in fair value recog-
receivables nized in earnings.
debt security) that (1) is held within a busi-
ness model whose objective is to collect the
contractual cash flows and (2) has contrac-
tual cash flows that are solely payments of
principal and interest on the principal
amount outstanding generally must be clas-
sified and measured at amortized cost. All
other debt instruments held must be classi-
fied and measured at fair value through
profit or loss.
Debt instruments are eligible for the fair
value option in IFRS 9 if an accounting mis-
match would otherwise arise, in which case
they would be carried at fair value, with
changes in fair value recognized in profit or
loss.

Recognition A loan is impaired if it is probable that a A loan is impaired if there is objective evi-
of loan im- creditor will be unable to collect all dence that impairment exists as a result of a
pairment amounts due. loss event.

The effective interest rate is computed on

The effective interest rate is computed on
the basis of the contractual cash flows over
the contractual term of the loan, except for
(1) certain loans that are part of a group of
Interest prepayable loans, and (2) purchased loans
method for which there is evidence of credit deterio-
computation ration. Therefore, loan origination fees,
of the effec- direct loan origination costs, premiums, and
tive interest discounts typically are amortized over
rate the contractual term of the loan.
the basis of the estimated cash flows that
are expected to be received over the ex-
pected life of a loan by considering all of
the loans contractual terms (e.g., prepay-
ment, call, and similar options). Therefore,
fees, points paid or received, transaction
costs, and other premiums or discounts are
deferred and amortized as part of the calcu-
lation of the effective interest rate over
the expected life of the instrument.

Retrospective approach If estimated Cumulative catch-up approach If esti-

Interest payments for certain groups of prepayable mated payments are revised, the carrying
method loans are revised, an entity may adjust the amount of the financial asset is adjusted to
 U.S. GAAP IFRSs

revisions in net investment in the group of loans, on the
estimates basis of a recalculation of the effective yield
to reflect actual payments to date and antici-
pated future payments, to the amount that
would have existed had the new effective
yield been applied since the loans origina-
tion/acquisition, with a corresponding
charge or credit to interest income.
reflect actual receipts and revised estimates
of future cash flows by computing the
present value of future estimated cash flows
at the financial assets original effective in-
terest rate and recognizing the adjustment as
income or expense within profit or loss.
This treatment applies not just to groups of
prepayable loans, but to all financial assets
that are subject to the effective interest
method.

Interest No specific guidance on the recognition, Interest income is recognized by using the
recognition measurement, or presentation of interest interest rate used to discount the future cash
on impaired income on an impaired loan, except for flows in the measurement of the impairment
loans loans within the scope of ASC 310-30. loss.

Classification and Measurement of Loan Receivables

Under U.S. GAAP, loan receivables that are not in the form of debt securities generally are clas-
sified as either held for sale or held for investment. ASC 948-310-35-1 states that HFS mort-
gage loans should be carried at the lower of cost or fair value. In addition, HFS nonmortgage
loans should also be carried at the lower of cost or fair value in accordance with ASC 310-10-
35-48. Further, an entity can elect the fair value option for loan receivables under ASC 825-10,
in which case they would be carried at fair value, with changes in fair value recognized in earn-
ings. Loan receivables that are not held for sale but that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff are measured at their outstanding
principal balance, adjusted for charge-offs, allowances for loan losses, and other amounts in ac-
cordance with ASC 310-10-35-47.
A loan receivable that is in the form of a debt security is accounted for under ASC 320. Further,
the subsequent measurement of loan receivables and other nonderivative financial assets that
can contractually be prepaid or otherwise settled in such a way that the holder would not
recover substantially all of its recorded investment is similar to that for investments in available-
for-sale or trading debt securities under ASC 320, even if they are not in the form of debt securi-
ties (see ASC 860-20-35-2).
Under IFRSs, paragraphs 4.1.14.1.5 of IFRS 9 provide guidance on classifying and measuring
loan receivables and other financial assets. A debt instrument (e.g., a loan receivable or debt
security) that (1) is held within a business model whose objective is to collect the contractual
cash flows and (2) has contractual cash flows that are solely payments of principal and interest
on the principal amount outstanding generally must be classified and measured at amortized
cost. All other debt instruments held must be classified and measured at fair value through profit
or loss. If the specified condition for election of the fair value option in paragraph 4.1.5 of IFRS 9
is met (i.e., an accounting mismatch would arise otherwise), an entity may classify and measure
the debt instrument at fair value, with changes in fair value recognized in profit or loss, rather
than at amortized cost.
Recognition of Loan Impairment
Under U.S. GAAP, ASC 310-10-35-16 states that a loan is considered impaired if it is probable
that a creditor will be unable to collect all amounts due according to the contractual
terms.1 ASC 310-10-20 defines probable as likely to occur.
Under IFRSs, paragraph 58 of IAS 39 states that an entity must determine whether there is ob-
jective evidence that impairment exists rather than focus on whether it is probable that all
amounts due will be collected. As indicated in paragraph 59 of IAS 39, a financial asset is im-
paired if there is objective evidence of impairment as a result of one or more events that oc-
curred after the initial recognition of the asset (a loss event). A loss event must have an impact
on future cash flows that can be reliably estimated. Paragraph 59 of IAS 39 lists the following
examples of loss events:

significant financial difficulty of the issuer or obligor;

a breach of contract, such as a default or delinquency in interest or principal payments;

the lender, for economic or legal reasons relating to the borrowers financial difficulty, granting
to the borrower a concession that the lender would not otherwise consider;

it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

the disappearance of an active market for that financial asset because of financial difficulties;
or

observable data indicating that there is a measurable decrease in the estimated future cash
flows from a group of financial assets since the initial recognition of those assets.

Interest Method Computation of the Effective Interest Rate

Under U.S. GAAP, the effective interest rate used to recognize interest income on loan receiv-
ables generally is computed in accordance with ASC 310-20-35-26 on the basis of the contrac-
tual cash flows over the contractual term of the loan. Prepayments of principal are not antici-
pated. As a result, loan origination fees, direct loan origination costs, premiums, and discounts
typically are amortized over the contractual term of the loan. However, ASC 310-20-35-26 indi-
cates that if an entity holds a large number of similar loans for which prepayments are probable
and the timing and amount of prepayments can be reasonably estimated, the entity may con-
sider estimates of future principal prepayments in calculating the effective interest rate. In addi-
tion, if an entity purchases an investment in a loan for which there is evidence of credit deterio-
ration, the effective interest rate is computed on the basis of expected cash flows under ASC
310-30-30-2.
Under IFRSs, paragraph 9 of IAS 39 defines the effective interest rate of a financial asset or fi-
nancial liability as the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument . . . to the net carrying amount of the finan-
cial asset or financial liability. Therefore, unlike ASC 310 under U.S. GAAP, IAS 39 requires an
entity to use the effective interest method to compute the effective interest rate on the basis of
the estimated cash flows that are expected to be received over the expected life of a loan
considering all contractual terms (e.g., prepayment, call, and similar options, but excluding
future credit losses). As a result, fees, points paid or received, transaction costs, and other pre-
miums or discounts are deferred and amortized as part of the calculation of the effective interest
rate over the expected life of the instrument. In the unlikely event that it is not possible to reli-
ably estimate the cash flows or the expected life of the loan, an entity should use the contractual
cash flows over the full contractual term. In addition, paragraph AG5 of IAS 39 states that if a
financial asset is acquired at a deep discount that reflects incurred credit losses, entities
should include those incurred losses in the computation of the effective interest rate.
Interest Method Revisions in Estimates
Under U.S. GAAP, ASC 310-20-35-26 indicates that in applying the interest method, an entity
should use the payment terms required in the loan contract without considering the anticipated
prepayment of principal to shorten the loan term. However, if the entity can reasonably estimate
probable prepayments for a large number of similar loans, the entity may include an estimate of
future prepayments in the calculation of the constant effective yield under the interest method. If
prepayments are anticipated and there is a difference between the anticipated prepayments and
the actual prepayment received, the effective yield should be recalculated to reflect actual pay-
ments received to date and anticipated future payments. The net investment in the loans should
be adjusted to reflect the amount that would have existed had the revised effective yield been
applied since the acquisition or origination of the loans, with a corresponding charge or credit to
interest income. In other words, under U.S. GAAP, entities may use a retrospective approach
in accounting for revisions in estimates related to such groups of loans.
Under IFRSs, IAS 39 requires entities to use a cumulative catch-up approach when changes
in estimated cash flows occur. Specifically, paragraph AG8 of IAS 39 states, in part:
 If an entity revises its estimates of payments or receipts, the entity shall adjust the carrying
amount of the financial asset or financial liability (or group of financial instruments) to reflect
actual and revised estimated cash flows. The entity recalculates the carrying amount by com-
puting the present value of estimated future cash flows at the financial instruments original ef-
fective interest rate . . . . The adjustment is recognised in profit or loss as income or expense.

Interest Recognition on Impaired Loans

The recognition, measurement, or presentation of interest income on an impaired loan is not
specifically addressed in U.S. GAAP, except for impaired loans within the scope of ASC 310-30.
Potential methods for recognizing interest income on an impaired loan include:
o Interest method Changes in the present value of a loan that are (1) attributable to the
passage of time are accrued as interest income or (2) attributable to changes in the amount or
timing of expected cash flows are recognized as bad-debt expense.
o Bad-debt expense method The entire change in the present value of the loan is recognized
as bad-debt expense that results in the same income statement impact as the interest method
without reflecting the discount accretion from the time value of money.
o Cash basis method Interest payments received are recognized as interest income, so long as
that amount does not exceed the amount that would have been earned under the effective inter-
est rate.
o Modified cost recovery method The entire payment received is applied against the investment
in the loan. Once the recorded investment has been recovered, all excess amounts are recog-
nized as interest income.
Under IFRSs, IAS 39 includes specific guidance on recognizing income on an impaired loan.
Paragraph AG93 of IAS 39 states:

Once a financial asset or a group of similar financial assets has been written down as a result of
an impairment loss, interest income is thereafter recognised using the rate of interest used to
discount the future cash flows for the purpose of measuring the impairment loss.

____________________
1 For loans within the scope of ASC 310-30, ASC 310-30-35-10 states that a loan is considered impaired if it is probable
that the investor [will be] unable to collect all cash flows expected at acquisition plus additional cash flows expected to be
collected arising from changes in estimate after acquisition.

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