IFRSs and US GAAP

Audit

Audit.Tax.Consulting.Financial Advisory.

IFRSs and US GAAPA pocket comparison

March 2007

An IAS Plus guide

18187 bd IFRS US GAAP 9/3/07 1:09 pm Page a

ContactsGlobal IFRS leadership team

IFRS global office

Global IFRS leaderKen [email protected]

IFRS centres of excellence

Americas

D.J. [email protected]

Asia-Pacific

Hong Kong MelbourneStephen Taylor Bruce [email protected] [email protected]

Europe-Africa

Johannesburg LondonGraeme Berry Veronica [email protected] [email protected]

Copenhagen ParisJan Peter Larsen Laurence [email protected] [email protected]

Deloitte’s www.iasplus.com website provides comprehensive information aboutinternational financial reporting in general and IASB activities in particular.Unique features include:

• daily news about financial reporting globally.

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18187 bd IFRS US GAAP 9/3/07 1:09 pm Page b

IFRSs and US GAAPThe path to convergenceThe Norwalk agreement

In October 2002, following a joint meeting at the offices of the US FinancialAccounting Standards Board (FASB) in Norwalk, Connecticut, the FASB and theInternational Accounting Standards Board (IASB) formalised their commitmentto the convergence of generally accepted accounting principles in the UnitedStates (US GAAP) and International Financial Reporting Standards (IFRSs) byissuing a memorandum of understanding (commonly referred to as ‘the Norwalkagreement’). The two Boards pledged to use their best efforts to:

• make their existing financial reporting standards fully compatible as soon as ispracticable; and

• coordinate their future work programmes to ensure that once achieved,compatibility is maintained.

“Compatible” does not mean word-for-word identical standards, but rathermeans that there are no significant differences between the two sets ofstandards.

Road map for convergence 2006-2008

In February 2006, the IASB and the FASB released a ‘roadmap’ which identifiedshort- and long-term convergence projects.

Short-term projects

For the projects identified as short-term, the goal by 2008 is to reach aconclusion about whether major differences in those few focussed areas shouldbe eliminated through one or more short-term standard-settting projects and,if so, to complete or substantially complete work in those areas. These topicsfor short-term convergence include:

IASB

• Borrowing costs (remove expense option)

• Joint ventures (remove proportionate consolidation option for jointlycontrolled entities and clarify definition)

FASB

• Fair value option for financial instruments (issued as FAS 159 in February 2007)

• Investment properties

• Research and development

• Subsequent events

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Joint

• Impairment

• Income taxes

Long-term projects

The goal for 2008 for the projects listed below is to have made significantprogress in the following areas identified for improvement:

• Business combinations

• Conceptual framework

• Fair value measurement guidance (FAS 157 used by IASB as basis forDiscussion Paper)

• Financial statement presentation

• Post-retirement benefits

• Revenue recognition

• Liabilities and equity

• Financial instruments

• Derecognition

• Consolidations and Special Purpose Entities

• Intangible assets

• Leases

More specific goals have been set for each individual project. The objective is toprovide a timeframe for convergence efforts in the context of both the objectiveof removing the need for IFRS reconciliation requirements by 2009 and theexisting agendas of the FASB and the IASB.

The path to convergence

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Comparison of IFRSs andUS GAAPThe table on the following pages sets out some of the key differences betweenIFRSs and US GAAP as of 28 February 2007.

The summary does not attempt to capture all of the differences that exist or thatmay be material to a particular entity’s financial statements. Our focus is ondifferences that are commonly found in practice.

The significance of these differences – and others not included in this list – willvary with respect to individual entities depending on such factors as the natureof the entity’s operations, the industry in which it operates, and the accountingpolicy choices it has made. Reference to the underlying accounting standardsand any relevant national regulations is essential in understanding the specificdifferences.

The rate of progress being achieved by both the FASB and the IASB in theirconvergence agendas means that a comparison between standards can onlyreflect the position at a particular point in time. You can keep up to date onlater developments via our IAS Plus website, which sets out the IASB agendasand timetables, as well as project summaries and updates.

Abbreviations used in this publication are as follows:

CGU Cash generating unit

FAS Financial Accounting Standard (US)

FASB Financial Accounting Standards Board (US)

FIN FASB interpretation (US)

GAAP Generally Accepted Accounting Principles

GAAS Generally Accepted Auditing Standards

IASB International Accounting Standards Board

IAS(s) International Accounting Standard(s)

IFRS(s) International Financial Reporting Standard(s)

R&D Research and development

SEC Securities and Exchange Commission (US)

SPE(s) Special Purpose Entity(ies)

End-note references indicated in superscript in the comparison table arelocated on page 31.

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IAS/IFRS Topic IFRSs US GAAP

Comparison of IFRSs and US GAAP

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_ Generalapproach

More “principles-based” standardswith limitedapplication guidance.

More ”rules-based”standards with specificapplication guidance.

IFRS 1 First-timeadoption

General principle isfull retrospectiveapplication of IFRSs inforce at the time ofadoption, unless thespecific exceptionsand exemptions inIFRS 1 permit orrequire otherwise.

No specific standard.Practice is generally fullretrospective applicationunless the transitionalprovisions in a specificstandard requireotherwise.

IFRS 1 General Certain exceptions and exemptions at transitionin accordance with IFRS 1 can give rise todifferences between IFRSs and US GAAP in areasthat would not normally give rise to suchdifferences.

IFRS 2 Date formeasuringshare-basedpayments tonon-employees

Modified grant datemethod.

Earlier of counterparty'scommitment to perform(where a sufficiently largedisincentive for non-performance exists) oractual performance.

IFRS 2 Use of historicalvolatility orindustry indexmeasurementfor non-publicentities whenit is notpracticableto estimateexpectedvolatility

Not permitted. Permitted.


IFRS 2 Share-basedpayments withgraded vestingfeatures

Charge is recognisedon an acceleratedbasis to reflect thevesting as it occurs.

An accounting policychoice exists for awardswith a service conditiononly to either: (a) amortisethe entire grant on astraight-line basis over thelongest vesting period, or(b) recognise a chargesimilar to IFRSs.



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IFRS 2 Modificationof an awardby change inperformancecondition(improbableto probable)(Type IIImodifications)

Expense determinedbased on the grantdate fair value.

Expense determinedbased on fair value at themodification date.

IFRS 2 Balance sheetclassification ofshare-basedpaymentarrangements

Focus on whether theaward can be cashsettled.

More detailedrequirements that mayresult in more share-based arrangementsbeing classified asliabilities.

IFRS 3 Date on whichmarketableequitysecuritiesissued asconsiderationin a businesscombinationare measured1

Acquisition date (dateon which controlpasses).

Within a reasonableperiod before and afterthe date that the termsof the acquisition areagreed to andannounced.

IFRS 3 Date on whichcontingentconsiderationis recorded(as part ofconsideration)

Acquisition date (ifthe amount isprobable and can bemeasured reliably).

Generally whencontingency is resolved.




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IFRS 3 Recognising aliability for aplanned post-acquisitionrestructuring1

Only if acquiree hasalready recognised aprovision underIAS 37.

Can be recognised if therestructuring relates tothe acquired businessand certain conditionsare met.

Measuringminorityinterest1

Minority's percent offair values.

Minority interestmeasured at fair valueif entity consolidatedunder the risk andrewards model (FIN 46);otherwise, it is recordedat proportion of historicalcost.

IFRS 3 Purchased in-process R&D1

Can be recognised asan acquired finite lifeintangible asset(amortised), or as partof goodwill if notseparately measurable(not amortised butsubject to an annualimpairment test).

Determine the fair valueof in-process R&D andexpense immediatelyunless it has analternative future use.

IFRS 3 Excess of fairvalue of netassets acquiredover theacquisition cost1

Recogniseimmediately as a gain.

Allocate on a pro ratabasis to reduce thecarrying amounts ofcertain acquired non-financial assets, with anyexcess recognised as anextraordinary gain.

IFRS 3 Combinationsof entitiesunder commoncontrol1

Outside the scope ofIFRS 3 though mergeraccounting (poolingof interests method)is generally used inpractice.

Pooling of interestsmethod is required.

IFRS 3




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IFRS 4 Rights andobligationsunderinsurancecontracts2

IFRS 4 addressesrecognition andmeasurement in onlya limited way. It is aninterim standardpending completionof a comprehensiveproject.

Several comprehensivepronouncements andother comprehensiveindustry accountingguides have beenpublished.

IFRS 4 Derivativesembedded ininsurancecontracts

An embeddedderivative whosecharacteristics andrisks are not closelyrelated to the hostcontract but whosevalue isinterdependent withthe value of theinsurance contractneed not beseparated out andaccounted for as aderivative.

An embedded derivativewhose characteristics andrisks are not closelyrelated to the hostcontract must beaccounted for separately.

IFRS 5 Definition of adiscontinuedoperation

A reportable businessor geographicalsegment or majorcomponent thereof.

A component which maybe an operatingsegment, a reportingunit, a subsidiary, or anasset group (lessrestrictive than the IFRS 5definition).

IFRS 5 Definition of adiscontinuedoperation –continuinginvolvement

Not addressed. Disposing entity shouldhave no continuing cashflows representative ofsignificant continuinginvolvement.

IFRS 5 Presentation ofdiscontinuedoperations

Post-tax income orloss is required on theface of the incomestatement.

Pre-tax and post-taxincome or loss arerequired on the face ofthe income statement.




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IFRS 8 Disclosure ofnon-currentassetsattributable tosegments3

Include intangibleassets.

Exclude intangible assets.

IFRS 8 Disclosure ofmeasure ofliabilities3

Required. Not required.

IFRS 8 ‘Matrix’ formof organisation– identificationof segments3

Operating segmentsare identified on thebasis of the coreprinciple.

Operating segments areidentified based onproducts and services.

IAS 1 Financialstatementpresentation4

Specific line itemsrequired.

Certain standards requirespecific presentation ofcertain items.Public companies aresubject to SEC rules andregulations, which requirespecific line items.

IAS 1 Comparativeprior yearfinancialstatements4

One year comparativefinancial informationis required.

IAS 1 Reporting“comprehensiveincome”4

Can be presented as aseparate financialstatement or in thestatement of changesin equity.

As for IFRSs. In addition,it can be presented withthe income statement.

No specific requirementunder US GAAP topresent comparatives.Generally at least oneyear of comparativefinancial information ispresented. Publiccompanies are subject toSEC rules and regulations,which generally requiretwo years of comparativefinancial information forincome statement,statements of equity andcash flows.




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IAS 1 Departure froma standardwhencompliancewould bemisleading

Permitted in“extremely rare”circumstances toachieve a fairpresentation. Specificdisclosures arerequired.

Not directly addressed inUS GAAP literature,although an auditor may,under GenerallyAccepted AuditingStandards (GAAS) rule203, conclude that byapplying a certain GAAPrequirement the financialstatements aremisleading, therebyallowing for an“override”.

IAS 1 Classificationof liabilities onrefinancing4

Non-current ifrefinancing iscompleted beforebalance sheet date.

Non-current ifrefinancing is completedbefore date of issuanceof the financialstatements.

IAS 1 Classificationof liabilities dueon demanddue to violationof debtcovenant4

Non-current if thelender has granted a12-month waiverbefore the balancesheet date.

Non-current if the lenderhas granted a waiver fora period greater than oneyear (or operating cycle,if longer) before theissuance of the financialstatements or when it isprobable that theviolation will be correctedwithin the grace period,if any, prescribed in thelong-term debtagreement.

IAS 2 Reversal ofinventorywrite-downs

Required, if certaincriteria are met.

Prohibited.




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IAS 2 Measuringinventory atnet realisablevalue even ifabove cost

Permitted only forproducers’ inventoriesof agricultural andforest products andmineral ores and forbroker-dealers’inventories ofcommodities.

Permitted, but based ona specific product(precious metals).

IAS 2 Method fordetermininginventory cost

LIFO is prohibited. LIFO is permitted.

IAS 7 Classificationof interestreceived andpaid in thecash flowstatement4

Interest received – maybe classified asoperating or investing.

Interest paid – may beclassified as operatingor financing.

Must be classified as anoperating activity.

IAS 7 Inclusion ofbank overdraftsin cash for cashflow statementpresentationpurposes

Included if they forman integral part of anentity's cashmanagement.

Excluded.

IAS 12 Classificationof deferred taxassets andliabilities5

Always non-current. Classification is splitbetween current andnon-current componentsbased on the classificationof the underlying assetor liability, or on theexpected reversal of itemsnot related to an assetor liability.

IAS 11 Method ofaccounting forconstructioncontracts whenthe percentageof completioncannot bedetermined

Cost recoverymethod.

Completed contractmethod.




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IAS 12 Recognition ofdeferred taxassets5

Recognise theprobable portion.

Recognise in full andthen reduce by avaluation allowance, forthe non-probableportion.

IAS 12 Subsequentrecognition ofa deferred taxasset after abusinesscombination5

First reduce goodwillto zero, any excesscredited to net profitor loss.

First reduce goodwill tozero, then any other non-current intangibleassets to zero. Anyexcess credited to netprofit or loss.

IAS 12 Reconciliationof actual andexpected taxexpense5

Required for allentities applyingIFRSs; expected taxexpense is computedby applying theapplicable tax rate(s)to accounting profit,disclosing also thebasis on which theapplicable tax rate(s)is(are) computed.

Required for publiccompanies only;expected tax expense iscomputed by applyingthe domestic federalstatutory tax rates to pre-tax income fromcontinuing operations.Non-public companiesmust disclose the natureof the reconciling itemsbut not amounts.

IAS 12 Calculation oftax benefitsrelated toshare-basedpayments5

Deferred tax iscomputed based onthe tax deduction forthe share-basedpayment under theapplicable tax law(i.e. intrinsic value).

Deferred tax is computedbased on the GAAPexpense recognised andtrued up or down atrealisation of the taxbenefit/deficit.

IAS 12 Impact oftemporarydifferencesrelated tointercompanyprofits5

Deferred tax effect isrecognised at thebuyer's tax rate.

Deferred tax effect isrecognised at the seller'stax rate, as if thetransaction had notoccurred.




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IAS 12 ‘Initialrecognition’exemption5

Deferred tax notrecognised for taxabletemporary differencesthat arise from theinitial recognition ofan asset or liability ina transaction that is(a) not a businesscombination, and (b)does not affectaccounting profit ortaxable profit. Nor arechanges in thisunrecogniseddeferred tax asset orliability subsequentlyrecognised.

No similar exemption.

IAS 12 Other specificexemptions tothe basicprinciple thatdeferred tax isrecognised forall temporarydifferences5

Does not have all theexemptionscomparable to thosein US GAAP.

US GAAP has threeadditional exemptionsfrom providing deferredtaxes that differ fromIFRSs, including:leveraged leases,intragroup inventories,and differences related toassets and liabilities thatare remeasured from thelocal currency into thefunctional currency usinghistorical exchange ratesand that result from(1) changes in exchangerates or (2) indexing fortax purposes.

IAS 12 Tax rate formeasuringdeferred taxassets andliabilities6

Use enacted or‘substantivelyenacted’ tax rate.

Use enacted tax rate.




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IAS 12 Measurementof deferredtax onundistributedearnings of asubsidiary5

Must use rateapplicable toundistributed profits.

Generally, US GAAPrequires the use of thehigher of the distributedand the undistributedrates.

IAS 12 Changes indeferred taxesthat wereoriginallycharged orcredited toequity(‘backwardtracing’) 5

The tax effects ofitems credited orcharged directly toequity during thecurrent year areallocated directly toequity. A deferred taxitem originallyrecognised by acharge or credit toshareholders’ equitymay change eitherfrom changes inassessments ofrecovery of deferredtax assets or fromchanges in tax rates,laws, or othermeasurementattributes. Consistentwith the initialtreatment, IAS 12requires that theresulting change indeferred taxes also becharged or crediteddirectly to equity.

‘Backward tracing’ isprohibited. Subsequentchanges are allocated tocontinuing operations.

IAS 12 Uncertain taxpositions5

Accounting for taxconsequences reflectsmanagement’sexpectations.

FIN 48 prescribes amethodology which isbased on the probabilityof a tax position beingsustained.




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IAS 12 Changes inpre-acquisitiontax liabilities ofacquiredentities5

Generally revisepurchase priceallocation if withinthe one yearallocation window.Otherwise recordeffect in incomestatement.

Adjust purchase priceallocation irrespective ofperiod lapsed sinceacquisition.

IAS 14 Basis ofreportablesegments3

Lines of business andgeographical areas.

Components for whichinformation is reportedinternally to topmanagement, which mayor may not be based onlines of business orgeographical areas.

IAS 14 Types ofsegmentdisclosures3

Required disclosuresfor both “primary”and “secondary”segments.

Only one basis ofsegmentation, althoughcertain “enterprise-wide”disclosures are requiredsuch as revenue frommajor customers andrevenue by country.

IAS 14 Accountingbasis forreportablesegments3

Amounts are basedon IFRS measures.

Amounts are based onwhatever basis is usedfor internal reportingpurposes. These amountsshould be reconciled tothe relevant amountscontained in the financialstatements.

IAS 14 Segment result3 Segment resultdefined.

No definition of segmentresult.




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IAS 16 Basis ofmeasurementfor property,plant andequipment

May use eitherrevalued amount orhistorical cost.Revalued amount isfair value at date ofrevaluation lesssubsequentaccumulateddepreciation andimpairment losses.

At historical cost.Revaluations prohibited.

IAS 16 Majorinspection oroverhaul costs

Generally accountedfor as part of the costof an asset.

Either expensed asincurred, deferred andamortised over theperiod until the nextoverhaul, or accountedfor as part of the cost ofan asset.

IAS 16 Measuring theresidual valueof property,plant andequipment

Current net sellingprice assuming theasset were already ofthe age and in thecondition expected atthe end of its usefullife.

Residual value may beadjusted upwards ordownwards.

Generally the discountedpresent value of expectedproceeds on futuredisposal.

Residual value may onlybe adjusted downwards.

IAS 17 Leases of landand buildings7

Land and buildingselements areconsidered separatelyunless the landelement is notmaterial.

Land and buildingelements are generallyaccounted for as a singleunit, unless landrepresents more than25% of the total fairvalue of the leasedproperty.



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IAS 17 Present valueof minimumleasepayments7

Generally would usethe rate implicit in thelease to discountminimum leasepayments.

Lessors must use theimplicit rate to discountminimum lease payments.Lessees generally woulduse the incrementalborrowing rate todiscount minimum leasepayments unless theimplicit rate is known andis the lower rate.

IAS 17 Recognition of again on a saleand leasebacktransactionwhere theleaseback is anoperating lease7

The gain is recognisedimmediately.

Generally, the gain isamortised over the leaseterm.

IAS 17 Recognition ofa gain on a saleand leasebackwhere theleaseback is afinance lease7

The gain is recognisedover the lease term.

The gain is recognisedover the useful life of theasset.

IAS 18 Revenuerecognitionguidance8

General principles areconsistent with USGAAP, but IFRSscontain limiteddetailed or industry-specific guidance.

More specific guidance,particularly with respectto multiple elementarrangements andindustry-specific issues(for example, softwarerevenue recognition). Inaddition, publiccompanies must followmore detailed guidanceprovided by the SEC.





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IAS 19 Terminationbenefits9

No distinctionbetween “special”and other terminationbenefits. Terminationbenefits recognisedwhen the employeris demonstrablycommitted to pay.

Recognise special (one-time) terminationbenefits generally whenthey are communicatedto employees unlessemployees will renderservice beyond a“minimum retentionperiod”, in which casethe liability is recognisedratably over the futureservice period. Recognisecontractual terminationbenefits when it isprobable that employeeswill be entitled and theamount can bereasonably estimated.Recognise voluntarytermination benefitswhen the employeeaccepts the offer.

IAS 19 Recognisingactuarial gainsand lossesdirectly inequity whenthey arise

Permitted. Required.

IAS 19 Recycling inprofit or loss ofactuarial gainsand lossespreviouslyrecognised inequity

Not permitted. Subsequently theseamounts will bereclassified from othercomprehensive incomeand recognised in profitor loss as components ofnet periodic benefit cost.


IAS 19 Recognition ofpast servicecost related tobenefits thathave vested

Recognisedimmediately.

Generally amortised overthe remaining serviceperiod or life expectancy.



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IAS 19 Measurementof gain or losson curtailmentof a benefitplan

A curtailment gain orloss comprises (a) thechange in the presentvalue of the definedbenefit obligation, (b)any resulting changein fair value of theplan assets, and (c) apro rata share of anyrelated actuarial gainsand losses,unrecognisedtransition amount,and past service costthat had notpreviously beenrecognised.

Similar to IFRSs. However,some detailed differencesmay arise in respect of:unrecognised actuarialgains and losses,unrecognised transitionamount and past servicecosts.

IAS 19 Timing ofrecognition ofgains/losses oncurtailment ofa benefit plan

Both curtailmentgains and losses arerecognised when theentity is demonstrablycommitted and acurtailment has beenannounced.

A curtailment loss isrecognised when it isprobable that acurtailment will occur andthe effects are reasonablyestimable. A curtailmentgain is recognised whenthe relevant employeesare terminated or theplan suspension oramendment is adopted,which could occur afterthe entity is demonstrablycommitted and acurtailment is announced.




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IAS 19 Presentation ofpast servicecost

Presented as an offsetor increase to thedefined benefitobligation.

Presented within othercomprehensive incomewith unrecognisedactuarial gains andlosses.

IAS 19 Multi-employerplan that is adefined benefitplan

Should be accountedfor as a definedbenefit plan if therequired informationis available. Otherwiseas a definedcontribution plan.

Accounted for as adefined contributionplan.

IAS 19 Limitation onrecognition ofpension assets

Pension assets cannotbe recognised inexcess of the net totalof unrecognised pastservice cost andactuarial losses plusthe present value ofbenefits availablefrom refunds orreduction of futurecontributions to theplan.

No limitation on theamount that can berecognised.

IAS 21 Foreigncurrencytranslationreserve –accounting fordividendsconsidered tobe returns ofinvestment

Accounted for as adisposal of part of theforeign investmentand relevant part ofthe reserve is recycledto the incomestatement.

No recycling of reserve tothe income statement.




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IAS 23 Borrowingcosts related toassets that takea substantialtime tocomplete10

Capitalisation is anavailable accountingpolicy choice.

Capitalisation ismandatory.

IAS 23 Types ofborrowingcosts eligibleforcapitalisation

Includes interest,certain ancillary costs,and exchangedifferences that areregarded as anadjustment ofinterest.

Generally only includesinterest.

IAS 23 Income ontemporaryinvestment offundsborrowed forconstruction ofan asset

Reduces borrowingcosts eligible forcapitalisation.

Does not reduceborrowing costs eligiblefor capitalisation exceptin certain very limitedcircumstances.

IAS 27 Basis forconsolidation11,12

Control (look togovernance and riskand benefits).

Approach depends onthe type of entity. Forvoting interests, entitiesgenerally look to majorityvoting rights. For variableinterest entities, look to arisks and rewards model.

IAS 27 Special purposeentities11,12

Consolidate if“controlled”.Generally follow thesame principles as forcommercial entities indetermining whetheror not control exists.

If SPE is not a “qualifyingSPE” (QSPE)13, thenassessed whether withinthe scope of risks andrewards model forvariable interest entities.Otherwise, applyguidance based onmajority voting interests.QSPEs are notconsolidated.




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IAS 27 Differentreporting datesof parent andsubsidiaries

Reporting datedifference cannot bemore than threemonths. Must adjustfor any significantinterveningtransactions.

Reporting date differencegenerally should not bemore than three months.Must disclose effects ofany significantintervening transactions.May adjust for suchtransactions.

IAS 27 Differentaccountingpolicies ofparent andsubsidiaries11

Must conformpolicies.

No specific requirement.

IAS 27 Presentation ofminorityinterest11

In equity. Outside of equity, withinthe mezzanine areabetween liabilities andequity.

IAS 28 Differentreporting datesof investor andassociate

Reporting datedifference cannot bemore than threemonths. Must adjustfor any significantinterveningtransactions.

Reporting date differencegenerally should not bemore than three months.Must disclose effects ofany significantintervening transactions.May adjust for suchtransactions.

IAS 28 Differentaccountingpolicies ofinvestor andassociate

Must conformpolicies.

SEC staff does notrequire policies to beconformed provided thatpolicies are in accordancewith US GAAP.

IAS 29 Adjustingfinancialstatements ofan entity thatoperates in ahyperinflation-ary economy

Adjust using a generalprice level indexbefore translating.

Adjust the financialstatements as if thereporting currency of theparent was the entity’sfunctional currency.




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IAS 31 Investments injoint ventures

May use either theequity method orproportionateconsolidation.

Generally use the equitymethod (except inconstruction and oil andgas industries).

IAS 32 Classification ofconvertibledebtinstrumentswith conversionoption fixedamount of cashfor fixednumber ofshares (a“conventional”instrument)

Split the instrumentinto its liability andequity componentsand measure theliability at fair valuewith the equitycomponentrepresenting theresidual.

Equity component willarise only for instrumentswith a beneficialconversion feature thatexists at the inception ofthe instrument.

IAS 32 Offsettingamounts duefrom and owedto two differentparties

Required when andonly when a legallyenforceable right andthe intention to settlenet exist.

Prohibited.

IAS 33 Disclosures ofearnings pershare (EPS)

Basic and dilutedincome fromcontinuing operationsper share and netprofit or loss pershare.

Basic and diluted incomefrom continuingoperations, discontinuedoperations, extraordinaryitems, cumulative effectof a change in accountingpolicy, and net profit orloss per share.

IAS 33 Calculation ofyear-to-date(YTD) dilutedEPS14

Apply the treasurystock method on aYTD basis, that is,do not average theindividual interimperiod calculations.

Average the individualinterim periodincremental shares.




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IAS 33 Contracts thatmay be settledin ordinaryshares or incash, at issuer’soption14

Assume always thatthe contracts will besettled in shares.

Include based onrebuttable presumptionthat the contracts will besettled in shares.

IAS 34 Interimreporting –revenue andexpenserecognition

Interim period is adiscrete reportingperiod (with certainexceptions).

Interim period is anintegral part of the fullyear (with certainexceptions).

IAS 36 Impairmentmethodologyfor long-termassets (otherthan goodwill)that are subjectto amortisation

Impairment isrecorded when anasset's carryingamount exceeds thehigher of the asset'svalue-in-use(discounted presentvalue of the asset'sexpected future cashflows) and fair valueless costs to sell.

Impairment is recordedwhen an asset's carryingamount exceeds theexpected future cashflows to be derived fromthe asset on anundiscounted basis.

IAS 36 Measurementof impairmentloss for long-term assets(other thangoodwill) thatare subject toamortisation

Based on therecoverable amount(the higher of theasset's value-in-useand fair value lesscosts to sell).

Based on fair value,generally based ondiscounted cash flows.

IAS 36 Level ofimpairmenttesting forgoodwill

Cash generating unit(CGU) – the lowestlevel at whichgoodwill is monitoredfor internalmanagementpurposes. This levelcannot be larger thana segment.

Reporting unit – eitheran operating segment orone organisational levelbelow.




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IAS 36 Calculatingimpairment ofgoodwill

One-step: comparerecoverable amountof a CGU (higher of(a) fair value less coststo sell and (b) value-in-use) to carryingamount.

Two steps:

1. Compare fair value ofthe reporting unit withits carrying amountincluding goodwill.If fair value is greaterthan carrying amount,no impairment (skipstep 2).

2. Compare “implied fairvalue” of goodwill,which is determinedbased on ahypothetical purchaseprice allocation, withits carrying amount,recording animpairment loss forthe difference.

IAS 36 Calculatingimpairment ofindefinite-lifeintangibleassets

Calculated bycomparingrecoverable amount(higher of (a) fairvalue less costs to selland (b) value-in-use)to carrying amount.

Calculated by comparingtheir fair value tocarrying amount.

IAS 36 Subsequentreversal of animpairmentloss

Required for allassets, other thangoodwill, if certaincriteria are met.

Prohibited.




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IAS 37 Measurementof provisions9

Best estimate to settlethe obligation, whichgenerally involves theexpected valuemethod.

Discounting required.

Most probable outcometo settle the obligation.If no one item is morelikely than another, usethe low end of the rangeof possible amounts.

Unless specificallypermitted by anaccounting standard,discounting is onlyallowed where the timingand amount of the futurecash flows is fixed anddeterminable.

IAS 37 Measurementof decommiss-ioningprovisions9

Use the current, risk-adjusted rate todiscount the provisionwhen initiallyrecognised. Adjustthe rate at eachreporting date.

Use the current, credit-adjusted risk-free rate todiscount the provisionwhen initially recognised.Do not adjust the rate infuture periods.

IAS 37 Recognition ofrestructuringprovisions9

Recognise if adetailed formal planis announced orimplementation ofsuch a plan hasstarted.

Recognise when atransaction or eventoccurs that leaves anentity little or nodiscretion to avoid thefuture transfer or useof assets to settle theliability. An exit ordisposal plan, by itself,does not create a presentobligation to others forcosts expected to beincurred under the plan.




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IAS 37 Disclosures thatmay prejudiceseriously theposition of theentity in adispute9

"In extremely rarecases" amounts anddetails need not bedisclosed, butdisclosure is requiredof the general natureof the dispute andwhy the details havenot been disclosed.

Disclosure is required.

IAS 38 Developmentcosts15

Capitalise, if certaincriteria are met.

Expense as incurred(except for certainwebsite developmentcosts and certain costsassociated withdeveloping internaluse software).

IAS 38 Revaluation ofintangibleassets

Permitted only if theintangible asset tradesin an active market.

Prohibited.

IAS 39 Option todesignate anyfinancial assetor financialliability to bemeasured atfair valuethrough profitor loss

Option is allowed ifone of three criteria ismet.

Option allowed at iniitialrecognition. Criteria inIFRSs do not apply.

IAS 39 General A more extensive list of differences is included inthe publication iGAAP 2007 Financialinstruments: IAS 32, 39 and IFRS 7 explained.

IAS 39 Investments inunlisted equityinstruments

Measured at fair valueif reliably measurable;otherwise at cost.

Measured at cost less“other than temporary”impairments, if any.




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IAS 39 Foreignexchangedifferences onavailable-for-sale debtinstruments

Changes in fair valueresulting frommovements inexchange rates arereflected in theincome statement asexchange differences.

Changes in fair valueresulting frommovements in exchangerates are reflected inequity and recycled toincome statement wheninstrument is sold.

IAS 39 Reclassificationof financialinstrumentsinto or out ofthe tradingcategory

Prohibited. Permitted but expectedto be rare.

IAS 39 Classificationof financialassets as held-to-maturity

Puttable debtinstruments cannotbe classified as heldto maturity.

No such prohibitionexists.

IAS 39 Effect of sellinginvestmentsclassified asheld-to-maturity

Prohibited from usingheld-to-maturityclassification for thenext two years.

Prohibited from usingheld-to-maturityclassification. SECindicates that prohibitionis generally for two years.

IAS 39 Subsequentreversal of animpairmentloss recognisedin the incomestatement

Required for loansand receivables, held-to-maturity, andavailable-for-sale debtinstruments, if certaincriteria are met.

Prohibited for held-to-maturity and available-for-sale securities.Reversals of valuationallowances on loans arerecognised in the incomestatement.

IAS 39 Derecognitionof financialassets

Combination of risksand rewards andcontrol approach. Canderecognise part of anasset. No “isolation inbankruptcy” test.Partial derecognitionallowed only if specificcriteria are compliedwith.

Derecognise assets whentransferor hassurrendered control overthe assets. One of theconditions is legalisolation. No partialderecognition.




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IAS 39 Use of “partial-term hedges”for financialitems (hedge ofa fair valueexposure foronly a part ofthe term of ahedged item)

Permitted. Although not explicitlyprohibited, these itemswould most probably failthe correlationrequirement of FAS 133and hence not qualify forhedge accounting.

IAS 39 Assume perfecteffectiveness ofa hedge ifcritical termsmatch

Prohibited. Mustalways assess andmeasure effectiveness.

Allowed if the criticalterms of the hedginginstrument and the entirehedged asset or liabilityor hedged forecastedtransaction are the same– “Matched TermsMethod”. Also allowedfor hedge of interest raterisk in a debt instrumentif certain conditions aremet – “ShortcutMethod”.

IAS 39 Application ofthe effectiveinterest ratemethod

Several differences exist between IFRSs andUS GAAP on this topic. Given the case-by-casenature of such calculations, IFRSs and US GAAPspecialists should be consulted as and when acomparative calculation is required.

IAS 39 Impairment ofdebt andequitysecurities

Focus is on ‘lossevents’ that provideobjective evidence ofimpairment.

Impairment is recognisedonly when the decline infair value is other thantemporary.




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IAS 39 Use of “basisadjustments”for cash flowhedges

Cash flow hedge of atransaction resultingin a financial asset orliability – same as USGAAP.

Cash flow hedge of atransaction resultingin a non-financialasset or liability –choice of US GAAP orbasis adjustment.

Cash flow hedge of atransaction resulting inan asset or liability –gain/loss on hedginginstrument that had beenreported in equityremains in equity andreclassified into earningsin the same period theacquired asset orincurred liability affectsearnings. “Basisadjustments” prohibitedfor cash flow hedges.

IAS 39 Macro hedging Fair value hedgeaccounting treatmentfor a portfolio hedgeof interest rate risk isallowed if certainspecified conditionsare met.

Hedge accountingtreatment is prohibited,though similar resultsmay be achieved bydesignating specificassets or liabilities ashedged items.

IAS 39 Written putsover own(treasury)shares

Recognise a grossobligation for thepresent value of thestrike price.

Recognise a derivativetogether withsubsequent changes infair value.

IAS 40 Measurementbasis forinvestmentproperty

Option of (a) historical costmodel (depreciation,impairment) or (b) fair value modelwith value changesthrough profit or loss.

Generally required to usehistorical cost model(depreciation,impairment).




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IAS 40 Propertyinterests heldunder anoperating lease

Accounted for asinvestment propertyunder IAS 40 if heldfor investment andif measured at fairvalue with valuechanges in profit orloss. Otherwiseupfront paymentsare treated asprepayments.

Always treated as aprepayment.

IAS 41 Measurementbasis ofagriculturalcrops,livestock,orchards,forests

Fair value with valuechanges recognisedin profit or loss.

Historical cost is generallyused. However, fair valueless costs to sell is usedfor harvested crops andlivestock held for sale.


Endnotes:

1 The differences may change once the final revised version of IFRS 3(Business Combinations Phase II) (exposure draft released in June 2005) ispublished.

2 The IASB is developing a comprehensive standard on accounting for rightsand obligations under insurance contracts that is consistent with the IASBFramework definitions of assets and liabilities.

3 The joint IASB/FASB project has resulted in the IASB deciding to convergewith US statement FAS 131. IFRS 8 Operating Segments was issued inNovember 2006. It is effective for the periods beginning on or after1 January 2009, with earlier application permitted (may also be subject tolocal endorsement processes). In advance of application of IFRS 8, IAS 14Segment Reporting is the relevant Standard.

4 This issue is being addressed in the joint IASB/FASB project on FinancialStatements Presentation.

5 The FASB and the IASB are addressing some IAS 12 / FAS 109 differences intheir short-term convergence projects.

6 The IASB will retain “substantively enacted” but clarify that it means“virtually certain”.

7 The IASB has a comprehensive project on leases on its Research Agenda.

8 A joint IASB/FASB project on revenue recognition concepts is underway.

9 The differences may change once the final revised versions of IAS 19 andIAS 37 (exposure drafts released in June 2005) are published.

10 The IASB has been addressing elimination of this difference in its short-termconvergence project.

11 The differences may change once the final revised version of IAS 27(exposure draft released in June 2005) is published.

12 The IASB has on its agenda a project on control including SPEs. This willbecome a joint project at a later stage.

13 As defined by FAS 140 Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities.

14 As part of its convergence project, the FASB issued an exposure draft inDecember 2003 that would eliminate these differences. The exposure drafthas not yet been finalised as a standard.

15 The FASB may address this in its short-term convergence project.


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Deloitte IFRS resourcesIn addition to this publication, Deloitte Touche Tohmatsu has a range of toolsand publications to assist in implementing and reporting under IFRSs. Theseinclude:

www.iasplus.com Updated daily, iasplus.com is your one-stop shop forinformation related to IFRSs.

Deloitte’s IFRS e-Learning IFRS training materials, one module for e-Learning Modules each IAS and IFRS and the Framework, with self-tests,

available without charge at www.iasplus.com.

IAS Plus Newsletter A quarterly newsletter on recent developments inInternational Financial Reporting Standards andaccounting updates for individual countries. Inaddition, special editions are issued for importantdevelopments. To subscribe, visit www.iasplus.com.

IFRSs in your Pocket Published in English, French, Spanish, Polish, Danish,Finnish, Chinese, and other languages, this pocket-sized guide includes summaries of all IASB Standardsand Interpretations, updates on agenda projects, andother IASB-related information.

Presentation and Checklist incorporating all of the presentation anddisclosure checklist 2006 disclosure requirements of Standards effective in

2006.

Model financial Model financial statements illustrating the statements presentation and disclosure requirements of IFRSs.

iGAAP 2007 3rd edition (March 2007). Guidance on how to Financial Instruments: apply these complex Standards, including illustrative IAS 32, IAS 39 and examples and interpretations.IFRS7 Explained

First-time Adoption: Application guidance for the “stable platform” A Guide to IFRS 1 Standards effective in 2005.

Share-based Payment: Guidance on applying IFRS 2 to many common A Guide to IFRS 2 share-based payment transactions.

Business Combinations: Supplements the IASB’s own guidance for applying A Guide to IFRS 3 this Standard.

Interim financial Guidance on applying the interim reporting standard, reporting: including a model interim financial report and an A Guide to IAS 34 IAS 34 compliance checklist.


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IFRSs and US GAAP