Professional Documents
Culture Documents
Articles
Standards
IFRS and Other Courses
Our Services
Contact Us
My Account
Why?
I assumed, or better said – I expressed the hope that by 2015, we would have a single set of
the global reporting standards.
Now, it is 2020 and although the world has come closer to the uniform accounting principles
(IFRS), US GAAP is still around and doing pretty well and yes, accountants still face a
challenging task when they need to prepare two different sets of standards.
However, a convergence process of US GAAP and IFRS steadily progresses and yes, some
results are visible by now.
Although most of these new developments brought US GAAP and IFRS closer
together, some other differences arose.
While under IFRS, all new major changes have already been mandatory and effective (except
for insurance – we have to wait until 2023), FASB postponed effective dates to the future for
many entities, which practically means that for a few years, companies may report under
new IFRS, but under older US GAAP rules.
Special For You! Have you already checked out the IFRS Kit ? It’s a full IFRS learning
package with more than 40 hours of private video tutorials, more than 140 IFRS case studies
solved in Excel, more than 180 pages of handouts and many bonuses included. If you take
action today and subscribe to the IFRS Kit, you’ll get it at discount! Click here to check it
out!
As a result, the financial statements under US GAAP can be pretty different from those under
IFRS.
However, one of the major areas – revenue recognition – is aligned, so at least this is the
good news!
Instead, it is up to YOU to draft the format that works for your company in the best way,
depending on the transactions and the activities of a company.
US GAAP also does not prescribe the format – with one exception. If a company is public,
then it must follow the format of financial statements prescribed by the Regulation S-X.
As a separate statement; OR
Within the notes to the financial statements.
Comparative information
As we all know, IFRS requires presenting comparative information for the previous
reporting period.
So, you need to present two statements of financial position and other statements.
And, if you change accounting policy or correct material errors, you even need to present
three statements of financial position, including the one as at the beginning of the earliest
comparative period.
In general, US GAAP does not require presenting comparative information, however – public
entities listed on stock exchange must follow SEC rules and yes, they do present
comparatives.
However, the third balance sheet is not required under US GAAP at any circumstances.
#2 Fair valuation
These two standards are pretty similar in their basic principles of fair value measurement (e.g.
FV hierarchy, observable inputs, market participants, etc.).
Maybe one significant difference is that US GAAP permits using net asset value instead of
fair value for some types of investments (e.g. some interests in private equity funds).
The differences lie more in the measurement rules prescribed by the other standards.
Measurement of PPE (IAS 16): While IAS 16 permits revaluation model (with
periodical revaluation of PPE to their fair value), US GAAP permits only cost model
– no revaluations.
Measurement of investment property (IAS 40): This gets even more interesting,
because US GAAP simply does not know the term “investment property”. Under US
GAAP, you either classify the asset as held-for-sale or as PPE, and you apply cost
model to even those buildings that are held for rental purposes or capital appreciation.
So, no fair values related to PPE under US GAAP.
Biological assets (IAS 41): IFRS widely applies fair value measurement of biological
assets throughout its life, but not US GAAP. Basically growing plants and animals for
sale are held as inventories and measured at cost basis. Moreover, “production”
animals (e.g. cows for milk) are measured on a cost basis and accounted for as PPE
under US GAAP.
As you can see, IFRS is more supportive of fair values than US GAAP.
#3 Leases
So, we would expect elimination of any differences between US GAAP and IFRS, right?
Special For You! Have you already checked out the IFRS Kit ? It’s a full IFRS learning
package with more than 40 hours of private video tutorials, more than 140 IFRS case studies
solved in Excel, more than 180 pages of handouts and many bonuses included. If you take
action today and subscribe to the IFRS Kit, you’ll get it at discount! Click here to check it
out!
I originally started to list those differences here in this article, but I went on and on and thus I
decided to publish the full article dedicated to leases US GAAP vs. IFRS.
For now, let me briefly list a few of them:
This was just a brief overview. There are also some differences in lease modifications, sales
and leaseback and other. In my next article, I will try to come up with some excel example,
too.
#4 Financial instruments
Also, while IFRS basically has a few standards on financial instruments, like IAS 32, IFRS 7
and IFRS 9, US GAAP have greater amount of various pronouncements and topics – that
makes the comparison even more challenging.
Just two main picks for your to illustrate (not to be comprehensive – I would need three
articles to list it all):
You can read a bit more on comparing IFRS and US GAAP rules related to financial
instruments here.
#5 Other differences
Inventories: US GAAP still permits LIFO method, while IFRS does not.
Internally developed intangible assets: IFRS permits capitalizing expenses for
internally developed intangible assets if 6 criteria are met (remember PIRATE). As
opposed to that, US GAAP permits capitalizing expenses for internal development of
software and motion picture film costs under specific criteria, but nothing else.
Impairment loss on non-financial assets: there are slightly different approaches
when calculating impairment loss (US GAAP has 2-step approach). Also, allocation
of impairment loss of CGU differs in respect of goodwill. What is more important, US
GAAP prohibits reversal of impairment loss (IFRS permits it).
Finally…
I really hope that this article gave you the overview of these two sets of standards. I guess
they will still coexist for some time in the future instead of erasing all the differences
instantly.
If you would like to learn more, I would like to draw your attention to three great resources in
US GAAP, all provided in cooperation with Ernst&Young Academy of Business. You can
get more info and 10+% discount here on IFRSbox, but let me brief you:
US GAAP vs. IFRS – Introduction: 2-hour online webinar that will give you quick
introduction to this topic with live tutor. You can ask questions during and after
webinar, and you will have a replay available within month after webinar. 2 CPD
units. Careful: the new date is 10 December 2020, not the one mentioned in the
brochure.
IFRS vs. US GAAP – Main Differences: This one goes much deeper. It is a 2-day
webinar with deeper coverage and practical discussion. Again, ask questions and get
replay within 1-month after the webinar. 14 CPD units.
EY Diploma in Application of US GAAP: This is a certification course for
professionals who need to know US GAAP in depth and also wish to get a diploma. 8
x 1-day online webinars completed with the exam. 7 CPD units per day (56 in total,
spread into two years).