US GAAP: Domestic public companies/publicly traded companies (cotizan en bolsa) must use it.

IFRS are permitted but not required for public companies. The rest can choose which one to use.
However, most financial institutions require US GAAP-compliant financial statements.

the Accounting Standards Codification (ASC) is the current single source of United States
Generally Accepted Accounting Principles (GAAP). It is maintained by the Financial
Accounting Standards Board (FASB).
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Joint Ventures: se unen para llevar a cabo un proyecto, ninguna tiene el control único.

Business combinations: Merger vs acquisition: se unen para formar una nueva empresa. A merger
occurs when two separate entities of similar size combine forces to create a new, joint
organization. Meanwhile, an acquisition refers to the takeover of one entity by another.

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Transactions excluded from ASC 805 (NOT BUSINESS COMBINATIONS):

- Joint Ventures (there is one exception, corporate joint ventures)

- Acquisition of an asset or a group of assets that does not constitute a business
- Combinations involving entities or businesses under common control (transacciones
entre subsidiarias)
- Combinations between not-for-profit organizations and acquisitions made by not-for-
profit organizations
- Financial assets and financial liabilities of a consolidated VIE that is a collateralized
financing entity (entity with no business purpose other than to issue beneficial
interests in the financial assets it holds)
Acquisition of assets:

- se compran uno o más activos netos

- COSTO (precio + gastos). No hay plusvalía, la diferencia de valor se incluye en el
costo
Difference between Business comb and Asset acquisition:
Business combination requires that the assets acquired and liabilities assumed constitute a
business. If the assets acquired are not a business, the reporting entity shall account for the
transaction or other event as an asset acquisition.
An asset acquisition transaction uses a cost accumulation model, whereas a business
combination within the scope of ASC 805, “Business Combinations,” uses a fair value
model.

Acquisition of assets https://www.cpajournal.com/2022/04/04/asset-acquisition-accounting/

Business combination

Definition: transaction which an acquirer obtains control of one or more businesses.

Screen test: designed to identify whether a transaction is a business combination or an asset

acquisition. It is critical to determine whether the acquired set is a business because the accounting
treatment for a business combination under ASC 805 differs from the accounting for an asset
acquisition.

Conditions:
- Business: an integrated set of activities and assets that is capable of being conducted
and managed for the purpose of providing a return in the form of dividends, lower costs, or
other economic benefits directly to investors or other owners, members, or participants. In
order to be a business, a set needs to have an input and a substantive process that
together significantly contribute to the ability to create outputs.
- Control: is defined as a having a controlling financial interest.
US GAAP
There are two primary consolidation models in ASC 810 the variable interest entity
(VIE) and voting interest entity (VOE) models. Only if the entity is determined not to be a
VIE would the VOE model be applied. Considering this, control can arise from the ownership
percentage or contractual arrangements (VIE).

Identificar si se trata de VIE o VOE model

- VIE (variable interest entity model) ASC 810: A variable interest is an economic
arrangement that exposes or entitles a reporting entity to the economic risks
and/or rewards of the entity.
A variable interest entity (VIE) refers to a legal business structure in which
an investor has a controlling interest despite not having a majority of
voting rights.
Under the VIE model, a controlling financial interest in a VIE exists if the
reporting entity has both:
 1. The power to direct the activities of the VIE that most significantly impact
the VIE’s economic performance.
2. The obligation to absorb the losses or the rights to receive benefits that
could be significant to the VIE.

- VOE (voting interest model): Under the voting interest model, control can be
direct or indirect. The usual condition for a controlling financial interest under
the voting interest model is ownership of over 50% of the outstanding
voting shares. In certain unusual circumstances, control may exist with less
than 50% ownership, when contractually supported. Majority voting interest

Diferencias:
- Consolidating a VIE results in additional disclosure requirements.
- Differences in the definition of control

IFRS 10 Accounting Standards focus on the concept of control in determining

whether a parent-subsidiary relationship exists.
An investor controls an investee when it has all of the following:

 Power over the investee through rights that give it the current ability to
direct the relevant activities that significantly affect the investee's
returns
 Exposure, or rights to variable returns from its involvement with the
investee (returns must vary and can be positive, negative, or both)
 The ability to use its power over the investee to affect the amount of
returns

Acquisition Method for Business Combinations:

Both ASC 805 and IFRS 3 require business combinations to be accounted for using the acquisition
method.

The acquisition method requires all of the following steps:

a. Identifying the acquirer

b. Determining the acquisition date (the date when the acquirer gains control over the acquiree.
cuando se transfiere el control)

c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree on the acquisition date. All of them separately from goodwill
(tangible and intangible assets and liabilities. Fair Value. ASC 805-20-25-1)

Exceptions to fair value: Income taxes, employee benefits.

d. Recognizing and measuring goodwill or a gain from a bargain purchase. Goodwill: Goodwill
represents the excess of the purchase price of an acquired entity over the fair value of net assets
acquired. Representa los futuros beneficios económicos. Diferencia entre lo pagado y el fair value.
Puede ser positive si pagamos un precio por encima de su valuación o negative si pagamos menos de
su valuación).

Es un activo y no se amortiza (salvo excepciones). Under ASC 350-20, GOODWILL IS NOT

AMORTIZED. Rather, an entity’s goodwill is subject to PERIODIC IMPAIRMENT TESTING.

Goodwill = (Consideration paid + Fair value of noncontrolling interest) – (Assets acquired –

Liabilities assumed)

Consideration transferred: es lo que se entrega en forma de pago. Pueden ser assets or equity
interests (acciones).

FAIR VALUE ASC 820 Fair Value Measurements

Fair Value: is the current value of that asset. The price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date
(exit price).

US GAAP Fair Value Approaches

- Market approach: uses prices and other relevant information generated by market
transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of
assets and liabilities, such as a business. (Financial instruments)
- Income Approach: (flujos de fondos descontados) converts future amounts (for example,
cash flows or income and expenses) to a single current (that is, discounted) amount. When
the income approach is used, the fair value measurement reflects current market
expectations about those future amounts. (liabilities, intangible assets, businesses).
- Cost Approach: the amount that would be required currently to replace the service capacity
of an asset (often referred to as current replacement cost). property, plant, and equipment.

US GAAP Fair Value Hierarchy:

 Level 1: observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets
 Level 2: inputs other than quoted prices included in Level 1 that are observable for the
asset or liability either directly or indirectly
 Level 3: unobservable inputs (e.g., a reporting entity’s or other entity’s own data)

- Fair Value. ASC 820 requires that a fair value measurement of a nonfinancial asset take into
account a market participant’s ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would use the asset
in its highest and best use.

NONCONTROLLING INTEREST is the portion of equity (net assets) in a subsidiary not

attributable, directly or indirectly, to the parent. Said differently, it is the ownership interest in
a consolidated subsidiary that is held by an owner other than the reporting entity
ACQUISITION-RELATED COSTS: The acquirer shall account for acquisition-related costs
as expenses in the period in which the costs are incurred and the services are received.
Those costs include finder's fees; advisory, legal, accounting, valuation, and other
professional or consulting fees; general administrative costs, including the costs of
maintaining an internal acquisitions department; and costs of registering and issuing debt
and equity securities.

TRANSACTIONS NOT INCLUDED IN BUSINESS COMBINATION:

In accordance with ASC 805-10-25-21, transactions that are recognized separately
from the business combination are accounted for based on the applicable guidance
in US GAAP. Specific guidance is provided for the following transactions in
connection with a business combination:
 Reimbursement provided to the acquiree or former owners for paying the
acquirer’s acquisition costs (see BCG 2.7.1.2)
 Settlement of preexisting relationships between the acquirer and
acquiree (see BCG 2.7.2)
 Employee compensation arrangements (see BCG 3)

Accounting:
IFRS 10: Requires the parent entity to present consolidated financial
statements.
US GAAP
- Pushdown accounting OPTIONAL (not permitted by IFRS) Pushdown accounting
requires that acquirees adjust the carrying amounts of the assets and liabilities in
their financial statements to reflect the acquisition fair value adjustments that the
acquirer has reflected in its consolidated financial statements as of the date that it
has obtained the control of the acquiree
- Standalone financial statements at Historical cost

CONSOLIDATION STEPS:
- Understand the purpose and scope. Consolidated financial statements are typically
prepared by a parent company that has a controlling interest in its subsidiaries, and
they serve various stakeholders, including investors, lenders, regulatory bodies, and
internal management. (en otros casos puede ser full o proportional)
- Identify reporting entities. Parent and subsidiaries. This involves determining the
entities that are controlled by the parent company, either through ownership of
voting shares or the ability to exercise significant influence.
- Gather Financial information. This includes their trial balances, general ledgers, and
supporting documentation such as transaction records, invoices, and reconciliations.
The financial information should be in accordance with the applicable accounting
standards, such as (GAAP) IFRS). The reporting entities should adhere to the same
accounting policies to ensure consistency in financial reporting. If there are
 differences in accounting policies among subsidiaries, adjustments should be made to
align them with the parent company's policies.

- Eliminate intra-Group Transactions. These transactions can create artificial profits or

losses that do not reflect the true financial position of the group. Common intra-group
transactions that require elimination include intercompany sales, purchases, loans,
dividends, and interest. Intercompany account balances, such as receivables,
payables, and investments, should also be eliminated. Remove both the recorded
amounts and any related unrealized gains or losses. For example, if one subsidiary
sells goods to another subsidiary within the group, the revenue and expense
associated with the transaction should be eliminated.
- Adjust for Unrealized Gains or Losses. For example, if one subsidiary sells goods to
another subsidiary within the group, any unrealized profit on these intercompany
sales should be eliminated.
- Combine Financial Statements. This process typically includes consolidating balance
sheets, income statements, cash flow statements, and statements of changes in
equity. Non-controlling interests should be separately disclosed. Consistency in
accounting policies and practices is crucial to ensure that the financial statements
are comparable and reflect the economic reality of the group.
- Disclose relevant information. Disclosures typically include details about the
subsidiaries, the basis of consolidation, significant accounting policies, contingent
liabilities, related party transactions, and any other relevant information specific to
the group's activities.

*The PARENT Company record the amount paid for the acquisition as
INVESTMENT in assets.
In practice:
- Eliminate Investment in subsidiary and inter-company transact
- Combine assets and liabilities at FV including Goodwill
- Eliminate Subsidiary equity accounts
- Add non-controlling interest portion
- Retain Earnings: consolidated net income or calcular por diferencia A-
P=PN
(S) Elimination of sub equity
(A)Excess of FV over BV.
https://www.youtube.com/watch?v=O3KEBhoXhcc
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LIQUIDATION/DISSOLUTION OF ACQUIRED ENTITIES

Liquidation: The process by which an entity converts its assets to cash or other
assets and settles its obligations with creditors in anticipation of the entity ceasing all
activities.
Dissolution of an entity as a result of that entity being acquired by another
entity or merged into another entity in its entirety and with the expectation of
continuing its business does not qualify as liquidation.

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FINANCIAL STATEMENTS
US GAAP Financial Statement Presentation
IAS 1 Presentation of Financial Statements IFRS
https://www.iasplus.com/en/standards/ias/ias1
US GAAP: Comparative financial statements are not required (are desirable);
however, SEC require balance sheets for the 2 most recent years, while all other
statements must cover the 3 year period ended on the balance sheet date. SEC
Regulation S-K (non-financial info) and S-X (financial information)
IFRS 1 YEAR of comparative is required.
Under U.S. GAAP, financial statements that are issued with the Security & Exchange
Commission (SEC) must include:
- income statement (revenue and expenses)
- balance sheet (assets, liabilities and equity)
- cash flow (movements of cash)
- statement of changes in owner’s equity (company ownership’s changes: initial
investment, gain/losses and net change)
- comprehensive income (income statement+unrealized gain/losses)
https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financial_statement_/financial_statement___18_US/
chapter_4_reporting__US/44_presenting_compre_US.html#pwc-topic.dita_1701235201226260

INCOME STATEMENT:
US GAAP: The income statement can be presented in a “one-step” or “two-
step” format. In a “one-step” format, revenues and gains are grouped together,
and expenses and losses are grouped together.
In a “two-step” format, there are subtotals line items such as gross margin and
operating income separately from non-operating income and net income or
loss.
It can also be presented by function/area or by nature (payroll, advertising,
rent)
IFRS and US GAAP: P/L and OCI can be presented as one or two separate
statements.
BALANCE SHEET
GAAP calls for accounts to be listed in the order of liquidity—or how quickly and
easily they can be converted to cash.
A US GAAP balance sheet is typically presented for two fiscal years in a comparative format,
as described in ASC 205-10-45.
Current Assets: Current assets is used to designate cash and other assets or resources
commonly identified as those that are reasonably expected to be realized in cash or sold or
consumed during the normal operating cycle of the business or one year.

Current Liabilities: Current liabilities is used principally to designate obligations whose

liquidation is reasonably expected during the normal operating cycle or one year.

Cash Flow Statement: https://stratafolio.com/guide-direct-cash-flow-indirect-

cash-flow/
Components/Sections:
1- Cash flow from Operating activities
2- Cash flow from Investing activities
3- Cash flow from Financing activities

Indirect Method
The indirect method is the standard format among U.S. companies, whereby the starting line
item is net income.
Net income is subsequently adjusted for non-cash items (e.g. depreciation & amortization)
and changes in working capital to arrive at cash flow from operations.
Direct Method
In the direct method, net income is not the starting point, but rather, the direct method
explicitly lists the cash received and paid out to third parties during the period.
For example, the flow of cash received from customers and the cash paid to suppliers.

Net Change in Cash = Cash from Operations + Cash from Investing + Cash from
Financing

Ending Cash Balance = Beginning Cash Balance + Net Change in Cash

The cash flow statement is crucial because the income statement and balance
sheet are constructed using the accrual basis of accounting, which largely ignores
real cash flow. Investors and lenders can see how effectively a company
maintains liquidity, makes investments, and collects its receivables.

Accenture financial reports:

- Consolidated balance sheets
- Consolidated Income statements
- Consolidated Statements of comprehensive income
- Consolidated shareholder`s equity statements
- Consolidated cash flows
- Notes to consolidated financial statements.
- Report of independent registered public accounting firm (auditor)

US GAAP BASICS – IFRS

GENERAL LEDGER PRINCIPLES
Elements: assets, liabilities, revenue, expenses.
Double-entry (partida doble): debit and credit. Every transaction is recorded as a
journal entry in two accounts, with a debit to one and a credit to the other.
ACCRUAL VS CASH BASIS ACCOUNTING: The main difference between cash
and accrual accounting is the timing of when revenue and expenses are recognised
in the books. Cash accounting records revenue when money is received and
expenses when money is paid out. Accrual accounting records revenue when it
is earned and expenses when they are incurred.
The accrual method records accounts receivables and payables and, as a result,
can provide a more accurate picture of the profitability of a company, particularly in
the long term.
The cash basis method is not acceptable under GAAP .
INVENTORY VALUATION:

- US GAAP: allows FIFO, LIFO and weighted average-cost method

- IFRS: FIFO and weighted average-cost method.
FIFO inventory items are sold in the same order in which they are purchased or manufactured.
Accounting balance of Inventory account = (2 laptops x $1,000 cost) + (5 laptops at $1,100 cost)
= $7,500

COGS= 8 laptops x $1,000

LIFO It assumes that the most recently purchased or manufactured items are sold first.

Accounting balance of Inventory account = (3 laptops at $1,100 cost) + (10 laptops at $1,000
cost) = $13,300

COGS = (2 laptops x $1,100 LIFO cost)

WAC: takes into account the item's yearly average cost. The entire cost is divided by the total
number of units bought throughout the year to determine the average cost per unit. Se
actualiza cada vez que se compran nuevas unidades.

COGS = (13 laptops x $1,033.33 average cost) = $13,433.33

Accounting balance of inventory account = (2 laptops remaining x $1,033.33 average

cost)

Authorised share capital is the maximum number of shares a company is permitted to

issue at any given time, while issued share capital is the actual number of shares that a
company has sold. Outstanding shares are those that have been sold to the public (not to
the owners or managers of the company).
Other comprehensive income/loss can consist of gains and losses on certain types of
investments, pension plans, and hedging transactions.
Par value of shares, also known as the stated value per share, is the minimum value per
share as decided by the company issuing such shares to the public.
Joint ventures
Structures for creating alliances and gaining entry to or expanding business
operations in various domestic and foreign markets.
A joint venture is a type of business agreement involving two or more parties to
complete a project. Each party in a joint venture has a certain amount of control
and responsibility for the costs associated with the venture, as well as sharing
profits or losses. Joint ventures are commonly used to invest in foreign
and emerging market economies.
The joint venture is an enterprise in and of itself, separated and set apart from
any other business deals or interests in which the partnered companies are
involved.

Key differences between US GAAP and IFRS

Significant influence presumption:

Types of Joint:
Under IFRS Accounting Standards, classification of a joint arrangement as a joint
venture or a joint operation determines the accounting by the investor.
Under US GAAP, in order for an arrangement to be accounted for by the investor as
a joint venture it must meet the accounting definition of a joint venture (i.e., a
corporate joint venture defined as a corporation owned and operated by a small group
of businesses as a separate and specific business or project for the mutual benefit of the
members of the group.). joint venture refers only to jointly controlled entities, where the
arrangement is carried on through a separate entity. There is no definition of a joint
arrangement, nor is there a concept of a joint operation in US GAAP.

US GAAP
Significant Influence: Equity Method
No Influence: Fair Value (ASC 320). If FV is not determinable then report at cost
(ASC 325)
Control: Consolidation (ASC 810) – 2 models:VIE and VOE

Equity Method (ASC 323):

- Significant influence but NOT control on the relevant decisions, over the
operating and financial policies of the investee (for example having 20-50%
interest). However, if it has more than 50%, should apply consolidation.
- Investor Accounting Measure: +Investments at cost + % Profit or Loss
(investor`s income statement) – Dividends Received (investor’s income
statement). Adjust the carrying amount of the investment for changes in the
investor’s share of the investee’s equity.

Example:
US GAAP Alternative Options:
- Fair Value IF AVAILABLE: Equity method investments are financial assets
and are generally eligible for the fair value option under ASC 825-10. However,
if the investor’s interest includes a significant compensatory element and no
bifurcation of the compensatory element is required, the investor is precluded
from electing the fair value option for its equity investment. For example, if an
equity investment included a substantive obligation for the investor to
provide services to the investee, the election of the fair value option
would not be appropriate as it could result in the acceleration of revenue that
should be earned when future services are provided to the investee.
- Proportionate consolidation is appropriate only in limited circumstances. In
limited industries (i.e., in the construction and extractive industries) and certain
undivided interests.
IFRS:

Alternatives to Equity method:

- Fair Value: Investments in associates held by 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 is not permitted