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Difference between IFRS & US GAAP

National Exchange Actors Association


(NEAA)

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What is IFRS
 IFRS Stands for International Financial Reporting Standards.
 IFRS is principle based standards, interpretation and framework
adopted by International Accounting Standard Board(IASB).
 IFRS are an existing set of high-quality, country neutral
financial reporting standards.
 113+ countries already uses IFRS.
 More judgment is needed for IFRS implementation.
 Its fewer industry specific.

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Requirement for IFRS
 A statement of financial positions.
 A statement of comprehensive income.
 A statement of changes in equity.
 A Cash Flow Statement.
 Notes, including summary of previous accounting policy.

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What is US GAAP?
 US GAAP Stands for US Generally Accepted Accounting Principles.
 It is designed and authorized by Financial Accounting Standards
Board (FASB).
 In 2008, the Securities and Exchange Commission issued a preliminary
"roadmap" that may lead the U.S. to abandon Generally Accepted
Accounting Principles in the future (to be determined in 2011), and to
join more than 100 countries around the world in using the
International Financial Reporting Standards.
 SEC Chairman Chris Cox set out a timetable for all U.S. companies to
drop GAAP by 2016.

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Basic Objectives of GAAP?
 Useful to present to potential investors and creditors and
other users in making rational investment, credit, and other
financial decisions.
 Helpful to present to potential investors and creditors and
other users in assessing the amounts, timing, and uncertainty
of prospective cash receipts.
 About economic resources, the claims to those resources,
and the changes in them.

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Summary Of Significant Differences between IFRS &
US GAAP
Particulars US GAAP IFRS

1. Revenue Industry specific revenue recognition Revenues are recognized when all
Recognition guidelines. Could be different from significant risks and rewards of
what I-GAAP has recognized. ownership are transferred.

2. Balance sheet Balance sheet captions are Balance sheet captions are
presented in order of liquidity presented in the inverse order of
starting with the most liquid assets, liquidity i.e.illiquid items appear
cash. earlier.Requires disclosure of either
Also requires disclosure of changes in equity or changes in
movements in stockholders’ equity, equity other than those arising from
including the number of shares capital transactions with owners and
outstanding for all years presented. distribution of owners.

3. Correction of Restate comparatives.Adjustments Include cumulative effect in current


fundamental errors required to be made topreviously year income statement.
issued financial statements. For material items, restate
comparatives.
4.Derivative and other Gains/losses on hedges of foreign Similar to US GAAP. Except,
financial instrument- entity investments recognized in ineffectiveness of non-derivatives
Measurement of equity. All hedge ineffectiveness recognized in equity.
hedges recognize in the income statement.
of foreign entity Gains/losses held in equity must be
investments. transferred to the income statement
on disposal of investment. 6
Particulars US GAAP IFRS

5. Comprehensive income Unrealized gains/losses on Option to present a statement that


investment and Foreign currency shows all changes or only those
translation disclosed as a separate changes in equity
component of equity. that did not arise from capital
transactions with owners or
distributions to owners.
6. Derivatives and other Measure derivatives and hedge Similar to US GAAP. Gains/losses
financial instrument at fair value: recognize on hedge instrument used to hedge
instruments – changes in fair value in income forecast transaction, included in the
measurement of statement except for effective cash cost of asset/liability ( basis
derivative instruments flow hedges, defer in equity adjustment ).
and hedging activities. until effect of the underlying
transaction is recognized in the
income statement.
Gains/losses on hedge instrument
used to hedge forecast transaction,
included in cost of asset/liability.
7. Business Combinations Only accounted for by the purchase Business combinations under IFRS
method. Several differences can should be accounted for as an
arise in terms of date of acquisition (purchase method).
combination, calculation Where an acquirer cannot be
Of share value to use for purchase identified then the pooling of
price, especially if the I-GAAP interests method should be adopted.
method is ‘amalgamation’.
8. Cash Flow Statement Mandatory for all entities. Mandatory for all entities.
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Particulars US GAAP IFRS
9. Property, Plant and Revaluations not permitted. Tested for Use historical cost or revalued amounts. .
Equipment impairment whenever events or changes On revaluation, an entire class of assets is
in circumstances indicate that its carrying revalued.
amount may not be recoverable.

10. Share Issue Expenses Expenses are written off when incurred There is no specific requirement under
against proceeds of capital. IFRS.
11. Dividends Dividends are accounted for when Dividends are classified as a financial
approved by the Board/shareholders. If liability and are reported in the income
the approval is after the year end, the statement as an expense. If dividends are
dividend is not considered as a declared subsequent to the balance sheet
subsequent event to adjust the financials. date, it is not recognized as a liability.
12. Leases Leases are classified as capital and Similar to US except that the criteria for
operating leases as per certain criteria. distinguishing between capital and
Capital leases are included under revenue leases is different.
property, plant and equipment of the
lessor. Lease rentals on operating leases
are expensed as incurred. Quantitative
thresholds have been defined.

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Particulars US GAAP IFRS
13. Accounting for Foreign All exchange differences are included in All exchange differences are included in
Currency Transactions determining net income for the determining net income for the
period in which differences arise. period in which differences arise.
14. Goodwill Goodwill is not amortized but goodwill is Goodwill is amortized to expense on a
to be tested for impairment annually. systematic basis over its useful life with a
maximum of twenty years. The straight
line method should be adopted unless the
use of any other method can be justified.
15 Negative Goodwill (i.e. the Negative goodwill is allocated to reduce Negative goodwill that relates to
excess of the fair value proportionately the value assigned to expectations of future losses and
of net assets acquired over non-current assets. Any remaining excess expenses should be recognized as income
the aggregate purchase Is considered to be extraordinary gain. when the future losses and expenses are
consideration) recognized. Where it does not relate to
identifiable future losses and expenses, an
amount not exceeding the fair values of
the acquired identifiable non-monetary
Assets should be recognized as income on
a systematic basis over the remaining
weighted average useful life of such assets
and the balance, if any immediately
charged to income.
16. Related parties Related parties are determined based on Similar to US GAAP except that the
common ownership and control. existence of related parties are to be
Disclosure required of all material related disclosed even if there are no transactions
party transactions, in particular, the during the period.
nature of relationship involved, a
description of the transactions, the
amounts of the transactions, the amounts
of the transactions for the financial year
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parties at the end of the financial year.
Particulars US GAAP IFRS

17.Pension / Gratuity / Post To be provided for and funded To be provided for and funded
Retirement Benefits based on acturial valuation. based on acturial valuation.
Significant disclosure Significant disclosure
requirements exist. Acturial requirements exist. Acturial
gains/losses are amortized. gains/losses are amortized.

18. Stock Options to Non- Complex guidance with respect to Disclosures required but, no
Employees measurement date and timing of guidance on recognition and
recognition of expense. measurement.

19. Balance sheet Segregation necessary. Disclosed only as part of the


footnotes.

20. Investment and Both appreciation and depreciation ( Similar to US GAAP. Except option
Marketable Securities. if unrealized ) is recognized as Other to recognize gains/losses in AFS e
Comprehensive Income. Separate either income statement or equity.
standard for treatment of cost of However, the selection is a one-time
development of computer software. option. No guideline under IFRS.

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