IFRSs and US GAAP

IFRSs and US GAAPWorking towards a single set of global standards The story so far For the past several years, the International Accounting Standards Board IASB and the US Financial Acco

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IFRSs and US GAAP

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IFRSs and US GAAP

Working towards a single set of global standards

The story so far

For the past several years, the International Accounting Standards Board (IASB)

and the US Financial Accounting Standards Board (FASB) have been working

together to achieve convergence of International Financial Reporting Standards

(IFRSs) and generally accepted accounting principles in the United States

(US GAAP) In 2002, as part of the Norwalk agreement, the Boards issued

a Memorandum of Understanding (MOU) formalising their commitment to:

• making their existing financial reporting standards fully compatible as soon

as practicable; and

• co-ordinating their future work programmes to ensure that, once achieved,

compatibility is maintained

Memorandum of Understanding (2008)

On 11 September 2008, an updated MOU was published, which sets out

priorities and milestones to be achieved on major joint projects by 2011

The Boards have acknowledged that, although considerable progress has been

achieved on a number of designated projects, achievements on other projects

have been limited for various reasons, including differences in views over issues

of agenda size and project scope, differences in views over the most appropriate

approach, and differences in views about whether and how similar issues in

active projects should be resolved consistently As a result, the scopes and

objectives of many of the projects have been or are expected to be revised

In updating the MOU, the Boards noted that the major joint projects will take

account of the ongoing work to improve and converge their respective

Conceptual Frameworks Also, the Boards will consider staggering effective dates

of standards to ensure an orderly transition to new standards Consistent with its

current practice, the IASB will consider permitting early adoption of its Standards

The following major joint projects are part of the MOU

(including pensions)

Financial instruments

Securities and Exchange Commission (SEC), over 1,100 are foreign companies.

Prior to November 2007, if these foreign companies submitted IFRS or local

GAAP financial statements, rather than US GAAP, a reconciliation of net income

and net assets to US GAAP was required

Following some progress in converging IFRSs and US GAAP, for fiscal years

ending after15 November 2007, the SEC has permitted foreign private issuers to

use IFRSs in preparing their financial statements without reconciling them to US

GAAP In order to qualify for such exemption, a foreign private issuer’s financial

statements must fully comply with the IASB’s version of IFRSs, with one exception

The exception relates to foreign private issuers that use the version of IFRSs that

includes the European Commission’s ‘carve-out’ for IAS 39 The SEC has permitted

such issuers to use that version in preparing their financial statements for a

two-year period as long as a reconciliation to the IASB’s version of IFRSs is provided

After the two-year period, these issuers will either have to use the IASB’s version

of IFRSs or provide a reconciliation to US GAAP

Recent regulatory developments – United States

With the resolution of the debate regarding foreign private issuers, the focus of

attention has now switched to the potential for US domestic issuers to submit

IFRS financial statements for the purpose of complying with the rules and

regulations of the SEC In a significant step toward that objective, in August

2008 the SEC issued proposals that, if accepted, could allow some U.S issuers,

based on specific criteria, an option to use IFRSs for fiscal years ending on or

after 15 December 2009 and could lead to mandatory transition to IFRSs for

domestic issuers starting for fiscal years ending on or after 15 December 2014

A ‘roadmap’ has been proposed which acknowledges that IFRSs have the

potential to become the global set of high-quality accounting standards and

which sets out seven milestones (set out on the next page) that, if achieved,

could lead to mandatory adoption from 2014

Milestones 1 – 4 (issues that need to be addressed before mandatory

adoption of IFRSs)

1 Improvements in accounting standards (i.e IFRSs)

2 Funding and accountability of the International Accounting Standards

Committee Foundation

3 Improvement in the ability to use interactive data (e.g XBRL) for IFRS

reporting

4 Education and training on IFRSs in the United States

Milestones 5 – 7 (the transition plan for the mandatory use of IFRSs)

5 Limited early use by eligible entities – this milestone would give a limited

number of US issuers the option of using IFRSs for fiscal years ending on

or after 15 December 2009

6 Anticipated timing of future rule-making by the SEC – on the basis of

the progress of milestones 1 – 4 and the experience gained from

milestone 5, the SEC will determine in 2011 whether to require

mandatory adoption of IFRSs for all US issuers If so, the SEC will

determine the date and approach for a mandatory transition to IFRSs

Potentially, the option to use IFRSs when filing could also be expanded

to other issuers before 2014

7 Potential implementation of mandatory use

The differences remaining

In the light of these proposals for change, and the now very real prospect of

all US companies transitioning to IFRSs within the next 7 years, there is a

heightened awareness of differences between IFRSs and US GAAP Our objective

in providing the brief comparison set out in the remainder of this guide is to

provide a snapshot for practitioners of the extent of the gap that needs to

be bridged

AFS Available-for-sale (financial assets)

End-note references indicated in superscript in the comparison table are located

on page 69

Comparison of IFRSs and

US GAAP

The table on the following pages sets out some of the key differences between

IFRSs and US GAAP, based on standards, interpretations and other accounting

literature in issue at 30 June 2008

Since the previous edition of this guide (March 2007), the IASB has issued

substantially revised versions of IFRS 3 Business Combinations, IAS 1

Presentation of Financial Statements and IAS 27 Consolidated and Separate

Financial Statements In addition, IFRS 8 Operating Segments (which replaces

IAS 14 Segment Reporting) was issued in November 2006 These new and

revised Standards will not be effective until 2009 However, in order to provide

the best guide to differences between IFRSs and US GAAP on an ongoing basis,

the comparison table has been updated to reflect the changes to these

Standards and, in the case of IFRS 3 and IAS 27, the equivalent changes in US

GAAP (i.e FAS 141(R) Business Combinations and FAS 160 Non-controlling

Interests in Consolidated Financial Statements For a comparison of the previous

versions of the relevant Standards, please refer to the previous edition of this guide

Throughout this guide, we have also adopted the general terminology changes

arising from IAS 1(2007)

This summary does not attempt to capture all of the differences that exist or

that may be material to a particular entity’s financial statements Our focus is on

differences that are commonly found in practice

The significance of these differences – and others not included in this list – will

vary with respect to individual entities depending on such factors as the nature

of the entity’s operations, the industry in which it operates, and the accounting

policy choices it has made Reference to the underlying accounting standards

and any relevant national regulations is essential in understanding the specific

differences

The rate of progress being achieved by both the IASB and the FASB in their

convergence agendas means that a comparison between standards can only

reflect the position at a particular point in time You can keep up to date on

later developments via our IAS Plus websitewww.iasplus.com, which sets out

the IASB agendas and timetables, as well as project summaries and updates

IFRS Topic IFRSs US GAAP

approach

More based’ standards withlimited applicationguidance

No specific standard

Practice is generally fullretrospective applicationunless the transitionalprovisions in a specificstandard requireotherwise

transition in accordance with IFRS 1 can give rise

to differences between IFRSs and US GAAP inareas that would not normally give rise to suchdifferences

Equity instruments issued

by an employer and held

by an ESOP follow adifferent accountingmodel from other share-based payment awards

of the subsidiary

Classified as equity in theindividual financialstatements of thesubsidiary

An accounting policychoice is permitted forawards with a servicecondition only, to either:

(a) amortise the entiregrant on a straight-linebasis over the longestvesting period; or (b)recognise a charge similar

to IFRSs

Allows for a choice ofmeasurement for gradedvesting share-basedpayment awards as either

a single award (i.e singlegrant-date fair value forthe entire award) or, insubstance, multipleawards

Allows for thecapitalisation ofcompensation cost subject

to the other requirements

of US GAAP, which maydiffer from IFRSs

More detailed requirementsthat may result in moreshare-based arrangementsbeing classified as liabilities

However, also providesspecific exceptions fromliability classification forthose arrangements thatinclude a cash settlementfeature

IFRS Topic IFRSs US GAAP

is, at a minimum, thegrant-date fair value

of the original award

For share-based paymentawards originally notexpected to vest(improbable) that are nowexpected to vest as aresult of a modification,compensation cost isbased on the modifiedaward’s fair value

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

of the performancecondition

Recognise the lowestaggregate amount withinthe range of potentialvalues

of awards to

non-employees

There is a rebuttablepresumption that thefair value of goods orservices received ismore reliablymeasureable than the

Requires the use of themore reliably measureablecomponent

Provides an exception tothe recognition ofcompensation cost foremployee share purchaseplans that meet specifiedcriteria

in accordance withIAS 37.

Contractual contingenciesare recognised at fairvalue (without the ‘reliablymeasurable’ filter) Non-contractual contingenciesare recognised only if it ismore likely than not thatthey meet the definition

of an asset or a liability atthe acquisition date Afterrecognition, entities retainthe initial measurementuntil new information isreceived and thenmeasure liabilities at thehigher of the acquisition-date fair value and theamount under FAS 5

Contingent assets arenot recognised

For assets, measure at thelower of acquisition datefair value and the bestestimate of a futuresettlement amount

payroll taxes

No specific guidance,but generallyrecognised as thecompensation cost isrecognised, or at grantdate (depending onthe terms of theobligation)

Requires recognitionwhen the obligatingevent (generally theexercise of an award)occurs

non-to be measured either

as a proportionateshare of identifiablenet assets acquired or

at fair value Choicemade on anacquisition-by-acquisition basis

Requires measurement atfair value

IFRS Topic IFRSs US GAAP

IFRS 3

(2008)

combinations forwhich the acquisitiondate is in annualreporting periodsbegining on or after

1 July 2009

Effective for acquisitionsthat close in yearsbeginning after

15 December 2008

Early adoptionpermitted but only for annual periodsbeginning on or after

30 June 2007 (IAS 27(2008) to be adopted

at the same time)

Early adoption isprohibited

a limited way It is aninterim Standardpending completion

of a comprehensiveproject

Several comprehensivepronouncements andother comprehensiveindustry accountingguides have beenpublished

interdependent withthe value of theinsurance contractneed not beseparated out andaccounted for as

a derivative

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

Continuinginvolvement notaddressed.

A component which may

be an operating segment,

a reporting unit, asubsidiary, or an assetgroup (less restrictive thanthe IFRS 5 definition)

Disposing entity shouldhave no continuing cashflows representative ofsignificant continuinginvolvement

discontinued

operations2

Post-tax income orloss to be disclosed inthe statement ofcomprehensiveincome (or separateincome statement,where applicable)

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

of an investment in aforeign entity that isbeing evaluated forimpairment

CTA is included in thecarrying amount of aninvestment in a foreignentity that is beingevaluated for impairment

Exclude intangible assets

segment

liabilities3

Required if such ameasure if provided

to the chief operatingdecision maker

Not required

IFRS Topic IFRSs US GAAP

organisation –

identification

of segments3

Operating segmentsare identified on thebasis of the coreprinciple of theStandard

Segments are based onproducts and services

No specific requirementunder US GAAP topresent comparatives

Generally at least oneyear of comparativefinancial information ispresented Public entitiesare subject to SEC rulesand regulations, whichgenerally require twoyears of comparativefinancial information forthe income statementand the statements ofequity and cash flows

Not directly addressed in

US GAAP literature,although an auditor mayconclude, underGenerally AcceptedAuditing Standards(GAAS) rule 203, that byapplying a certain GAAPrequirement the financialstatements are misleading,thereby allowing for an

‘override’

Non-current if refinancing

is completed before date

of issuance of thefinancial statements

Non-current if the lenderhas granted a waiver for

a 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

formulas

The same formulamust be applied to allinventories that have

a similar nature anduse to the entity

The same formula doesnot need to be applied toall inventories that have asimilar nature and use tothe entity

a period to produceinventory isaccounted for as acost of the inventory

ARO is added to thecarrying amount of theproperty, plant, andequipment used toproduce the inventory

IFRS Topic IFRSs US GAAP

inventories ofcommodities

Permitted, but based on aspecific product (preciousmetals)

Interest paid – may beclassified as operating

or financing

Must be classified asoperating

Use of direct or indirectmethod is allowed Underboth methods, netincome must bereconciled to net cashflows from operatingactivities

in the statement ofcash flows or in thenotes.

Does not require separatedisclosure If an entityelects to report cashflows from discontinuedoperations, each categorymust be reportedseparately

in the same category

as the cash flowsfrom the item beinghedged

Allows classification ofcash flows from hedgingactivities in the samecategory as the cashflows from the hedgeditem provided that certainrequirements are met andthat the accounting policy

Requires presentation (as

a separate line item) inthe financing section ofthe statement of cashflows (with an equal andoffsetting amountdisplayed in the operatingsection)

errors

Retrospectiverestatement isrequired, unlessimpracticable

Retrospective restatement

is required; noimpracticabilityexemption available

in relation to newIFRSs in issue but notyet effective

Only SEC registrants arerequired to disclose theeffect of newpronouncements in issuebut not yet effective

IFRS Topic IFRSs US GAAP

Completed contractmethod

of deferred tax

assets and

liabilities6

Always non-current Classification is split

between current andnon-current componentsbased on the

classification of theunderlying asset orliability, or on theexpected reversal of itemsnot related to an asset orliability

deferred tax

assets6

Recognised to theextent that theirrecovery is consideredprobable

Recognised in full andthen reduced by avaluation allowance forthe non-probable portion

Use enacted tax rates

positions6

Accounting for taxconsequences reflectsmanagement’sexpectations

Prescribes a methodologythat is based on theprobability of a taxposition being sustained

Tax expense fromintragroup sales isdeferred until the relatedasset is sold or otherwisedisposed of, and nodeferred taxes arerecognised for the

No deferred tax isrecognised on theremeasurement fromlocal currency tofunctional currency

an asset or liability in

a transaction that is(a) not a businesscombination, and (b)does not affectaccounting profit ortaxable profit Nor arechanges in thisunrecognised deferredtax asset or liabilitysubsequently recognised

in US GAAP

US GAAP has threeadditional exemptionsfrom the requirement torecognise deferred taxthat differ from IFRSs

Deferred tax is computed

on the GAAP expenserecognised and trued up

or down at realisation ofthe tax benefit/deficit

IFRS Topic IFRSs US GAAP

a result of a change inassessment as to therecoverability ofdeferred tax assets or

as a result of changes

in tax rates, laws, orother measurementattributes Consistentwith the initialtreatment, IAS 12requires that theresulting change indeferred taxes also berecognised outsideprofit or loss

Backward tracing isgenerally prohibited

Subsequent changes areallocated to continuingoperations

by applying theapplicable tax rate(s)

to accounting profit,disclosing also thebasis on which anyapplicable tax rate iscomputed

Required for publicentities only; expected taxexpense is computed byapplying the domesticfederal statutory rates topre-tax income fromcontinuing operations

Non-public entities mustdisclose the nature of thereconciling items but notthe amounts

of investee unless (1)the investor is able tocontrol the timing ofthe reversal of thetemporary differenceand (2) it is probablethat the temporarydifference will notreverse in theforeseeable future

Deferred tax is recognised

on all undistributedearnings, arising after

1992, of domesticsubsidiaries and jointventures No deferred tax

is recognised onundistributed earnings offoreign subsidiaries andcorporate joint ventures ifthe duration of suchinvestment is consideredpermanent

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

Revalued amount isfair value at date ofrevaluation lesssubsequentaccumulateddepreciation andimpairment losses

of an asset

Either expensed asincurred, deferred andamortised over the perioduntil the next overhaul, oraccounted for as part ofthe cost of an asset

IFRS Topic IFRSs US GAAP

Residual value may beadjusted upwards ordownwards

Generally the discountedpresent value of expectedproceeds on futuredisposal

Residual value may only

be adjusted downwards

asset with differingpatterns of benefitsmust be depreciatedseparately

Component accounting ispermitted, but notrequired

assets with certainexceptions

Only applies to leasesinvolving property, plantand equipment

classification8

The classification of alease depends on thesubstance of thetransaction Specificindicators andexamples areprovided

The classification of alease depends on thelease meeting certainspecified criteria

involving real

estate8

No specific criteria areprovided

Provides specific criteria

and buildings8

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

Lessors must use implicitrate to discount minimumlease payments Lesseesgenerally would use theincremental borrowingrate to discount minimumlease payments unless theimplicit rate is known and

is the lower rate

leases8

No special accountingprovided forleveraged leases

Permits specialaccounting for leveragedleases if specific criteriaare met

or loss over the leaseterm

If the leaseback is anoperating lease,recognition of thegain or loss depends

on whether thetransaction isestablished at, below,

or above fair value

Depends on the extent ofthe seller’s retainedinterest in the asset

Specific requirementsexist for sale andleaseback transactionsinvolving real estate

IFRS Topic IFRSs US GAAP

More specific guidance isprovided to determinewhether revenue should

be recognised In addition,public entities mustfollow more detailedguidance provided by theSEC

loyalty

programmes10

Transactions that result

in award credits areaccounted for asmultiple-elementrevenue transactionsand the fair value ofconsideration received

is allocated betweenthe goods/servicessupplied and theaward credits granted,

by reference to fairvalues

Several methods may beacceptable

if the requiredinformation isavailable Otherwise

as a definedcontribution plan

Accounted for as adefined contribution plan

Classified and accountedfor as a defined benefitplan

in individual groupentities’ financialstatements may varydepending onwhether there is acontractualagreement or policythat states thecharges to eachindividual groupentity

Accounted for as adefined benefit plan inthe consolidated financialstatements of the group

Accounted for in theindividual group entities’

financial statements aseither a definedcontribution or a definedbenefit plan, depending

Defined benefitobligation less fair value

of plan assets Allactuarial gains and lossesand past service cost areeither recognised in profit

or loss or deferred inequity (via othercomprehensive income)(see below)

If this treatment ifadopted, actuarialgains and losses arenot subsequentlyreclassified to profit

or loss

All actuarial gains andlosses are recognised inprofit or loss eventually – although ‘deferral’ inequity of gains and lossesthat do not exceedprescribed limits ispermitted Such gainsand losses are initiallyreflected in OCI, but aresubsequently amortised

to profit or loss

IFRS Topic IFRSs US GAAP

is to only recogniseactuarial gains andlosses that exceed

a pre-determined

‘corridor’ over aspecified period(generally the averageremaining working lives

of the employeesparticipating in theplan) Alternatively, theStandard permits anysystematic method forrecognition that results

in faster recognition ofactuarial gains andlosses, provided thatthe policy is applied toboth gains and lossesand the basis is appliedconsistently fromperiod to period

Similar to IFRSs

However, when applyingthe minimumrequirement (i.e the

‘corridor’ approach),actuarial gains and lossesare recognised over theaverage remaining serviceperiod If all, or almost all,

of a plan’s participantsare inactive, suchamounts are recognisedover the averageremaining life expectancy

of the inactiveparticipants rather thanthe average remainingservice period

The ‘corridor’ limits under

US GAAP differ fromthose used under IFRSs

to vested benefits;

otherwise, recognisedover the vestingperiod

Amortised over theremaining service period(or life expectancy if all,

or almost all, theparticipants are inactive)

No limitation on theamount that can berecognised.

insurance

policies11

Insurance policies areaccounted for as planassets if specificconditions are met

Annuity contracts andinsurance policies aregenerally excluded fromplan assets, and thebenefits covered by thesecontracts are excludedfrom the benefitobligation (with someexceptions)

frequency11

No explicitrequirement as tohow frequently thedefined benefitobligation and theplan assets aremeasured

Measurement is required

to be performed at leastonce annually or moreoften when certain eventsoccur

market-IFRS Topic IFRSs US GAAP

a liability when theobligation arises

Does not requirerecognition of a liabilityfor minimum fundingrequirements

benefits11

No distinctionbetween special andother benefits

Recognise terminationbenefits when theemployer isdemonstrablycommitted to pay

Recognise special time) termination benefitsgenerally when they arecommunicated toemployees unlessemployees will renderservice beyond a

(one-‘minimum retentionperiod’, in which case theliability 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

a significant reduction

in the number ofemployees covered by

a plan or amends theterms of a definedbenefit plan such that

a significant element

of future service bycurrent employeeswill no longer qualifyfor benefits or willqualify only forreduced benefits

A curtailment is an eventthat significantly reducesthe expected years offuture service of presentemployees or eliminatesfor a significant number

of employees the accrual

of defined benefits forsome or all of their futureservices

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

IFRS Topic IFRSs US GAAP

in 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 ofthe amounts ofunamortised actuarialgains and losses,unamortised transitionamount and past servicecost that are included inthe curtailment gain orloss

Does not have a hierarchy

of factors to consider indetermining thefunctional currency

Has detailed guidance onthe determination

Foreign currency gains orlosses on AFS debtsecurities are reported inother comprehensiveincome (OCI)

Accounting treatment andbases in non-monetaryassets and liabilitiesdepend on whether thefunctional currency ischanging from a foreigncurrency to the reportingcurrency (prospectivetreatment, similar to IFRSs)

or vice versa(retrospective)

Following theadoption ofIAS 23(2007)(accounting periodsbeginning 1 January

2009 with earlieradoption permitted),capitalisation ismandatory

Capitalisation ismandatory

IFRS Topic IFRSs US GAAP

Changes made as aresult of

Improvements to IFRSs

(issued May 2008 andeffective from 1January 2009) replacethe detaileddescription with areference to theguidance in IAS 39 oneffective interest rate,

to remove potentialinconsistencies

Generally only includesinterest

Does not reduceborrowing costs eligiblefor capitalisation except

in very limitedcircumstances

Approach depends on thetype of entity For votinginterests, entitiesgenerally look to majorityvoting rights For variableinterest entities, look to arisks and rewards model

An entity would generallynot consider potentialvoting rights whendetermining whethercontrol is present

or not control exists.

If SPE is not a‘qualifyingSPE’ (QSPE), thenassessed whether withinthe scope of risks andrewards model forvariable interest entities

Otherwise, applyguidance based onmajority voting interests

QSPEs are notconsolidated

No exemption is availablefrom the requirement toprepare consolidatedfinancial statements

Reporting date differencegenerally should not bemore than three months

Must disclose effects ofany significantintervening transactions

May adjust for suchtransactions

SEC staff does not requirepolicies to be conformedprovided that policies are

in accordance with USGAAP

IFRS Topic IFRSs US GAAP

investments

held for sale

Investor recordsinvestment at thelower of its (1) fairvalue less cost to sell

or (2) carryingamount as of the datethe investment isclassified as held forsale

Investor applies equitymethod of accountinguntil significant influence

SEC staff does not requirepolicies to be conformedprovided that policies are

in accordance with USGAAP

associate have

different

reporting dates

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

If an investordetermines that animpairment of anequity-methodinvestment isrequired, it shouldmeasure theimpairment inaccordance with IAS 36 as the excess

of the investment’scarrying amount over

Investor must determinewhether a decrease in thevalue of an equity-method investment isother than temporary

If the decrease in value isother than temporary, theinvestor must measurethe impairment as theexcess of the investment’scarrying amount over thefair value

of an investor’s

interest

Investor shouldgenerally discontinueloss recognition, even

if the associate’sfuture profitabilityappears imminentand assured (as long

as the investor hasnot incurred legal orconstructiveobligations or madepayments on behalf

of the associate)

Investor should continue

to recognise losses whenthe imminent return toprofitable operations ofthe investee appears to

be assured (even if theinvestor has not (1)guaranteed obligations ofthe investee or (2)otherwise committed toprovide further financialsupport to the investee)

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

ventures13

Three broad types ofventures: (1) jointlycontrolled operations,(2) jointly controlledassets, and (3) jointlycontrolled entities

Refers to jointlycontrolled entities

Guidance is provided forother types ofarrangements (such ascollaborativearrangements)

Generally use the equitymethod of accounting(except in theconstruction andextractive industries,

in which proportionateconsolidation ispermitted)

IFRS Topic IFRSs US GAAP

non-monetary

contributions

The venturer cannotrecognise a gain if (1)the risks and rewards

of ownership of thecontributed assetshave not passed tothe joint venture, (2)the gain cannot bemeasured reliably, or(3) the transactionlacks commercialsubstance, unlessmonetary or non-monetary assets arereceived

No guidance if anactual or impliedcommitment toreinvest exists

Treatment should bebased on thesubstance of thetransaction

The venturer mayrecognise a gain if cash ornear-cash consideration isreceived

SEC staff does not requirepolicies to be conformedprovided that policies are

in accordance with USGAAP

A gain is deferred if anactual or impliedcommitment to reinvestexists

Entities are not required

to offset financial assetsand financial liabilities inthe statement of financialposition even if thecriteria for offset are met

be intent to settle on

a net basis or torealise the asset andsettle the liabilitysimultaneously There

is no exception forassets and liabilitiessubject to masternetting agreements

An entity may elect tooffset fair value amountsfor certain assets andliabilities subject tomaster nettingagreements even in theabsence of an intention

Equity component willarise only for instrumentswith a beneficialconversion feature thatexists at the inception ofthe instrument.14

IFRS Topic IFRSs US GAAP

in equity because itviolates the fixed-for-fixed principle andinstead it is accountedfor as a derivative

Separation of theconversion option as anembedded derivative isrequired unless the issuercannot be forced to cashsettle.14

Typically, such instrumentsare classified in equity or,

by SEC registrants, inmezzanine equity

Accounted for as equity,unless they meet certainconditions

indexed to,

and potentially

net cash, or net

share settled in,

the entity’s own

If the issuer has a choice

of settlement, thenclassified in equity unlessthe issuer could be forced

to settle in cash