The Investment Professional - IFRS and US GAAP Compared

The Hard Sell
SEC IN A QUANDARY OVER ITS PUSH FOR IFRS
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current major differences between IFRS and US GAAP

	US GAAP	IFRS	Impact
Inventory Valuation	Permits LIFO, FIFO, weighted average cost, or specific identification. Inventory carried at lower of cost or market.	Permits FIFO or weighted average cost; LIFO not permitted. Inventory carried at lower of cost or net realizable value.	Companies that use LIFO must revalue inventory, which could result in major tax liabilities due to the IRS’s LIFO conformity rule.
Asset Impairment	Two-step impairment.	Single-step impairment.	Write-downs are more likely under IFRS.
Asset Valuation	Assets can be written down, but not written up. PP&E is valued at historical cost.	Allows upward revaluation when an active market exists for intangibles; allows revaluation of PP&E to fair value.	Book values are likely to increase under IFRS.
Revenue Recognition	Provides very specific general and industry guidance about what constitutes revenue, how revenue should be measured, and the effect of timing on recognition.	Not specific about the timing and measurement of recognition; lacks industry-specific guidance.	Revenues are likely to increase with less detailed guidance.
Contingencies	Contingent liabilities must be disclosed.	Can limit disclosure of contingent liabilities if severely prejudicial to an entity’s position.	May result in fewer disclosures.
Debt Covenants	Permits curing debt covenant violations after fiscal year end.	Debt covenant violations must be cured by fiscal year end.	Debt covenants may need to be amended, resulting in related transaction costs.
Research & Development	R&D costs must be expensed.	Allows capitalization of R&D costs.	Development costs will be deferred and amortized.
Entity Consolidation	Consolidation is based on who has the controlling financial interest.	Consolidation is based on which entity has the power to control.	Companies are likely to consolidate more entities.
Securitization	Allows certain securitized assets and liabilities to remain off a corporation’s books.	IFRS requires most securitized assets and liabilities to be placed on the balance sheet.	May result in very different balance sheet values.
Financial Instrument Valuation	Fair value based on a negotiated price between a willing buyer and seller; not based on entry price.	Several fair value measurements. Fair value generally seen as the price at which an asset could be exchanged.	Financial assets and liabilities will be measured differently.
Depreciation	Methods allowed: straight-line, units of production, or accelerated methods (sum of digits or declining balance). Component depreciation allowed but not commonly used.	Allows straight-line, units of production, and both accelerated methods. Component depreciation required when asset components have different benefit patterns.	Assets with different components will have differing depreciation schedules, which may increase or decrease assets and revenue.