Question

Enumerate and briefly explain the differences between the IFRS and US GAAP on the following issues:

Treatment of Contingent Assets and Liabilities

Treatment of Asset Recognition

Treatment of Revenue Recognition

Treatment of Options

Treatment of Onerous Contracts

Treatment of Restructuring Provision

Treatment of Measurement of Deferred Taxes

Treatment of Service Contracts

Treatment of Financial Assets

International Accounting (Loose-Leaf) 5e (Doupnik/Perera) McGraw-Hill (2019) 9781260466539.

Answer 1

Contingent Assets and Liabilities:

	US GAAP	IFRS
Initial recognition and measurement	Contingent assets and liabilities recognized at fair value if the fair value can be determined	Contingent assets are not recognized. COntingent liabilities are recognized if there is a present obligation that arises from past events and the fair value can be measured reliably, even if it is not probable that an outflow of resources will be required to settle the obligation.
Subsequent measurement	As per a systematic and rational basis, depending on their nature	Liabilities are subsequently measured at the higher of: (1) the amount that would be recognized in accordance with IAS 37 or (2) the amount initially recognized less, the cumulative amount of income recognized

Asset recognition: Under GAAP, long-lived assets are valued at historic cost and depreciated appropriately. Under IFRS, long lived assets are initially valued at cost, but can later be revalued up or down to market value.

Revenue recognition: Under GAAP, revenue is not recognized until the exchange of a good or service has been completed. Conversely, IFRS is based on the principle that revenue is recognized when the value is delivered. It groups all transactions of revenues into four categories, i.e., the sale of goods, construction contracts, provision of services, or use of another entity’s assets.

Onerous contract: Under IFRS, provision for future operating loss is prohibited. However, the present obligation under the contract is recognised and mesured as a provision.

Under GAAP, liability for the costs to be incurred to terminate a contract are recognised. Also, the costs that will continue to incurr under the contract for its remaining term without economic benefit to the entity is recognised and measured at fair value when the entity ceases to use the right conveyed under the contract.

Restructuring costs: Under IFRS, once the entity has committed to a detailed exit plan, the general provisions of IAS 37 apply. Costs typically are recognized earlier than under US GAAP

Deferred Taxes: Under IFRS, Deferred taxes are calculated based on the estimated tax deduction determined at each reporting date. If the tax deduction exceeds cumulative compensation cost for an individual award, deferred tax based on the excess is credited to shareholders’ equity. If the tax deduction is less than or equal to cumulative compensation cost for an individual award, deferred taxes are recorded in income. Under GAAP, deferred taxes are calculated based on the cumulative GAAP expense recognized. All excess tax benefits and tax deficiencies are recognized by recording them as income tax expense or benefit in the income statement.

Financial instruments

IFRS	GAAP
Recognize financial asset w hen and only w hen the entity becomes party to the contractual provisions of the instrumen	NO such requirement
On subsequent measurement, most financial assets w ill be categorized at amortized cost, fair value through other comprehensive income, or fair value through profit or loss	No such requirement