Question

Explain how ASU 2016-1 affect congruence between GAAP and IFRS

Answer 1

The following table highlights key differences between the ASU 2016-1 in GAAP and IFRS.

Topic	GAAP	IFRS
Debt securities, loans and receivables	Classification and measurement depend largely on the legal form of the instrument (i.e., whether the financial asset represents a security or a loan) and management’s intent for the instrument. At acquisition, debt instruments that meet the definition of a security are classified in one of three categories and subsequently measured as follows: Held to maturity:* amortized cost Trading: FV-NI Available for sale:* fair value, with changes in fair value recognized through OCI (FV-OCI) Loans and receivables that do not meet the definition of a security are generally measured at amortized cost. Loans held for sale are measured at the lower of cost or fair value.	Regardless of an instrument’s legal form, classification and measurement depend on the instrument’s contractual cash flow characteristics and the business model under which they are managed. A financial asset passes the cash flow characteristics test if its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Financial assets that pass the cash flow characteristics test are subsequently measured at amortized cost,* FV-OCI* or FV-NI, based on the entity’s business model for managing them. Financial assets that fail the cash flow characteristics test are subsequently measured at FV-NI.
Equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments)	These instruments are measured at FV-NI at the end of each reporting period. A measurement alternative is available for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient under ASC 820. These investments may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. An entity may elect to change its measurement approach from the measurement alternative to fair value (i.e., apply ASC 820). However, if it chooses to do so, it must apply that change to all identical or similar equity investments of the same issuer. This election is irrevocable and applies to all future purchases of identical or similar equity investments of the same issuer.	These instruments are measured at FV-NI at the end of each reporting period. An irrevocable FV-OCI election is available for nonderivative equity investments that are not held for trading. If the FV-OCI election is made, gains or losses recognized in OCI are not recycled upon derecognition of investments.
Financial liabilities (except derivatives)	These instruments are generally measured at amortized cost. Amounts related to short sales are generally measured at FV-NI.	These instruments are generally measured at amortized cost. FV-NI is required if held for trading. Financial liabilities held for trading include but are not limited to the following: Business strategy at acquisition, issuance or inception is to subsequently transact at fair value Short sales Part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking
Fair value option	An entity may elect, generally at inception, to measure certain financial assets and financial liabilities (and certain nonfinancial instruments that are similar to financial instruments) at FV-NI. An entity may also elect FVO for a hybrid financial instrument that would otherwise require bifurcation. Under this option, the entire instrument is measured at FV-NI.	Financial assets: An entity may irrevocably elect to measure these instruments at FV-NI at inception if doing so eliminates or significantly reduces an accounting mismatch. Financial liabilities: An entity may irrevocably elect to measure these instruments at FV-NI at inception if: Doing so eliminates or significantly reduces accounting mismatches. The group of financial liabilities, or a group of financial assets and financial liabilities, is managed and its performance is evaluated on a fair value basis. They are hybrid contracts that contain one or more embedded derivatives meeting certain conditions.
Hybrid instruments	Embedded derivatives should be separated from their host nonderivative contracts and accounted for as derivatives if certain requirements are met.	Hybrid financial assets are not eligible for bifurcation. Derivatives embedded in nonfinancial assets and in liabilities (both financial and nonfinancial) are separated if they meet certain criteria.
Changes in instrument- specific credit risk (or own credit risk) related to financial liabilities measured under the FVO	Changes in an entity’s own credit risk are recognized in OCI. Amounts accumulated in OCI are reclassified to net income upon settlement of the financial liability. There is an exception for financial liabilities of certain consolidated collateralized financing entities.	Changes in an entity’s own credit risk are recognized in OCI unless doing so creates or increases an accounting mismatch. An entity is prohibited from reclassifying changes in fair value attributable to its own credit risk presented in OCI to net income upon the settlement of the financial liability.
Unrealized foreign currency gains or losses on debt instruments denominated in a foreign currency measured at FV-OCI	Changes in unrealized foreign currency gains or losses are recognized in OCI.	Changes in unrealized foreign currency gains or losses are recognized in net income.