US GAAP vs. IFRS The basics - Financial Executives International

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Share-based payments Similarities The guidance for share-based payments, FAS 123 (Revised) and IFRS 2 (both entitled Share-Based Payment), is largely convergent. Both GAAPs require a fair valuebased approach in accounting for sharebased payment arrangements whereby an entity (a) acquires goods or services in exchange for issuing share options or other equity instruments (collectively referred to as “shares” in this guide) or (b) incurs liabilities that are based, at least in part, on the price of its shares or that may require settlement in its shares. Under both GAAPs, this guidance applies to transactions with both employees and non-employees, and is applicable to all companies. Both FAS 123 (Revised) and IFRS 2 define the fair value of Significant differences Transactions with nonemployees US GAAP IFRS Either the fair value of (1) the goods or services received, or (2) the equity instruments is used to value the transaction, whichever is more reliable. If using the fair value of the equity instruments, EITF 9 -18 Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services requires measurement at the earlier of (1) the date at which a “commitment for performance” by the counterparty is reached, or (2) the date at which the counterparty’s performance is complete. 3 US GAAP vs. IFRS The basics the transaction to be the amount at which the asset or liability could be bought or sold in a current transaction between willing parties. Further, both GAAPs require, if applicable, the fair value of the shares to be measured based on market price (if available) or estimated using an option-pricing model. In the rare cases where fair value cannot be determined, both standards allow the use of intrinsic value. Additionally, the treatment of modifications and settlement of share-based payments is generally similar under both GAAPs. Finally, both GAAPs require similar disclosures in the financial statements to provide investors sufficient information to understand the types and extent to which the entity is entering into share-based payment transactions. Fair value of transaction should be based on the value of the goods or services received, and only on the fair value of the equity instruments if the fair value of the goods and services cannot be reliably determined. Measurement date is the date the entity obtains the goods or the counterparty renders the services. No performance commitment concept.
Measurement and recognition of expense — awards with graded vesting features Equity repurchase features at employee’s election US GAAP IFRS Entities make an accounting policy election to recognize compensation cost for awards containing only service conditions either on a straight-line basis or on an accelerated basis, regardless of whether the fair value of the award is measured based on the award as a whole or for each individual tranche. Does not require liability classification if employee bears risks and rewards of equity ownership for at least six months from date equity is issued or vests. Deferred taxes Calculated based on the cumulative GAAP expense recognized and trued up or down upon realization of the tax benefit. Convergence No significant convergence activities are underway or planned for share-based payments. If the tax benefit exceeds the deferred tax asset, the excess (“windfall benefit”) is credited directly to shareholder equity. Shortfall of tax benefit below deferred tax asset is charged to shareholder equity to extent of prior windfall benefits, and to tax expense thereafter. Requires considerable detailed recordkeeping. US GAAP vs. IFRS The basics Must recognize compensation cost on an accelerated basis — each individual tranche must be separately measured. Liability classification is required (no six-month consideration exists). Calculated based on the estimated tax deduction determined at each reporting date (for example, intrinsic value). If the tax benefit exceeds cumulative compensation expense, deferred tax based on the excess is credited to shareholder equity. If the tax benefit is less than or equal to cumulative compensation expense, deferred taxes are recorded in income. 35
Page 1: US GAAP vs. IFRS The basics
Page 4 and 5: Introduction It is not surprising t
Page 6 and 7: At this time, it is not possible to
Page 8 and 9: Income statement — classification
Page 10 and 11: Preparation of consolidated financi
Page 12 and 13: Negative goodwill Allocated on a pr
Page 14 and 15: Intangible assets Similarities The
Page 16 and 17: Inventory Similarities ARB 3 and IA
Page 18 and 19: Significant differences US GAAP IFR
Page 20 and 21: Impairment of assets Similarities B
Page 22 and 23: Leases Similarities The overall acc
Page 24 and 25: Other differences include: (i) the
Page 26 and 27: Debt vs. equity classification Comp
Page 28 and 29: Foreign currency matters Similariti
Page 30 and 31: Income taxes Similarities FAS 109 A
Page 32 and 33: Provisions and contingencies Simila
Page 34 and 35: Revenue recognition Similarities Re
Page 38 and 39: Employee benefits other than share-
Page 40 and 41: Segment reporting Similarities Curr
Page 42 and 43: Earnings per share Similarities Ent
Page 44 and 45: Subsequent events Similarities Desp
Page 46 and 47: Appendix — The evolution of IFRS
Page 48 and 49: Phase III — 2006 to present ► F
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Page 52: Ernst & Young LLP Assurance | Tax |

US GAAP vs. IFRS The basics - Financial Executives International

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