Acquisition of minority interest Combination of entities under common control U.S. GAAPIFRS Expected Standard Accounted for as a step acquisition using the purchase method. B u s i n E s s comBinat i o n s Accounted for in a manner similar to a pooling of interests (historical cost). Not a business combination. Diversity in practice exists. Outside the scope of IFRS 3. In practice, either follow an approach similar to U.S. GAAP or apply the purchase method if there is substance to the transaction. 10 u.s. gaaP v. iFrs: t h E Basics Not a business combination. Accounted for as an equity transaction. No changes to existing literature (will remain a difference). Other differences prior to convergence include: (i) determining the acquisition date of the business combination, (ii) the accounting for business combinations achieved in stages, (iii) the accounting for pre-acquisition loss contingencies of the acquiree, (iv) the accounting for adjustments to the preliminary purchase price allocation, (v) the accounting for a change in the acquirer’s tax position as a result of the business combination, (vi) the accounting for the subsequent recognition of a deferred tax asset by the acquiree, and (vii) the application of push down accounting in the separate financial statements of a “substantially wholly-owned” purchased subsidiary.
Inventory Similarities ARB 4 and IAS 2 (both entitled Inventories) are both based on the principle that the primary basis of accounting for inventory is cost. Both define inventory as assets held for sale in the ordinary course of business, in the process of production for such sale, or to be consumed in the production of goods or services. The permitted techniques for cost measurement, such as standard cost method or retail margin method, are similar under both U.S. GAAP and IFRS. Further, under both GAAPs the cost of inventory includes all direct expenditures to ready inventory for sale, including allocable overhead, while selling costs are excluded from the cost of inventories, as are most storage costs and general administrative costs. Significant Differences U.S. GAAPIFRS Costing methods LIFO is an acceptable method. Consistent cost formula for all inventories similar in nature is not explicitly required. Measurement Inventory is carried at the lower of cost or market. Market is defined as current replacement cost as long as market is not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and is not less than net realizable value reduced by a normal sales margin. Reversal of inventory write-downs Convergence Any write-downs of inventory to the lower of cost or market create a new cost basis that subsequently cannot be reversed. LIFO is prohibited. Same cost formula must be applied to all inventories similar in nature or use to the entity. Inventory is carried at the lower of cost or net realizable value (best estimate of the amounts inventories are expected to realize, taking into consideration the purpose for which the inventory is held. This amount may or may not equal fair value). Previously recognized impairment losses are reversed, up to the amount of the original impairment loss when the reasons for the impairment no longer exist. In November 2004, the FASB issued FAS 151 Inventory Costs to address a narrow difference between U.S. GAAP and IFRS related to the accounting for inventory costs, in particular, abnormal amounts of idle facility expense, freight, handling costs, and spoilage. At present, there are no other convergence efforts with respect to inventory in process. 11