U.S. GAAP v. IFRS: The Basics - Financial Executives International

Initial recognition
exemption
Recognition of
deferred tax assets
Calculation of
deferred asset or
liability
Classification of
deferred tax assets
and liabilities in
balance sheet
Recognition of
deferred tax liabilities
from investments in
subsidiaries or joint
ventures (JVs) (often
referred to as outside
basis differences)
U.S. GAAP IFRS Joint Exposure Draft
No similar exemption for nonrecognition
of deferred tax
effects for certain assets or
liabilities.
Recognized in full (except
for certain outside basis
differences), but valuation
allowance reduces asset to the
amount that is more likely than
not to be realized.
Enacted tax rates must be
used.
Current or non-current
classification, based on the
nature of the related asset or
liability, is required.
Recognition not required
for investment in foreign
subsidiary or corporate JV
that is essentially permanent
in duration, unless it becomes
apparent that the difference
will reverse in the foreseeable
future.
Deferred tax effects arising from
the initial recognition of an asset
or liability are not recognized
when the amounts did not arise
from a business combination
and upon occurrence the
transaction affects neither
accounting nor taxable profit
(for example, acquisition of nondeductible
assets).
Amounts are recognized only
to the extent it is probable
(under IFRS, similar to “more
likely than not” under U.S.
GAAP) that they will be
realized.
Enacted or “substantively
enacted” tax rates as of the
balance sheet date must be
used.
All amounts classified as noncurrent
in the balance sheet.
Recognition required unless
the reporting entity has
control over the timing of the
reversal of the temporary
difference and it is probable
(“more likely than not”) that
the difference will not reverse
in the foreseeable future.
IFRS expected to converge
with U.S. GAAP requirements
by eliminating the initial
recognition exemption.
IFRS expected to converge
with U.S. GAAP requirements.
U.S. GAAP expected to require
operations outside the U.S.
taxing jurisdiction to apply
an approach consistent with
IFRS. IFRS expected to clarify
definition of “substantively
enacted” to indicate that for
U.S. jurisdictions, it equates to
when tax laws are enacted.
IFRS expected to converge
with U.S. GAAP requirements.
IFRS is expected to converge
with U.S. GAAP.
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