Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 110 IFRS an “autopilot” arrangement • The enterprise in substance has the rights to obtain the majority of the benefits of the SPE and hence may be exposed to the risks inherent in those benefits • The enterprise in substance retains the majority of the residual or ownership risks related to the SPE or its assets to obtain the benefits from its activities Note: The IASB and the FASB had been working on a joint project to provide comprehensive guidance for consolidation of all entities. The objective of that project was to consider comprehensive guidance for consolidation of all entities, including those controlled by voting or similar interests. In connection with this project, the IASB issued an Exposure Draft, Consolidated Financial Statements, in December 2008. In September 2010, the IASB published a staff draft that reflects the cumulative tentative decisions made by the Board through its May 2010 meeting. The proposed guidance would revise the definition of control and the related application guidance so that a single control model can be applied to all entities. The Board has completed its deliberations, other than the effective date of the final standard, and anticipates issuing a final standard in the first quarter of 2011. After considering input from constituents on the IASB’s proposed consolidation model, the FASB has decided not to proceed with an exposure draft that is consistent with the IASB’s published requirements. The FASB plans to issue an exposure draft that would amend the guidance for distinguishing whether a decision maker arrangement represents an agent or principal relationship. The IASB and the FASB are also working on a joint project to provide guidance for assessing whether an entity is an investment company and how to measure those investments. U.S. GAAP a VIE, however, a reporting entity with a variable interest in a VIE must provide disclosures about its involvement with the VIE. 8.4 Business combinations IFRS U.S. GAAP Relevant guidance: IFRS 3 Relevant guidance: ASC 805 and 810-10 Introduction IFRS 3 applies to the accounting for a transaction or Similar to IFRS (ASC 805-10-15-3 through 15-4). © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 111 IFRS other event that meets the definition of a business combination. It does not apply to (IFRS 3.2): • The formation of a joint venture • A combination between entities under common control (IFRS 3, Appendix B). • The acquisition of a group of assets that is not a business Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control shall be accounted for as equity transactions (IAS 27.30). A business combination is defined as “a transaction or other event in which an acquirer obtains control of one or more businesses” (IFRS 3, Appendix A). IAS 27 defines control as “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities” (IAS 27.4). U.S. GAAP Similar to IFRS (ASC Master Glossary, “Business Combination”). However, the term control has a different meaning in U.S. GAAP compared to IFRS. Control has the meaning of controlling financial interest, as that term is used in ASC 810-10-15-8. An acquirer can obtain control of an acquiree without the transfer of consideration in the following circumstances: • Acquiree repurchases its own shares such that an investor (the acquirer) obtains control (IFRS 3.43a) • Minority veto rights lapse which had previously kept the acquirer from controlling the acquiree (IFRS 3.43b) • Acquirer and acquiree agree to combine their business by contract alone (IFRS 3.43c) A business is defined as “an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members or participants” (IFRS 3, Appendix A). All business combinations must be accounted for using the acquisition method. The acquisition method requires an entity (IFRS 3.5) Similar to IFRS (ASC 805-10-25-11) A business combination also includes when an entity becomes the primary beneficiary of a variable interest entity that is a business, in accordance with the ASC 810- 10, “Variable Interest Entities” subsections. IFRS do not have guidance for primary beneficiaries because the consolidation guidance differs from U.S. GAAP. Similar to IFRS (ASC Master Glossary, “Business”). Similar to IFRS (ASC 805-10-5-4). • To identify the acquirer for every business combination • To determine the acquisition date • To recognise and measure the identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree • To recognise and measure goodwill or a gain on a bargain purchase © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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