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

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Comparison between U.S. GAAP and International Financial Reporting Standards 112 IFRS U.S. GAAP Identifying the acquirer An entity is required to identify one of the combining entities in each business combination as the acquirer. The acquirer should be determined in accordance with the guidance in IAS 27. Therefore, the acquirer is the entity that obtains control of the acquiree (IFRS 3.6-.7 and B13-.18). Similar to IFRS, an entity is required to identify one of the combining entities in each business combination as the acquirer. The acquirer should be determined in accordance with the guidance in ASC 810-10. Accordingly, the acquirer is the entity that obtains control (a controlling financial interest) of the other entity or entities in a business combination, usually through direct or indirect ownership of a majority voting interest. However, the primary beneficiary of a variable interest entity, determined in accordance with the ASC 810-10, “Variable Interest Entities” subsections, is the acquirer of that entity. IFRS use a different consolidation model than U.S. GAAP. Therefore, identifying the acquirer could differ as a result of applying the guidance in IAS 27 rather than ASC 810-10 (ASC 805-10-25-4 through 25-5). Acquisition date The acquisition date is the date the acquirer obtains control of the acquired business. It is the date the entity uses to measure and recognise a business combination. However, the initial accounting may not be complete by the end of the reporting period in which the combination occurs. In this situation, the acquirer uses provisional amounts for the items for which the accounting is incomplete. IFRS 3 provides for a measurement period after the acquisition date for the acquirer to adjust the provisional amounts recognised. The measurement period ends as of the earlier of (a) one year from the acquisition date or (b) the date when the acquirer receives the information necessary to complete the business combination accounting (IFRS 3.8-.9 and .45). Similar to IFRS (ASC Master Glossary, “Acquisition Date,” and ASC 805-10-25-6 through 25-7). Recognising and measuring identifiable assets acquired, liabilities assumed, and noncontrolling interests Identifiable assets acquired and liabilities assumed must be accounted for in accordance with the following general principles for recognition, classification, and measurement with certain limited exceptions noted below. • Recognition – the acquirer recognises the assets acquired and liabilities assumed in a business combination if, as of the acquisition date, both of the following conditions are met (paragraphs 10-12 of IFRS 3): The item is part of the business combination transaction The item meets the definition of an asset or liability in the Framework for the Preparation and Presentation of Financial Statements Identifiable assets acquired and liabilities assumed must be accounted for in accordance with the following general principles for recognition, classification, and measurement with certain limited exceptions noted below: • Recognition – similar to IFRS, the acquirer recognizes the assets acquired and liabilities assumed in a business combination if, as of the acquisition date, both of the following conditions are met (ASC 805-20-25-1 through 25-5): The item is part of the business combination transaction The item meets the definition of an asset or liability in SFAC 6 The acquirer shall not recognize an asset or liability © 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 113 IFRS • Classification – identifiable assets acquired and liabilities assumed are classified based on the economic conditions, operating and accounting policies, contract terms, and other relevant factors that exist as of the acquisition-date, except for an acquired lease previously classified as an operating or finance lease and an acquired contract previously classified as an insurance contract in accordance with IFRS 4 (IFRS 3.15-.17). • Measurement – the acquirer is required to measure the identifiable assets acquired and liabilities assumed at their acquisition-date fair values. Noncontrolling interests in the acquiree shall be measured either at fair value (full goodwill) or at the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets (partial goodwill) (IFRS 3.18-.20). Note 1: Improvements to IFRSs May 2010, amends the measurement principle in IFRS 3 for noncontrolling interests. The amendment states that at the acquisition date the acquirer shall measure components of noncontrolling interests that are present ownerships interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. All other components of noncontrolling interests shall be measured at their acquisition-date fair values, unless another measurement basis is required by IFRS. The amendment is effective for annual periods beginning on or after 1 July 2010. Note 2: In general, after a business combination, an acquirer measures and accounts for assets, liabilities, and equity instruments associated with a business combination in accordance with other applicable IFRS or U.S. GAAP. Therefore, differences in the other applicable guidance might result in differences in the subsequent measurement and accounting for these items. IFRS 3 provides limited exceptions to its general guidance for the identifiable assets and liabilities listed below: • A contingent liability assumed in a business combination shall be recognised if it is a present obligation that arises from past events and its fair value can be reliably measured. The requirements in IAS 37 do not apply in this situation. Therefore, a contingent liability shall be recognised even if it is U.S. GAAP related to an operating lease in which the acquire is lessee except as follows: The acquirer recognizes either (a) an intangible asset if the terms of an acquiree’s operating lease are favorable to market terms at the acquisition date or (b) a liability if the terms of the operating lease are unfavorable to market terms, regardless of whether the acquiree is the lessee or lessor in an operating lease. The acquirer recognizes an identifiable intangible asset for an operating lease at market terms if the lease has value for market participants. Under IFRS, an acquirer of an operating lease in which the acquiree is the lessor is not required to recognize a separate asset or liability if the terms of the operating lease are favorable or unfavorable compared to market terms (ASC 805-20-25-11 through 25-13). • Classification – similar to IFRS, identifiable assets acquired and liabilities assumed are classified based on the economic conditions, operating and accounting policies, contract terms, and other relevant factors that exist as of the acquisition date except for an acquired lease previously classified as an operating or capital lease and an acquired contract written by an entity within the scope of ASC 944 (SFAS 60), as an insurance or reinsurance contract or as a deposit contract (ASC 805-20-25-6 through 25-8). • Measurement – similar to IFRS, the acquirer is required to measure the identifiable assets acquired and liabilities assumed at their acquisition-date fair values. Unlike IFRS, noncontrolling interests in the acquiree shall be measured at fair value (full goodwill) (ASC 805-20-30-1). ASC 805 provides limited exceptions to its general recognition and measurement guidance for the identifiable assets and liabilities listed below: • Assets and liabilities arising from contingencies shall be recognized at fair value if the acquisition-date fair value of that asset or liability can be determined during the measurement period (ASC 805-20-25-19 and ASC 805-20-30-9). If the acquisition-date fair value cannot be determined, an asset or liability shall © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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