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

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Comparison between U.S. GAAP and International Financial Reporting Standards 120 IFRS • Interchange of managerial personnel • Provision of essential technical information An entity loses significant influence when it loses the power to participate in the financial and operating policy decisions of the investee, which could occur with or without a change in ownership levels (IAS 28.10). Equity method An investment in an associate shall be accounted for using the equity method except for the following (IAS 28.1 and .13): • Investments classified as held for sale in accordance with IFRS 5 • Investments in associates for which the exception to consolidation in paragraph 10 in IAS 27 applies, discussed in Section 8.1, “Basic requirements for group accounts” • All of the following apply: Investor is a subsidiary of another entity and its owners do not object to the investor not applying the equity method; Investor's debt or equity instruments are not traded in a public market; Investor did not file / is not in the process of filing, its financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market; and Ultimate or any intermediate parent of the investor produces consolidated financial statements available for public use that comply with International Financial Reporting Standards An investor shall discontinue the use of the equity method when it no longer has significant influence over the associate (IAS 28.18). U.S. GAAP Equity method An investor that has the ability to exercise significant influence over the operating and financial policies of the investee should apply the equity method when it has an investment in common and/or an investment that is in-substance common stock except for the circumstances listed in ASC 323-10-15-4, unless the fair value option is elected in accordance with the requirements of ASC 825, when it is applicable (ASC 825-10-15-4 and ASC 323-10-15-3). Investments in unincorporated entities, such as partnerships shall generally apply the equity method if the investor has the ability to exercise significant influence over the investee (ASC 323-30-25-1). Some of the items subject to the guidance in ASC 323-10 and 323-30 may qualify for application of the fair value option subsections of ASC 825-10 (ASC 323-10-25 and 323-30-25). Unlike IFRS, an equity method investee that is held-for-sale shall be accounted for under the equity method. Investments accounted for under the equity method are not within the scope of ASC 360 (ASC 360-10-15-5). Application of the equity method – initial recognition An investment shall be initially recorded at cost. Any difference between the cost of the investment and the investor’s share of the net fair value of the associate’s assets and liabilities shall be accounted for either as (IAS 28.11 and .23): • Goodwill and included in the carrying amount of the investment • Income in the determination of the investor’s share of the associate’s profit or loss if there is any excess of the investor’s share of the net fair value of the Similar to IFRS. Except as provided in the following sentence, an investment shall be initially measured at cost in accordance with ASC 323-10-30-2. An investor shall initially measure, at fair value, a retained investment in the common stock of an investee (including a joint venture) in a deconsolidation transaction in accordance with ASC 810-10-40-3A through 40-5. A difference between the cost of an investment and the amount of the underlying net assets of the investee shall be accounted for as if the investee were a consolidated subsidiary (ASC 323-10-35-13). © 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 121 IFRS associate’s identifiable assets and liabilities over the cost of the investment U.S. GAAP Application of the equity method – subsequent increases or decreases The carrying amount of the investment in an associate shall be increased or decreased to recognise the following: • Profits or losses of the investee – an investor’s share of profit or loss shall be determined based on present ownership interests and shall not reflect potential voting rights (IAS 28.11-.12). Losses shall be recognised up to the amount of the investor’s interest in the investee. Additional losses shall be recognised only to the extent the investor has incurred legal or constructive obligations or made payments on behalf of the investee. An investor’s interest in an investee includes the carrying amount of the investment in the associate under the equity method and any long-term interests in the associate that in substance form a part of the investor’s net investment in the associate (for example, preference shares and long-term receivables or loans) (IAS 28.29-30). • Distributions from the investee (IAS 28.11) • Changes in the investee’s other comprehensive income (IAS 28.11) • Impairment losses – the entire carrying amount of the investment shall be tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less cost to sell) with its carrying amount, for conditions in accordance with IAS 39 that indicate an impairment exists. If the recoverable amount is less than the carrying amount of the investment, an impairment loss shall be recognised. Any reversal of an impairment loss shall be recognised in accordance with IAS 36 (IAS 28.33). The carrying amount of the investment in an investee shall be increased or decreased to recognize the following: • Profits or losses of the investee – similar to IFRS, an investor’s share of profit or loss shall be determined based on present ownership interests and shall not reflect potential voting rights (ASC 323-10-35-4). Losses shall be recognized up to the amount of the investor’s common stock or insubstance common stock. Like IFRS, additional losses shall be recognized to the extent the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. Unlike IFRS, additional losses shall also be recognized when the imminent return to profitability by an investee appears to be assured (ASC 323-10-35-19 through 35-22). The methodology for applying losses to other investments in the investee is detailed in ASC 323-10-35-24 and 35-28 (ASC 323-10-35-19 through 35-30). • Distributions from the investee (ASC 323-10-35-17) • Changes in the investee’s other comprehensive income (ASC 323-10-35-18) • Impairment losses – the entire carrying amount of the investment shall be tested for impairment in accordance with ASC 323-10-35-31 through 35- 32A. Unlike IFRS, an impairment loss shall be recognized only if the loss in value is other than temporary and impairment losses may not be reversed. Intra-entity profits and losses on transactions between the investor and an equity method investee are eliminated until realized by the investor or investee as if the investee were consolidated. Intra-entity profits or losses on assets still remaining with an investor or investee are eliminated, except for both of the following (ASC 323-10-35-7): • A transaction with an investee (including a joint venture investee) that is accounted for as a deconsolidation of a subsidiary or a derecognition of a group of assets in accordance with ASC 810-10-40-3A through 40-5 © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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