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

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Comparison between U.S. GAAP and International Financial Reporting Standards 136 IFRS attaching to them and that the grants will be received (IAS 20.7). Once a government grant is recognised, any related contingent liability or contingent asset is treated in accordance with IAS 37.27-.35 (IAS 20.11). Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which grants are intended to compensate (IAS 20.12). U.S. GAAP revenue recognition would be delayed until any conditions attached to a grant are satisfied. U.S. GAAP revenue recognition principles would apply. There are two broad approaches to the accounting for government grants (IAS 20.13): • Capital approach: under which a grant is recognised outside profit or loss • Income approach: under which a grant is recognised in profit or loss over one or more periods Government grants that become receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which they become receivable (IAS 20.20). The benefit of a government loan at a below-market rate of interest is treated as a government grant. The loan shall be recognised and measured in accordance with IAS 39. The benefit of the below market rate of interest shall be measured as the difference between the initial carrying value of the loan determined in accordance with IAS 39 and the proceeds received. The benefit is accounted for in accordance with IAS 20. The entity shall consider the conditions and obligations that have been, or must be met when identifying the costs for which the benefit of the loan is intended to compensate (IAS 20.10A). Government grants related to assets, including nonmonetary grants at fair value, shall be presented in the statement of financial position either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset (IAS 20.24). Government grants that become repayable shall be accounted for as a change in an accounting estimate (see IAS 8.32-.38 and IAS 20.32). U.S. GAAP revenue recognition principles would apply. Interest free loans or below market rate loans should be initially recognized at fair value in accordance with ASC 835-30-25. The difference between the face amount of the loan and its fair value is then treated as a grant. Grants that relate to a capital expenditure (i.e. for the acquisition or construction of an asset) are accounted for either as deferred income or a credit against the recorded cost of the asset in the period received. In the latter case, the grant is recognized through the reduction of the resulting depreciation expense. A liability to repay a grant should be recognized on a prospective basis when it is probable that repayment will be made and the amount can be reasonably estimated (ASC 450-20-25-2). Government assistance The significance of the benefit may be such that disclosure of the nature, extent, and duration of the assistance is necessary in order that the financial Disclosure related to certain material items may be necessary to keep the financial statements from being misleading. © 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 137 IFRS statements may not be misleading (IAS 20.36). U.S. GAAP 10.3 Earnings per share Note: In August 2008, the IASB issued an Exposure Draft, Simplifying Earnings per Share, which proposes amendments to IAS 33 as part of its joint project with the FASB to simplify the guidance for the denominator in the basic and diluted earnings per share calculation. In addition, in August 2008, the FASB issued an Exposure Draft, Earnings per Share, which would amend ASC 260. The comment period for both exposure drafts ended on December 5, 2008. The FASB exposure draft is similar to the IASB exposure draft, with limited exceptions. The proposals in the IASB and FASB exposure drafts focus on achieving convergence in the method for calculating the denominator of the earnings per share calculation. However, the IASB and the FASB both acknowledge that currently there are still differences in the underlying accounting for certain instruments that could result in differences in the calculated EPS denominator under U.S. GAAP and IFRS. Those instruments include, but are not limited to: • Forward purchase contracts that provide for the option of gross physical or net-share or net-cash settlement • Written put options • Convertible debt instruments that may be settled in cash upon conversion The IASB and the FASB are participating in a joint project on liabilities and equity that would eliminate those accounting differences. The Boards also acknowledge that there will remain differences in the accounting result for the numerator, but addressing that issue is outside the scope of this project. At its April 2009 IASB meeting, the IASB, in light of other projects, decided to pause the earnings per share project. The IASB directed the staff to consider at a later date when would be the best time for the IASB to start reviewing the responses in more detail. As of December 31, 2010, the date has yet to be confirmed. The FASB had also decided to consider this an inactive project. IFRS U.S. GAAP Relevant guidance: IAS 33 Relevant guidance: ASC 260, 718, and 810 Introduction The objective of IAS 33 is to prescribe principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity (IAS 33.1). IAS 33 applies to entities (IAS 33.2): • Whose ordinary shares or potential ordinary shares are traded in a public market (a domestic, or foreign stock exchange or an over-the-counter market, including local and regional markets), or • That files, or is in the process of filing its financial statements with a securities commission or other regulatory organisation for the purpose of issuing ordinary shares in a public market The objective of ASC 260 is to simplify the computation of earnings per share and to make the U.S. standard more compatible with IFRS (ASC 260-10-05-1) ASC 260 applies to entities (ASC 260-10-15-2): • That have issued common stock or potential common stock (i.e. securities such as options, warrants, convertible securities, or contingent stock agreements) if those securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally • That have made a filing or are in the process of filing with a regulatory agency in preparation for the sale of those securities in a public market © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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