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

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Comparison between U.S. GAAP and International Financial Reporting Standards 42 IFRS An entity must suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset (IAS 23.20). An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete (IAS 23.22). When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, the carrying amount is written down or written off in accordance with the requirements of other standards. In certain circumstances, the amount of the write down or write-off is written back in accordance with those other standards (IAS 23.16). U.S. GAAP In cases involving qualifying assets financed with the proceeds of tax-exempt borrowings that are externally restricted, the capitalization begins at the date of the borrowing (ASC 835-20-25-8). Similar to IFRS, an entity must suspend capitalization of borrowing costs during extended delays in construction (ASC 835-20-25-4) and cease capitalization of borrowing costs once the asset is ready for use (ASC 835-20-25-5). Accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset is an indicator that the asset should be tested for impairment (ASC 360-10-35-21(d)). Impairment There is no requirement for annual impairment reviews of property, plant and equipment. However, IAS 36 contains rules on impairment and may require an impairment review if an indication of impairment exists (IAS 16.63). Similar to IFRS, there is no requirement for annual impairment reviews of property, plant and equipment. However, the ASC 360-10, Impairment or Disposal of Long-Lived Assets, subsections contain rules on impairment and may require an impairment review if an indication of impairment exists (ASC 360-10-35-21). 4.2 Investment property IFRS Relevant guidance: IAS 40 and 16; IFRS 5 U.S. GAAP Relevant guidance: See Section 4.1, “Property, plant and equipment” and ASC 360, 845, 970, 976 Note: The FASB’s current agenda includes a project on investment properties. The objective of this project is to consider whether entities should be given the option (or be required) to measure an investment property at fair value through earnings. IAS 40, Investment Property provides such an option. This project also will consider how an entity should consider a lease when measuring the fair value of a leased investment property. The FASB expects to issue an exposure draft during the second quarter of 2011. Introduction Investment property is property (land or a building – or part of a building – or both) held (by the owner or by the Unlike IFRS, there is no equivalent standard in U.S. GAAP. Property held for investment purposes is treated © 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 43 IFRS lessee under a finance lease) to earn results or for capital appreciation or both, rather than for (IAS 40.5): • Use in the production or supply of goods or services or for administrative purposes; or • Sale in the ordinary course of business Also, see IAS 40.6-.15, which supplements the basic definition. The following are examples of investment property (IAS 40.8): U.S. GAAP the same as other property, plant and equipment (see Section 4.1, “Property, plant and equipment”). Real estate guidance is included in ASC 360-20, ASC 970, and ASC 976. No equivalent standard. • Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business • Land held for a currently undetermined future use (If an entity has not determined that it will use the land as owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded as held for capital appreciation.) • A building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases • A building that is vacant but is held to be leased out under one or more operating leases • Property that is being constructed or developed for future use as investment property IAS 40 excludes owner-occupied property from being investment property (IAS 40.7 and .9(c)). IAS 16 applies to owner-occupied property. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property if, and only if, the property would otherwise meet the definition of an investment property and the lessee uses the fair value model set out in IAS 40.33-.55 for the asset recognised (IAS 40.6). Unlike IFRS, any property held under an operating lease is not capitalized under U.S. GAAP. Rent is expensed as incurred. This classification alternative is available on a property-byproperty basis. However, once this classification alternative is selected for one such property interest held under an operating lease, all property classified as investment property shall be accounted for using the fair value model. When this classification alternative is selected, any interest so classified is included in the disclosures required by IAS 40.74-.78 (IAS 40.6). © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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