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

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Comparison between U.S. GAAP and International Financial Reporting Standards 60 IFRS Leases involving land and buildings: • The classification of the land and building elements of a lease shall be assessed as a finance or operating lease separately in accordance with the requirements of paragraphs 7-13 of IAS 17. An important consideration in determining whether the land element is an operating or a finance lease is that land normally has an indefinite economic life. The land and building components of a lease may be treated as a single unit for purposes of lease classification if the land element is not material (IAS 17.15A and .17). • The minimum lease payments shall be allocated between land and buildings in proportion to their relative fair values at inception of lease. If the lease payments cannot be allocated reliably then the entire lease shall be treated as a finance lease, unless it is clear that both elements are operating leases (IAS 17.16). • If lessee’s interest in land and buildings is classified as investment property in accordance with IAS 40 and carried under fair value model, it is not necessary to split the land and buildings (IAS 17.18). Sale and leaseback: • For sale and finance leaseback transactions, gain shall be deferred and amortised over the lease term (IAS 17.59) • For sale and operating leaseback transactions (IAS 17.61): If sales price is at fair value, profit/loss shall be recognised immediately If sales price is below fair value, profit/loss U.S. GAAP Direct financing leases: Net investment consists of gross investment plus any unamortized initial direct costs less unearned income. Gross investment is minimum lease payments, net of executory costs, plus unguaranteed residual value accruable to the benefit of the lessor. The difference between the gross investment and the cost or carrying amount of the leased property shall be recorded by the lessor as unearned income. Lessor's income under a direct financing lease is calculated using a rate that will produce a constant periodic rate of return on the net investment in the lease (ASC 840-30-35-23). Leases involving land and buildings: • For capital leases in which the lease transfers ownership of the property to the lessee by the end of the lease term or contains a bargain purchase option, the lessee’s capitalized amount must be apportioned between land and building based on their relative fair values at lease inception (ASC 840-10-25-38). Detailed guidance on the lessor’s accounting is included in ASC 840-10-25-60 through 25-62. • For leases that do not meet the ownership transfer or bargain purchase option criteria noted above, the land and buildings are considered separately if the fair value of the land is 25 percent or more of the value of the leased property at the inception of the lease. Detailed guidance on the lessee and lessor accounting is included in ASC 840-10-25-38 and 25-63 through 25-68. • U.S. GAAP does not permit leases of land and buildings to be recorded at fair value Sale and leaseback • For sale and leaseback transactions, profit or loss is generally deferred and amortized unless (ASC 840-40-25-3 and 840-40-35-1): The leaseback is minor as defined in ASC 840, the sale and leaseback shall be accounted for as separate transactions based on their respective terms (ASC 840-40-25-3). The leaseback is more than a minor part but less © 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 61 IFRS shall be recognised immediately, except if a loss is compensated by future lease payments at below market price, then the loss shall be deferred and amortised over period asset is expected to be used If sales price is above fair value, the excess over fair value shall be deferred and amortised over the period the asset is expected to be used Note: For operating leases, if fair value is below carrying amount, immediately recognise a loss calculated as carrying amount minus fair value (IAS 17.63). Lease classification may differ for lessor and lessee, such as when a third party unrelated to the lessee guarantees residual value (IAS 17.9). U.S. GAAP than substantially all of the use of the asset as defined in ASC 840, a gain on sale of the asset in excess of the present value of the minimum lease payments (operating lease) or the recorded amount (capital lease) shall be recognized at the date of sale (ASC 840-40-25-3). The fair value of the property at the time of the transaction is less than its undepreciated cost. In this situation a loss shall be immediately recognized. • If, through the leaseback, the seller-lessee retains substantially all of the benefits and risks incident to ownership of the property sold, the transaction is a financing (ASC 840-40-25-4) • Unlike IFRS, special rules exist for sale-leaseback transactions involving real estate (ASC 840-40, “Real Estate” subsections). Lease classification may differ for lessor and lessee, depending upon whether criteria in ASC 840-10-25-1 are met. Usually this occurs because the lessor uses the implicit rate and the lessee uses the incremental borrowing rate. However, this situation is less frequent under IFRS because the lessee is presumed to use the implicit rate. 5.2 Provisions, contingent liabilities, and contingent assets Note 1: In June 2005, the IASB issued an exposure draft to replace IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The project was initiated to address inconsistencies with other IFRS, to achieve global convergence of accounting standards, and to improve measurement of liabilities in IAS 37. In response to comments received on the Exposure Draft, in January 2010 the Board issued another Exposure Draft, Measurement of Liabilities in IAS 37 that includes proposed measurement guidance. In February 2010, the IASB posted a working draft of the proposed new IFRS that includes the proposed measurement guidance in the 2010 exposure draft as well as any other changes made to the 2005 exposure draft. The Board plans to continue to redeliberate the Exposure Drafts after June 2011. If the Board reaches decisions on all aspects of the proposals, it plans to expose any proposed revised IFRS in its entirety for comment. Note 2: In July 2010, the FASB issued a proposed ASU, Disclosure of Certain Loss Contingencies, to address concerns that existing disclosures do not provide adequate and timely information to enable financial statement users to assess the likelihood, timing, and magnitude of future cash outflows associated with loss contingencies. The proposals would expand the disclosure requirements in ASC 450, Contingencies, as well as the scope of events subject to those loss contingency disclosures. The FASB expects to begin redeliberating this project in the second quarter of 2011. IFRS U.S. GAAP Relevant guidance: IAS 37; IFRIC 1 Relevant guidance: ASC 410, 420, and 450 © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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Comparison between U.S. GAAP and International ... - Grant Thornton

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