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

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Comparison between U.S. GAAP and International Financial Reporting Standards 78 IFRS measured. An expected loss on a contract should be recognised as an expense immediately (IAS 11.22 and .36). If the outcome of a contract cannot be estimated reliably, contract revenue and contract costs shall be recognised as follows (IAS 11.32): • Revenue shall be recognised only to the extent of contract costs incurred that it is probable will be recoverable. • Contract costs shall be recognised as an expense in the period incurred. According to IAS 11.33, during the early stages of a contract it is possible that the outcome of the contract cannot be estimated reliably; however, it may be probable that the entity will recover contract costs. In this situation, contract revenue shall be recognised only to the extent of costs incurred that are expected to be recoverable. An expected loss on a contract should be recognised as an expense immediately (IAS 11.32 and .36). Contract revenue includes (IAS 11.11): • Initial amount of revenue agreed in the contract • Contract variations and claims to extent that they are probable of resulting in revenue and capable of being reliably measured The amount of claims that can be included in contract revenues is subject to a high level of uncertainty. Therefore, IAS 11.14 provides that claims are included in contract revenue only when both of the following conditions are met: Customer negotiations have reached an advanced stage such that it is probable that the customer will accept the claim The probable amount acceptable to the customer can be measurable reliably U.S. GAAP 25-69). If reasonable estimates cannot be made, the completed contract method is used (ASC 605-35-25-61 and 25-94). Similar to IFRS, contract revenues include the basic contract amount and other contract variations and claims if certain criteria are met. For example: • Contract revenue and costs should be adjusted to reflect change orders when their scope and price have been approved by the customer and contractor. ASC 605-35-25-28 includes guidance for unpriced change orders (ASC 605-35-25-25 through 25-28). • Generally, recognition of additional contract revenue resulting from claims is appropriate only if it is probable that the claim will result in additional revenue and the amount can be reliably estimated, which generally requires specific criteria to be met. Revenue should be recognized only to the extent that contract costs relating to the claim have been incurred (ASC 605-35-25-30 through 25-31). 6.2 Employee benefits Note: In March 2008, the IASB issued a Discussion Paper, Preliminary Views on Amendments to IAS 19 Employee Benefits. This Discussion Paper was the first step in a comprehensive project on the accounting for post-employment benefits. The input received on the discussion paper was considered by the IASB in developing its Exposure Draft, Defined Benefit Plans: Proposed amendments to IAS 19, issued in April 2010. The Exposure Draft includes proposed amendments on the recognition, presentation, and disclosure of defined benefit plans. The purpose of the proposed amendment is to address certain perceived deficiencies in IAS 19 related to recognition, classification, and disclosure of defined benefit plans. The IASB is continuing its discussions on the Exposure Draft and expects to issue © 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 79 amendments to IAS 19 at the end of the first quarter of 2011. The IASB is also considering additional changes to the guidance in IAS 19 on accounting for termination benefits as part of its work on the Exposure Draft. IFRS U.S. GAAP Relevant guidance: IAS 19; IFRIC 14 Relevant guidance: ASC 420, 450, 710, 712, and 715 Introduction IAS 19 applies to employee benefits provided through (IAS 19.3): • Formal plans or agreements between an entity and individual employees, groups of employees, or their representatives • Legislative requirements or industry arrangements that require entities to contribute to national, state, industry, or other multiemployer plans • Informal practices that create a constructive obligation Employee benefits include (IAS 19.4): • Short-term monetary employee benefits, such as wages, social security contributions, paid annual leave, paid sick leave, profit sharing, bonuses, and deferred compensation (if payable within 12 months of the end of the period) • Short-term nonmonetary benefits, such as medical care, housing, and cars • Postemployment benefits, such as pensions, other retirement benefits, postemployment medical care • Long-term profit sharing, bonuses, and deferred compensation • Other long-term employee benefits, such as longservice leave or sabbatical leave and long-term disability benefits • Termination benefits Note: Share-based payments are addressed in IFRS 2. See Section 6.3, “Share-based payments.” Unlike IFRS, the accounting for employee benefits is covered in several Codification topics. Some of the more significant areas are listed below: • General – ASC 710 Compensated absences Deferred compensation arrangements Lump-sum payments under union contracts • Retirement benefits – ASC 715 Defined benefit plans – general Defined benefit plans – pension Defined benefit plans – other postretirement Defined contribution plans Multiemployer plans • Nonretirement postemployment benefits – ASC 712 Termination benefits Other postemployment benefits Note: Share-based payments are covered by ASC 718. See Section 6.3, “Share-based payments.” Short-term benefits In general, at the time an employee has rendered service to an entity during an accounting period, the entity shall recognise a liability for the undiscounted amount of the short-term benefits expected to be paid in exchange for that service (IAS 19.10). Compensated absences (IAS 19.11-.16) • Accumulating – those that are carried forward and can be used in future periods. An accrual shall be recognised when the employee renders service. With a few exceptions, such as ASC 710 on deferred compensation contracts and compensated absences, and ASC 712 on postemployment preretirement benefits, U.S. GAAP does not specifically address short-term benefits. However, similar to IFRS the accrual basis of accounting shall be used to account for short-term benefits. Compensated absences Employers shall accrue a liability for employees’ compensation for future absences if all of the following conditions are met (ASC 710-10-25-1): © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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