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

Comparison between U.S. GAAP and International Financial Reporting Standards 92
7. Financial instruments
Note: In November 2009 the IASB issued IFRS 9, Financial Instruments (IFRS 9), which addressed the classification
and measurement of financial assets. In October 2010, requirements for financial liabilities were added as an
amendment to IFRS 9. The amendment retained most of the existing requirements for classification and measurement
of financial liabilities, except that changes were made to the fair value option for financial liabilities to address the
effects of changes in own credit risk. Further amendments to IFRS 9 are planned, for the areas of impairment and
hedging, with a target for completion of June 2011. Entities are required to apply IFRS 9 for annual periods beginning
on or after January 1, 2013. Earlier application is permitted.
7.1 Recognition and measurement of financial assets
Note: The IASB and the FASB have numerous projects with respect to financial instruments. In November 2009 the
IASB issued ED/2009/12, Financial Instruments: Amortised Cost and Impairment, which would replace the current
requirements with an expected loss model. In December 2010 the IASB issued ED/2010/13, Hedge Accounting, which
would make significant changes to current requirements to align hedge accounting more closely with an entity’s risk
management and establish a more objectives-based approach.
In May 2010 the FASB issued proposed Accounting Standards Update (ASU), Accounting for Financial Instruments
and Revisions to the Accounting for Derivative Instruments and Hedging Activities. The ASU proposes a
comprehensive approach to financial instruments accounting, including classification, measurement, impairment, and
hedge accounting. In February 2011 the FASB issued an invitation to comment, Selected Issues about Hedge
Accounting, to solicit input on the IASB’s Exposure Draft, Hedge Accounting.
In January 2011, the Boards jointly issued for comment a supplement to their earlier exposure drafts covering
impairment of financial instruments. In redeliberating their original proposals the Boards developed a new impairment
model that is a variant of their earlier ones. The new model allows both Boards to satisfy at least part of their original
objectives while achieving a common solution for impairment. The comment period for the supplement ends April 1,
2011.
See the IASB and FASB websites for additional information on the current status of their financial instruments projects.
IFRS
U.S. GAAP
Relevant guidance: IAS 32 and 39 Relevant guidance: ASC 310, 320, 815, 825, and 860
Introduction
IAS 39 addresses recognition and measurement of
financial instruments, including financial assets.
Financial assets comprise (IAS 32.11):
• Cash
• Rights to receive cash or another financial asset
(i.e. receivables and loans made to others)
• A contract to exchange financial instruments on
potentially favourable terms
• Equity instruments in another entity
• A non-derivative contract to receive a variable
number of the entity's own equity instruments
• A certain type of complex derivative as specified in
IAS 32 in respect of an entity's own equity
A financial instrument is defined as cash, evidence of an
ownership interest in an entity, or a contract that both
(ASC Master Glossary, “Financial Instrument”):
• Imposes on one entity a contractual obligation (1) to
deliver cash or another financial instrument to a
second entity or (2) to exchange other financial
instruments on potentially unfavorable terms with the
second entity
• Conveys to that second entity a contractual right (1)
to receive cash or another financial instrument from
the first entity or (2) to exchange other financial
instruments on potentially favorable terms with the
first entity
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