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

Comparison between U.S. GAAP and International Financial Reporting Standards 93
IFRS
instruments
IAS 39 has highly detailed requirements concerning
derivatives, complex instruments (such as embedded
derivatives) and hedging arrangements. Derivatives
such as interest swaps, forward contracts, and currency
options are carried at fair value.
U.S. GAAP
Similar to IFRS. Derivatives and hedging arrangements
are covered by ASC 815 (see Section 7.3, “Recognition
and measurement of derivatives” and Section 7.4, “Hedge
accounting”).
Categorisation of financial assets
Divide financial assets into the following categories
(IAS 39.9):
• Financial assets at fair value through profit or loss
(see below for further details)
• Loans and receivables (see below for further
details)
• Held to maturity – defined narrowly with strict
conditions; covers only assets with fixed or
determinable payments and fixed maturity that the
enterprise has the positive intent and ability to hold
to maturity, other than loans and receivables
originated by the enterprise
• Available-for-sale financial assets – all financial
assets not falling under another category (any
financial asset other than one that is held for trading
may be designated into this category on initial
recognition)
No explicit categorization scheme for financial assets.
They could be categorized as follows:
• Derivative financial instruments (see Section 7.3,
“Recognition and measurement of derivatives”)
• Hybrid financial instruments that would be required to
be separated into a host and derivative component
under ASC 815-15-25-1 which the entity has
irrevocably elected to measure at fair value
(ASC 815-15-25-4)
• Eligible financial assets that the entity elects to
measure at fair value – fair value option
(ASC 825-10-15-4)
• Loans and receivables (see below for further details)
• Debt and equity securities within the scope of
ASC 320:
Trading (see below for further details)
Held-to-maturity – defined narrowly with strict
conditions and covers only those debt securities
that the enterprise has the positive intent and
ability to hold to maturity
Available-for-sale – debt and equity securities
not classified as trading or held-to-maturity
securities
An entity may not use the held to maturity category for
two annual reporting periods (taint period) when it sells
more than an insignificant amount of assets, with limited
exceptions (IAS 39.9).
Financial assets at fair value through profit or loss
include (IAS 39.9):
• Assets held for trading – includes all derivatives
(see Section 7.2, “Presentation, recognition, and
measurement of financial liabilities and equity” and
Section 7.3, “Recognition and measurement of
derivatives”) as well as other instruments acquired
for the purpose of generating profit from short-term
fluctuations in price or dealer's margin
• Financial assets designated irrevocably into this
category on initial recognition if they fall into one of
The length of the taint period under U.S. GAAP is not
defined. The SEC uses a two year time frame.
Financial assets at fair value through earnings include:
• Derivative financial instruments (see Section 7.2,
“Presentation, recognition, and measurement of
financial liabilities and equity” and Section 7.3,
“Recognition and measurement of derivatives”)
• Trading securities – securities that are bought and
held principally for the purpose of selling them in the
near term but may include securities held for a longer
period (ASC 320-10-25-1)
• Hybrid financial instruments that would be required to
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