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

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Comparison between U.S. GAAP and International Financial Reporting Standards 98 IFRS U.S. GAAP convertible debt instruments that have stated terms permitting settlement on conversion either wholly or partially in cash or other assets in a manner similar to IFRS (ASC 470-20-25). When the nondetachable conversion feature meets the definitions of a derivative (ASC 815-10-15-83 through 15-99) and does not qualify for any exceptions (ASC 815-10-15-13 through 15-82) the embedded conversion feature is treated as a derivative liability (or asset) (see Section 7.3, “Recognition and measurement of derivatives”). Offsetting A financial asset is offset against a financial liability when and only when an enterprise (IAS 32.42): • Has a legally enforceable right to set off the recognised amounts, and • Intends either to settle on a net basis or realise the asset and settle the liability simultaneously Note: In January 2011, the IASB issued ED/2011/1, Offsetting Financial Assets and Financial Liabilities, which proposes to converge with U.S. GAAP the accounting for offsetting of financial instruments. The comment period ends 28 April 2011. Offsetting of financial assets and financial liabilities is permitted only when (ASC 210-20-45-1 and 45-8 through 45-9): • The parties owe each other determinable amounts • There is a right and intention to set-off • The right of set-off is enforceable by law Note: In January 2011, the FASB issued an Exposure Draft, Offsetting, which proposes to converge with IFRS the accounting for offsetting of financial instruments. The comment period ends April 28, 2011. Initial measurement Financial liabilities and equity instruments are recorded initially at fair value (which is normally its initial transaction price unless fair value is evidenced by comparison to other observable current market transactions) (IAS 39.43). Initial recognition for liabilities carried at amortised cost is net of transaction costs (defined as incremental costs) (IAS 39.43). Liabilities and equity instruments are recorded initially at the fair value of the property, goods, services, or other consideration received or at the fair value of the financial instrument issued, whichever is the more clearly determinable (ASC 835-30-25-10, ASC 505-50-30-6, and ASC 718-10-30-2). Debt issue costs are reported in the balance sheet as deferred charges (ASC 835-30-45-3). Finance costs and distributions With some exceptions, finance costs on financial liabilities are calculated using the effective interest method (i.e. at a constant rate of charge on the outstanding liability) (IAS 39.47). Interest, gains and losses relating to financial instruments or component parts classed as liabilities are reported in the profit or loss (IAS 32.35). Distributions to holders of a financial instrument classed as an equity instrument are debited directly to equity (IAS 32.35). For distributions of assets other than cash as dividends to owners, IFRIC 17 requires that an entity measure a liability to distribute non-cash assets as a dividend to its Similar to IFRS. Similar to IFRS. Similar to IFRS. A distribution of nonmonetary assets to equity holders in a spin-off or other form of reorganization should be based on the recorded amount of the nonmonetary assets distributed (ASC 845-10-30-10). A non-pro-rata split-off of a business segment is © 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 99 IFRS owners at the fair value of the assets to be distributed and to recognise in profit or loss any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable. U.S. GAAP accounted for at fair value. Other non-reciprocal transfers of nonmonetary assts to owners should be accounted for at fair value if fair value is objectively measureable and would be clearly realizable to the distributing entity in an outright sale at or near the time of the distribution (ASC 845-10-30-10). Subsequent measurement With some exceptions, such as for liabilities at fair value through profit or loss, financial liabilities are carried at amortised cost (IAS 39.47). Liabilities at fair value through profit or loss are measured at fair value with gains or losses recognised in profit or loss (IAS 39.47). The following liabilities are subsequently accounted for at fair value through earnings: • Derivatives classified as liabilities (see Section 7.3, “Recognition and measurement of derivatives”) • Financial liabilities that are hybrid financial instruments that would be required to be bifurcated into a host and derivative component (ASC 815-15- 25-1) which the entity has irrevocably elected to measure at fair value (ASC 815-15-25-4) • Financial liabilities within the scope of ASC 480 that are not covered by the guidance in ASC 480-10-35-3 Forward contracts that require physical settlement by repurchase of a fixed number of the issuer’s equity shares in exchange for cash and mandatorily redeemable financial instruments are subsequently measured in one of the following two ways (ASC 480-10-35-3): • If both the amount to be paid and the settlement date are fixed, at the present value of the amount to be paid at settlement, accruing interest cost using the rate implicit at inception • If either the amount to be paid or the settlement date varies based on specified conditions, at the amount of cash that would be paid under the conditions specified in the contract if settlement occurred at the reporting date, recognizing the resulting change in that amount from the previous reporting date as interest cost Any amounts paid or to be paid to holders of those contracts in excess of the initial measurement amount are reflected in interest cost (ASC 480-10-45-3). All other liabilities are subsequently carried at amortized cost. Derecognition and settlement The difference between the carrying amount and the amount paid in settlement is recognised in profit or loss (IAS 39.41). Liabilities are derecognised when the obligation therein is extinguished. IFRS contain detailed requirements on liability derecognition (IAS 39.39-42). Similar to IFRS (ASC 470-50-40-2). A debtor derecognizes a liability if and only if it has been extinguished. A liability has been extinguished if either of the following conditions is met (ASC 405-20-40-1): © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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