preface

68
ACCOUNTING AND AUDITING PERSPECTIVES
6.6. PRINCIPAL DIFFERENCES BETWEEN ISRAELI GAAP AND
U.S. GAAP
A study of financial statements in Israel, presented in conformity with Israeli
GAAP, outlines the differences between Israeli accounting policy and/or
presentation of data and/or disclosures in notes to the financial statements as
compared with other countries, such as the United States, United Kingdom, etc.
Care should be taken that those differences apply only to non public Israeli
companies, which are not required to apply IFRS.
The principle differences between Israeli and U.S. GAAP are:
♦ Consolidated financial statements - The requirement to consolidate
financial statements in Israel is similar to that of other countries, except for
one major difference. In Israel, unlike the United States, no consolidation is
made when minority shareholders maintain over 75 percent of shares with
rights to profit, even though the parent company holds controlling shares in
excess of 50%. Furthermore, there is no consolidation of variable interest
entities under Israeli GAAP - unlike under U.S. GAAP, FIN46(R):
Consolidation of Variable Interest Entities - An Interpretation of ARB
No. 51.
♦ Proportionate consolidation of legal entities - This is not an accepted
practice in the United States, although it is customary in Israel.
Additionally, in case of an investment with the original intention of being
realized in the short term - Israeli GAAP does not permit application of the
equity method, while this is acceptable in the United States.
♦ Statement of cash flows - Cash and cash equivalents are defined differently
in Israel and the United States. Furthermore, financing leases are included in
Israel in financing and investment activities, while under U.S. GAAP they
are included in non-cash activities. Additional presentation requirements
exist in the United States beyond what is required in Israel in respect of
taxes on income and interest on loans. Differences also exist in treating
“currency translation” of foreign subsidiaries.
♦ Pension liabilities - In the United States, valuation of pension liabilities is
based on the present value of actuarial estimates. In Israel, a provision for
severance pay is generally made instead of, or in addition to any provision
for pension, calculated on the assumption of retirement of all employees as
of the date of the financial statements.
BDO Israel