preface

BDO Israel
DOING BUSINESS IN ISRAEL
♦ Segment reporting - Israeli GAAP focuses primarily on the use of a primary
and secondary format for reporting financial information pertaining to
business and geographical segments. U.S. GAAP, on the other hand, uses a
management approach for segment reporting, such that the enterprise
component frameworks are evaluated by the chief operating decisionmaker.
♦ Marketable securities - In Israel, investments in securities are classified into
two categories (current and permanent investments). In the United States, on
the other hand, investments are classified into three categories (held to
maturity and trading, and available for sale investments). The categories
prescribed in the United States have been adopted by the Israel
Commissioner of Banks for financial statements compiled by banks.
Differences also exist in regard to the application of statements of cash
flows, and balance sheet presentation.
♦ Capitalized financing costs - The accounting treatment is prescribed in
Israeli Accounting Standard No. 3, pursuant to which financial costs - which
might have been avoided had the asset not been built/established - are
capitalized to qualifying assets as defined in this Standard. According to
Accounting Standard No. 3, all other financial costs are charged to the
statement of operations for the appropriate accounting period. The Standard
adopts the principles prescribed by the American Standard (FAS 34),
whereby it is obligatory to capitalize financing costs. Differences exist in
the definition of financing costs and capitalization methods.
♦ Fair value measurement and fair value option - Following the publication
of FAS 157, the definition of 'fair value' under US GAAP has now been
standardized. By contrast, Israeli GAAP does not provide a conceptual
framework for fair value measurement, while IFRS offer more detailed
definitions. Either way, the definition under US GAAP refers to a relative
exit price as fair value, while its common concept under Israeli GAAP and
IFRS is the entrance price-i.e. the price at which the transaction was
concluded.
Another issue is the option to measure financial instruments intended to be held
at amortized cost, at fair value. This choice of accounting policy is
unacceptable under Israeli GAAP.
69