Please check out Global Convergence with IFRS – Part IV that starts to discuss the differences between US GAAP and IFRS
We are looking at more differences here:
3. Plant Property & Equipment or Long Lived assets
With respect to PPE, long lived assets or otherwise known as fixed assets, many of the requirements are very similar. Measurement with respect to the cost, capitalized interest, depreciation or asset held for sale have similar requirements between US GAAP and IFRS. Here are some differences:
Area of comparison | US GAAP | IFRS |
Property held for investment | Property held for investment is not separately classified. | IAS 40 specifically requires investment property held for earning rent or capital appreciation to be disclosed separately |
Revaluation of asset | Not permitted | Can be done for an entire class of assets |
Borrowing costs | While measuring borrowing costs into the asset value, exchange rate differences cannot be included | While measuring borrowing costs into the asset value, exchange rate differences can be included |
4. Intangible Assets and Impairment of Assets
Area of comparison | US GAAP | IFRS |
Development costs | These are normally expensed. | Development costs are capitalized when technical and economic feasibility of a project can be demonstrated in accordance with specific criteria like demonstrating technical feasibility, intent to complete the asset, and ability to sell the asset in the future. |
Computer software development costs | Development costs related to computer software for external use is capitalized once technological feasibility is established as per FAS 86. In case of development for internal use, only the costs for application development stage can be capitalized | No specific rule or standard |
Advertisement and promotional costs | Advertising and promotional costs are expensed. Direct response advertising may be capitalized if the specific criteria in SOP 93-07 Reporting on Advertising Costs are met | Advertising and promotional costs are expensed as incurred. |
Revaluation of intangibles | Not permitted | Revaluation other than goodwill is permitted. But it would require an active market for the specific type of intangible asset |
5. Leases
Area of comparison | US GAAP | IFRS |
Separation of Land and Building | If the fairvalue of land is more than 25% at the beginning, the land and building should be separately considered | No 25% test, land and building are always classified separately |
Output contracts | Output contracts are leases | Output contracts are not leases |
Gain on sale/leaseback | Gain on sale/leaseback not recognized in current earnings, but deferred and amortized, unless seller retains use of much of asset, in which case gain is recognized (immediate recognition of loss also commonly required) | Gain on sale/leaseback amortized over term of financing lease, but recognized at once if operating leaseback |
Capital Lease | Capital lease is required if one of the four condition is met (clear example of rule based approach) (a) if it transfers ownership to the lessee at the end of the lease term, (b) if transfer of ownership at the end of the lease term seems likely because the lessee has a "bargain purchase" option, (c) if it extends for at least 75 percent of the asset's life, or (d) if the present value of the contractual minimum lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease | Not rule based. Capital lease treatment if risks and rewards are transferred to lessee; also if property is special purpose for lessee use |
We compared three more areas in this blog, will continue to discuss some more differences in next blog.
Check out the earlier parts in this blog series – Global convergence through IFRS - Part I , Global convergence through IFRS - Part II and Global convergence through IFRS – Part III
