INVENTORY
US GAAP IFRS
COSTING A variety of inventory costing
METHODS methodologies such as FIFO,
LIFO, and/or weighted-
average cost are permitted.
Last in, first out (LIFO) is an
acceptable method. A
consistent cost formula for all
inventories similar in nature
is not explicitly required.
MEASUREMENT Inventory is carried at the
lower of cost or market.
Market is defined as current
replacement cost, but not
greater that net realizable
value (estimated selling price
less reasonable costs of
completion, disposal and
transportation) and not less
that net realizable value
reduced by a normal sales
margin.
Inventory other than that
accounted for under the LIFO
or RIM is carried at the lower
of cost and net realizable
value.
REVERSAL OF Any write down of inventory
INVENTORY below cost creates a new
WRITE-DOWNS cost basis that subsequently
cannot be reversed.
Reversals of write downs are
prohibited.
PERMANENT Permanent markdowns do
INVENTORY not affect the gross margins
MARKDOWNS used in applying the RIM.
UNDER RIM Rather, such markdowns
reduce the carrying cost of
inventory to net realizable
value, less an allowance for
an approximately normal
profit margin, which may be
lee than both original cost
and net realizable value.
CAPITALIZATION The service cost component
OF PENSION of net periodic pension cost
COSTS and net periodic post
retirement benefit cost is the
only component directly
arising from employees’
services provided in the
current period. Therefore,
when it is appropriate to
capitalize employee
compensation in connection
with the construction or
production of an asset, the
service cost component
applicable to the pertinent
employees for the period is
the relevant amount to be
A number of costing
methodologies such as FIFO
or weighted average costing
are permitted. The use of LIFO
is prohibited and precluded.
Same cost formula must be
applied to all inventories
similar in nature or use to the
entity.
Inventory is carried at the
lower of cost and net
realizable value. Net realizable
value is defined as the
estimated selling price less the
estimated costs of completion
and the estimated costs of
completion and the estimated
costs necessary to make the
sale.
Previously recognized
impairment losses are
reversed up to the amount of
original impairment loss when
the reasons for impairment no
longer exist. Reversals of
inventory write downs (limited
to the amount of the original
write down) are required for
subsequent recoveries.
Permanent markdowns affect
the average gross margin
used in applying RIM.
Reduction of the carrying cost
of an inventory to below the
lower of cost and net
realizable value is not allowed.
Any post-employment benefit
costs included in the cost of
inventory include the
appropriate portion of the
component of defined benefit
cost (i.e., service cost, net
interests on the net define
benefit liability (asset) and
remeasurements of the net
defined benefit liability (asset).
SALE AND LEASEBACK
US GAAP IFRS
Determining To determine whether an To determine whether the
whether a transfer asset is a sale and transfer of an asset is
of an asset is a purchase, a seller-lessee and accounted for as a sale, a
sale in a sale buyer-lessor consider the seller-lessee and a buyer-lessor
/purchase and following: apply the requirements for
leaseback  Whether the transfer determining when a
transaction. meets sale criteria performance obligation is
under ASC 606 satisfied in IFRS 15.
(however, certain fair
value repurchase
options would not
result in a failed sale).
 A sale and purchase
 do not occur when the
leaseback is
classified as a sales-
type lease by buyer-
lessor or finance
lease by seller-
lessee.
Gain or loss The seller-lessee recognizes The seller-lessee recognizes
recognition in sale any gain or loss, adjusted for only the amount of any gain or
and leaseback off-market terms, loss on sale that relates to the
transactions. immediately. rights transferred to the buyer-
lessor.
Recognition of a If the seller-lessee retains Gain or loss is recognized
gain or loss on a only a minor portion of the immediately, subject to
sale and remaining use of the leased adjustment if the sales price
leaseback when asset through the sale- differs from fair value.
the leaseback is leaseback, the sale and
an operating leaseback are accounted for
leaseback (non- as separate transactions
real estate). based on their respective
terms (unless rentals are
unreasonable in relation to
market conditions).

If a seller-lessee retains more

than a minor part of the
remaining use of the leased
asset but less than
substantially all of it, and the
profit on the sale exceeds the
present value of the minimum
lease payments due under
the operating leaseback, that
excess is recognized as profit
at the date of sale. All other
profit is deferred and
generally amortized over the
lease term,

Recognition of The seller-lessee is Gain or loss is deferred and

gain or loss on a presumed to have retained amortized over the lease term.
sale-leaseback substantially all of the
when the remaining use of the leased
leaseback is asset when the leaseback is
capital leaseback classified as a capital lease.
In such cases. The profit on
sale is deferred.
Definition of initial IDCs are incremental costs IDCs are incremental costs of
direct cost (IDCs) that would not have been obtaining a lease that would not
incurred if the lease had not have been incurred if the lease
been obtained. Lessors had not been obtained.
expense IDCs for sales-type However, costs incurred by a
leases if the fair value is manufacturer or dealer lessor in
different than the carrying connection with a finance lease
 value.
Lessee-lease Leases are classified as
classification either finance or operating.
Lessor lease Leases are classified as
classification operating, direct financing or
sales-type leases.
PROPERTY PLANT AND EQUIPMENT
Revaluation of Revaluation is not permitted.
Assets
Depreciation of Does not require the
asset component approach of
components depreciation.
Further, the model has no
explicit requirement for an
annual review of residual
are excluded.
All leases are accounted for
similarly to finance leases
under ASC 842, unless a
recognition exemption (e.g., the
low value asset exemption) is
adopted .
Leases are classified as
operating or finance leases.
Revaluation is a permitted
accounting policy election for an
entire class of assets, requiring
revaluation to fair value on a
regular basis.
Requires that separate
significant components of
property, plant and equipment
with different economic lives be
recorded and depreciated
separately.
 values.
While US GAAP has an
explicit requirement to
evaluate the remaining useful
life of intangible assets each
reporting period, this
requirement is not explicit for
tangible assets.
Measuring of Interest earned on the
borrowing costs investment of borrowed
funds generally cannot offset
interest costs incurred during
the period.
Eligible borrowing costs do
not include exchange rate
differences.
Borrowing costs equal to the
weighted-average
accumulated expenditures
times the borrowing rate are
capitalized for qualifying
assets.
Cost of a major Permits alternative
overhaul accounting methods for
recognizing the costs of a
major overhaul. Costs
representing a replacement
of an identified component
can be (1) expense as
incurred, (2) accounted for as
a separate component asset,
or (3) capitalized and
amortized over the period
benefited by the overhaul.
Investment Investment property is not
property separately defined and,
therefore, is accounted for as
held and used or held for
sale.
Asset retirement Asset retirement obligations
obligations (AROs) are recorded at fair
value and are based upon
The guidance includes a
requirement to review residual
values and useful lives at each
balance sheet date.
Eligible borrowing costs include
exchange rate differences.
For borrowings associated with
a specific qualifying asset,
actual borrowing costs are
capitalized offset by investment
income earned on those
borrowings.
Costs that represent a
replacement of a previously
identified component of an
asset are capitalized if future
economic benefits are probable
and the costs can be reliably
measured. Otherwise, these
costs are expensed as incurred.
After the adoption of IFRS 16,
investment property is defined
as property held by lessees as
right-of-use assets and may be
accounted for on a historical
cost or fair value basis as an
accounting policy election. IFRS
16 requires a lessee to measure
right-of-use assets arising from
leased property in accordance
with the fair value model of IAS
40 if the leased property meets
the definition of investment
property and the lessee elects
the fair value model in IAS 40
as an accounting .
IFRS requires that
management’s best estimate of
the costs of dismantling and
 the legal obligation that
arises as a result of the
acquisition, construction, or
development of a long-lived
asset.
The guidance also requires
an entity to measure
changes in the liability for an
ARO due to passage of time
by applying an interest
method of allocation to the
amount of the liability at the
beginning of the period.
In addition, changes to the
undiscounted cash flows are
recognized as an increase or
a decrease in both the
liability for an ARO and the
related asset retirement cost.
Upward revisions are
discounted by using the
current credit-adjusted, risk-
free rate that existed when
then original liability was
recognized. If an entity
cannot identify the prior
period to which the
downward revision relates, it
may use a weighted average,
credit-adjusted, or risk-free
rate to discount the
downward revision to
estimated future cash flows.
Impairment of US GAAP requires a two-
long-lived assets step impairment test and
held for use - measurement model as
general follows:
Step 1 – The carrying
amount is first compared with
the undiscounted cash flows.
If the carrying amount is
lower than the undiscounted
cash flows, no impairment
loss is recognized, although
it might be necessary to
reviews depreciation (or
amortization) estimates and
methods for the related
asset.
Step 2 – If the carrying
amount is higher than the
undiscounted cash flows, an
impairment loss is measured
as the difference between
the carrying amount and fair
removing the item or restoring
the site on which it is located be
recorded when an obligation
exists. The estimate is to be
based on a present obligation
that arises as a result of the
acquisition, construction, or
development of a fixed asset.
The guidance uses a pretax
discount rate that reflects
current market assessments of
the time value of money and the
risks specific to the liability.
Changes in the measurement of
an existing decommissioning,
restoration, or similar liability
that result from changes in the
estimated timing or amount of
the cash outflows or other
resources, or a change in the
discount rate, adjust the
carrying value of the related
asset under the cost model.
Adjustments may not reduce
the carrying amount of an asset
to a negative value. Once the
carrying value reaches zero,
further reductions are recorded
in profit or loss. The periodic
unwinding of the discount is
recognized in profit or loss as a
finance cost as it occurs.
IFRS uses a one-step
impairment test. The carrying
amount of an asset is compared
with the recoverable amount.
The recoverable amount is the
higher of (1) the asset’s fair
value less costs of disposal or
(2) the asset’s value in use.
Fair value less costs of disposal
represents the price that would
be received to sell an asset or
paid to transfer a liability in an
orderly transaction between
market participants at the
measurement date less costs of
disposal. Current and deferred
tax balances, with the exception
of unused tax losses, and their
associated cash flows, are
taken into account when
calculating fair value less costs
of disposal, if a market
 value. Fair value is defined
as the price that would be
received to sell an asset in
an orderly transaction
between market participants
at the measurement date (an
exit price). Fair value should
consider the impact of the
related current and deferred
tax balances and should be
based on the assumptions of
market participants and not
those of the reporting entity.
Changes in market interest
rates are not considered
impairment indicators.
The reversal of impairments
is prohibited.
Impairment of Future cash flow estimates
long-lived assets used in an impairment
– cash flow analysis should include:
estimates  All cash inflows
expected from the
use of the long-lived
asset (asset group)
over its remaining
useful life, based on
its existing service
potential.
 Any cash outflows
necessary to obtain
those cash inflows,
including future
expenditures to
maintain (but not
improve) the long-
lived asset (asset
group)
 Cash flows
associated with the
eventual disposition,
including selling
costs, of the long-
lived asset (asset
group).
participant would also include
them.
Value in use represents entity-
specific or CGU-specific future
pretax cash flows discounted to
present value by using a pretax,
market-determined rate that
reflects the current assessment
of the time value of money and
the risks specific to the asset or
CGU for which the cash flow
estimates have not been
adjusted.
Changes in market interest
rates can potentially trigger
impairment and hence, are
impairment indicators.
If certain criteria are met, the
reversal of impairments, other
than those of goodwill, is
permitted.
Cash flow estimates used to
calculate value in use under
IFRS should include:
 Cash inflows from the
continuing use of the
asset or the activities of
the CGU
 Cash outflows
necessarily incurred to
generate cash inflows
from the continuing use
of the asset or CGU
(including cash outflows
to prepare the asset for
use) and that are directly
attributable to the asset
or CGU
 Cash outflows that are
indirectly attributable
(such as those relating
to central overheads)
but that can be allocated
on a reasonable and
consistent basis to asset
or CGU
 Cash flows expected to
be received (or paid) for
the disposal of assets or
CGUs at the end of their

Impairment of For purposes of recognition
long-lived assets and measurement of an
– asset impairment loss, a long-lived
groupings asset or asset group should
represent the lowest level for
which an entity can
separately identify cash flows
that are largely independent
of the cash flows of other
assets and liabilities.
In limited circumstances, a
long-lived asset (e.g.,
corporate asset) might not
have identifiable cash flows
that are largely independent
of the cash flows of other
assets and liabilities and of
other asset groups. In those
circumstances, the asset
group for that long-lived
asset shall include all assets
and liabilities of the entity.
Impairment of US GAAP requires a
long-lived assets disposal group to include
held for sale - items associated with
general accumulated other
comprehensive income. This
includes any cumulative
translation adjustment, which
is considered part of the
carrying amount of disposal
group (ASC 830-30-45-13).
useful lives.
 Cash outflows to
maintain the operating
capacity of existing
assets, including, for
example, cash flows for
day-to-day servicing.
A CGU is the smallest
identifiable group of assets that
generate cash inflows that are
largely independent of the cash
inflows from other assets or
groups of assets. It can be a
single asset. If an active market
(as defined by IFRS 13) exists
for the output produced by an
asset or group of assets, that
asset or group should be
identified as a CGU, even if
some or all of the output is used
internally.
Unlike US GAAP, liabilities are
generally excluded from the
carrying amount of the CGU.
However, there may be
circumstances when it is not
possible to determine the
recoverable amount without
considering a recognized
liability. In such cases, the
liability should be included in
the CGU.
Under IFRS 5, a disposal group
generally should not include
amounts that should have been
recognized in other
comprehensive income and
accumulated in equity for the
purpose of calculating
impairment. Other
comprehensive balances that
recycle should only be
recognized in the income
statement when the disposal
group is sold.
INTANGIBLE ASSETS
Development Development costs are
costs expensed as incurred.
Development costs related to
computer software
developed for external use
are capitalized once
technological feasibility is
established in accordance
with specific criteria. In the
Development costs are
capitalized when technical and
economic feasibility of a project
can be demonstrated in
accordance with specific
criteria, including
demonstrating technical
feasibility, intent to complete
the asset and ability to sell the
 case of software developed
for internal use, only those
costs incurred during the
application development
stage may be capitalized.
Advertising cost Advertising and promotional
costs are either expensed as
incurred or expensed when
the
advertising takes place for
the first time (policy choice).
Revaluation Revaluation is not permitted.
Internally In general, both research
developed and development costs are
intangibles expensed as incurred,
making the recognition of
internally generated
intangible assets rare.
However, separate rules
apply in certain areas. For
example, there is distinct
guidance governing the
treatment of costs
associated with the
development of software for
sale to third parties.
Separate guidance governs
the treatment of costs
associated with the
development of the software
for internal use, including
fees in a cloud computing
arrangement
The guidance for the two
asset in the future. Although
application of these
Principles may be largely
consistent with
ASC 985-20 and ASC 350-40,
there is no separate guidance
addressing Computer software
development costs.
Advertising and promotional
costs are expensed as
incurred. A prepayment may be
recognized as an asset only
when payment for the goods or
services is made in advance of
the entity having access to the
goods or receiving the
services.
Revaluation to fair value of
intangible assets other than
goodwill is a permitted
accounting policy election for a
class of intangible assets.
Because revaluation requires
reference to an active market
for the specific type of
intangible, this is relatively
uncommon in practice.
Costs associated with the
creation of intangible assets
are classified into research
phase costs and development
phase costs. Costs in the
research phase are always
expensed. Costs in the
development phase are
capitalized, if all the following
six criteria are demonstrated:
 The technical feasibility
of completing the
intangible asset.
 The intention to
complete the intangible
asset
 The ability to use or sell
the intangible asset.
 types of software varies in a
number of significant ways.
There are, for example,
different threshold for when
capitalization commences,
and there are also different
parameters for what types of
costs are permitted to be
capitalized.
Assignment of Goodwill is assigned to a
goodwill reporting unit, which is
defined as an operating
segment or one level below
an operating segment
(component).
 How the intangible
asset will generate
probable future
economic benefits(the
entity should
demonstrate the
existence of a market or
if for internal use, the
usefulness of the
intangible asset)
 The availability of
adequate resources to
complete the
development and to use
or sell it
 The ability to measure
reliably the expenditure
attributable to the
intangible asset during
its development
 Expenditure on
internally generated
brands, masthead,
publishing titles,
customer lists, and item
similar in substance
cannot be distinguished
from the cost of
developing the business
as a whole. Therefore,
such items are not
recognized as
intangible assets.
 Development costs
initially recognized as
expenses cannot be
capitalized in
subsequent period.
Goodwill is allocated to a cash-
generating unit
(CGU) or group of cash that
represents the lowest level
within the entity at which the
goodwill is monitored for
internal management purposes
and cannot be larger than an
 operating segment as defined
in IFRS 8, operating Segments.
Method of A company has the option to Qualitative assessment is not
determining qualitatively assess whether it permitted. The one-step
impairment- is more likely than not that approach requires that an
goodwill the fair value of a reporting impairment test be done at the
unit is less than its carrying CGU level by comparing the
amount. Before the adoption CGU’s carrying amount,
of ASU 2017-04, Simplifying including goodwill, with its
the Test for Goodwill recoverable amount.
Impairment, the company
performs a recoverability test
under the two-step approach
first at the reporting unit level
(the carrying amount of the
reporting unit is compared
with the reporting unit’s fair
value). If the carrying amount
of the reporting unit exceeds
its fair value, the company
performs impairment testing.
After the adoption of ASU
2017-04, the company
performs an impairment test
under the one-step approach
at the reporting unit level by
comparing the reporting unit’s
carrying amount with its fair
value.
Method of Companies have the option Qualitative assessment is not
determining to qualitatively assess permitted. The one-step
Impairment — whether it is more likely than approach requires that an
indefinite-lived not that an indefinite-lived impairment test be done at the
Intangibles intangible asset is impaired. If CGU level by comparing the
a quantitative test is CGU’s carrying amount,
performed, the quantitative including goodwill, with its
impairment test for an recoverable amount.
indefinite-lived intangible
asset requires a comparison
of the fair value of the asset
with its carrying amount. If
the carrying amount of an
intangible asset exceeds its
fair value, a company should
recognize an impairment
loss in an amount equal to
that excess.
Impairment loss Before the adoption of ASU The impairment loss on the
calculation- 2017-04, an impairment loss CGU (the amount by which the
goodwill is the amount by which the CGU’s carrying amount,
carrying amount of goodwill including goodwill, exceeds its
exceeds the implied fair value recoverable amount) is
of the goodwill within its allocated first to reduce
reporting unit. goodwill to zero, then, subject
 After the adoption of ASU
2017-04, an impairment loss
is the amount by which the
reporting unit’s carrying
amount exceeds the reporting
unit’s fair value. The
impairment loss will be limited
to the amount of goodwill
allocated to that reporting
unit.
Level of Indefinite-lived intangible
assessment — assets separately recognized
Indefinite-lived should be assessed for
intangible assets impairment individually
unless they operate in
concert with other indefinite-
lived intangible assets as a
single asset. Indefinite-lived
intangible assets may not be
combined with other assets
for purposes of an
impairment test.
Impairment loss The amount by which the
calculation — carrying amount of the asset
Indefinite-lived exceeds its fair value.
intangible assets
Reversal of loss Prohibited for all assets to be
held and used.
to certain limitations, the
carrying amount of other
assets in the CGU are reduced
pro rata, based on the carrying
amount of each asset.
If the indefinite-lived intangible
asset does not
generate cash inflows that are
largely independent of those
from other assets or groups
of assets, then the indefinite-
lived intangible asset should be
tested for impairment as part of
the CGU to which it belongs,
unless certain conditions are
met.
The amount by which the
carrying amount of the asset
exceeds its recoverable
amount.
Prohibited for goodwill. Other
assets must be reviewed at the
end of each reporting period for
reversal indicators. If
appropriate, loss should be
reversed up to the newly
estimated recoverable amount,
not to exceed the initial carrying
amount adjusted for
depreciation.
LIABILITIES
US GAAP IFRS
Tax base Tax base is based upon the Tax base is based on the tax
of an relevant tax law. It is consequences which will occur
asset or a generally determined by the based upon how an entity is
liability amount that is depreciable expected to recover or settle
for tax purposes or the carrying amount of assets
Under deductible upon sale or and liabilities.
IFRS, a liquidation of the asset or
single settlement of the liability. The carrying amount of assets
asset or or liabilities can be recovered or
liability settled through use or through
may have sale.
more than
one tax Assets and liabilities may also
base, be recovered or settled through
whereas use and through sale together.
there In that case, the carrying
would amount of the asset or liability
generally is bifurcated, resulting in more
be only than a single temporary
one tax difference related to that item.
base per
asset or Exceptions to these
liability requirements includes:
under  A rebuttable
US GAAP. presumption exists that
investment property
measured at fair value
will be recovered
through sale.
 Non – depreciable
assets measured using
the revaluation model in
IAS 16 are presumed to
be recovered through
sale

Initial A temporary difference may An exception exists that

recognitio arise on initial recognition of deferred taxes should not be
n of an an asset or liability. In asset recognized on the initial
asset or a purchases that are not recognition of an asset or
liability business combinations, a liability in a transaction which is
deferred tax asset or liability not a business combination and
In certain is recorded with the offset affects neither accounting profit
situations, generally recorded against nor taxable profit/loss at the
there will the assigned value of the time of the transaction.
be no asset. The amount of the
deferred deferred tax asset or liability No special treatment of
tax is determined by using a leveraged leases exists under
accounting simultaneous equations IFRS.
under IFRS method.
that would
exist under An exemption exists from the
US GAAP initial recognition of
and temporary differences in
vice versa. connection with transactions
that qualify as leveraged
leases under lease-
accounting guidance in ASC
840. While the new lease
guidance in ASC 842 does
not permit any new leases
that met the definition in ASC
840 at inception are
grandfathered and, assuming
they are not modified,
continue to follow the prior
accounting.
Recogniti Deferred tax assets are Deferred tax assets are
on of recognized in full, but are recognized to the extent that it
deferred then reduced by a valuation is probable (or “more likely than
tax assets allowance if it is considered not”) that sufficient taxable
more likely than not that profits will be available to utilize
The some portion of the deferred the deductible temporary
framework taxes will not be realized. difference or unused tax losses.
s take
differing
approache
s to the
recognition
of deferred
tax assets.
It would be
expected
that net
deferred
tax assets
recorded
would be
similar
under both
standards.
Deferred With respect to undistributed With respect to undistributed
taxes on profits and other outside profits and other outside basis
investmen basis differences, different differences related to
ts in requirements exist depending investments in foreign and
subsidiari on whether they involve
es, joint investments in subsidiaries,
ventures, joint ventures, or equity
and equity investees. As it relates to
investees investments in domestic
subsidiaries, deferred tax
liabilities are required on
Differences undistributed profits arising
in the after 1992 unless the
recognition amounts can be recovered
criteria on a tax-free basis and the
surroundin entity anticipates utilizing that
g method. As it relates to
undistribut investments in domestic
ed profits corporate joint ventures,
and other deferred tax liabilities are
outside required on undistributed
basis profits that arose after 1992.
differences No deferred tax liabilities are
could result recognized on undistributed
in changes profits and other outside
in basis differences of foreign
recognized subsidiaries and corporate
deferred joint ventures that meet the
taxes indefinite reversal criterion.
under Deferred taxes are generally
IFRS. recognized on temporary
differences related to
investments in equity
investees. US GAAP
contains specific guidance on
how to account for deferred
taxes when there is a change
in the status of an
investment. A deferred tax
liability related to
undistributed profits of a
foreign investee that would
not otherwise be required
after the foreign investee
becomes a subsidiary is
“frozen.” The deferred tax
liability continues to be
recognized to the extent that
dividends from the subsidiary
do not exceed the parent
company’s share of the
subsidiary’s earnings
subsequent to the date it
became a subsidiary, until
the disposition of the
subsidiary.
Recogniti A loss contingency is an
on of existing condition, situation,
provisions or set of circumstances
domestic subsidiaries,
branches and associates, and
interests in joint arrangements,
deferred taxes are recognized
except when a parent company,
investor, joint venture or joint
operator is able to control the
timing of reversal of the
temporary difference and it is
probable that the temporary
difference will not reverse in the
foreseeable future. The general
guidance regarding deferred
taxes on undistributed profits
and other outside basis
differences is applied when
there is a change in the status
of an investment from
significant influence or joint
control to a being subsidiary.
Deferred tax assets for
investments in foreign and
domestic subsidiaries,
branches and associates, and
interests in joint arrangements
are recorded only to the extent
that it is probable that the
temporary difference will
reverse in the foreseeable
future and taxable profit will be
available against which the
temporary difference can be
utilized.
A contingent liability is defined
as a possible obligation whose
outcome will be confirmed only
Difference involving uncertainty as to by the occurrence or
s possible loss to an entity that nonoccurrence of one or more
will ultimately be resolved uncertain future events outside
in the when one or more future the entity’s control. A contingent
definition of events occur or fail to occur. liability is not recognized. A
“probable” An accrual for a loss contingent liability becomes a
may result contingency is required if two provision and is recorded when
in earlier criteria are met: (1) if it is three criteria are met: (1) a
recognition probable that a liability has present obligation from a past
of liabilities been incurred and (2) the event exists, (2) it is probable
under amount of loss can be that an outflow of resources will
IFRS. The reasonably estimated. be required to settle the
IFRS Implicit in the first condition obligation, and (3) a reliable
“present above is that it is probable estimate can be made. The
obligation” that one or more future term “probable” is used for
criteria events will occur confirming describing a situation in which
might the fact of the loss. The the outcome is more likely than
result in guidance uses the term not to occur. Generally, the
delayed “probable” to describe a phrase “more likely than not”
recognition situation in which the denotes any chance greater
of liabilities outcome is likely to occur. than 50 percent.
when While a numeric standard for
compared probable does not exist,
with practice generally considers
US GAAP. an event that has a 75
percent or greater likelihood
of occurrence to be probable.
Measurem A single standard does not The amount recognized should
ent of exist to determine the be the best estimate of the
provisions measurement of obligations. expenditure required (the
Instead, entities must refer to amount an entity would
In certain guidance established for rationally pay to settle or
circumstan specific obligations (e.g., transfer to a third party the
ces, the environmental or obligation at the balance sheet
measurem restructuring) to determine date). Where there is a
ent the appropriate continuous range of possible
objective of measurement methodology. outcomes and each point in that
provisions Pronouncements related to range is as likely as any other,
varies provisions do not necessarily the midpoint of the range is
under the have settlement price or even used.
two fair value as an objective in
framework the measurement of
s. IFRS liabilities, and the guidance
results in a often describes an
higher accumulation of the entity’s
liability cost estimates. When no
being amount within a range is a
recorded better estimate than any
when there other amount, the low end of
is a range the range is accrued.
of possible
outcomes
with equal
probability.
Discounti For losses that meet the IFRS requires that the amount
ng of accrual criteria of ASC 450,
provisions an entity will generally record
them at the amount that will
Provisions be paid to settle the
will be contingency, without
discounted considering the time that may
more pass before the liability is
frequently paid. Discounting these
under liabilities is acceptable when
IFRS. At the aggregate amount of the
the same liability and the timing of cash
time, payments for the liability are
greater fixed or determinable.
charges Entities with these liabilities
will be that are eligible for
reflected discounting are not, however,
as required to discount those
operating liabilities; the decision to
(versus discount is an accounting
financing) policy choice. The
under classification in the statement
US GAAP. of operations of the accretion
of the liability to its settlement
amount is an accounting
policy decision that should be
consistently applied and
disclosed. When discounting
is applied, the discount rate
applied to a liability should
not change from period to
period if the liability is not
recorded at fair value. There
are certain instances outside
of ASC 450 (e.g., in the
accounting for asset
retirement obligations) where
discounting is required.
Recogniti A loss must be “probable” to
on be recognized. US GAAP
threshold defines “probable” as “the
future event or events are
likely to occur.” While ASC
450 does not ascribe a
percentage to probable, it is
intended to denote high
likelihood (e.g., 70 % or
more).
of a provision be the present
value of the expenditure
expected to be required to
settle the obligation. The
anticipated cash flows are
discounted using a pre-tax
discount rate (or rates) that
reflect(s) current market
assessments of the time value
of money and the risks specific
to the liability (for which the
cash flow estimates have not
been adjusted) if the effect is
material. Provisions shall be
reviewed at the end of each
reporting period and adjusted to
reflect the current best
estimate. The carrying amount
of a provision increases in each
period to reflect the passage of
time with said increase
recognized as a borrowing cost.
A loss must be “probable” to be
recognized. IFRS defines
“probable” as “more likely than
not.” More likely than not refers
to a probability of greater than
50%. That is a lower threshold
than under US GAAP.
Discounti Provisions may be
ng discounted only when the
provisions amount of the liability and the
timing of the payments are
fixed or reliably determinable,
or when the obligation is a
fair value obligation (e.g., an
asset retirement obligation
under ASC 410-20). The
discount rate to be used is
dependent upon the nature of
the provision, and may vary
from that used under IFRS.
However, when a provision is
measured at fair value, the
time value of money and the
risks specific to the liability
should be considered.
Measurem The most likely outcome
ent of within range should be
provisions accrued. When no one
— range of outcome is more likely than
possible the others, the minimum
outcomes amount in the range of
outcomes should be accrued.
Restructur Under ASC 420, once
ing costs management has committed
to a detailed exit plan, each
type of cost is examined to
determine when recognized.
Involuntary employee
termination costs under a
one-time benefit arrangement
are recognized over future
service period, or
immediately if there is no
future service required. Other
exit costs are expensed
when incurred.
Provisions should be recorded
at the estimated amount to
settle or transfer the obligation
taking into consideration the
time value of money. The
discount rate to be used should
be “a pre-tax rate (or rates) that
reflect(s) current market
assessments of the time value
of money and the risks specific
to the liability.”
The best estimate of obligation
should be accrued. For a large
population of items being
measured, such as warranty
costs, the best estimate is
typically the expected value,
although the midpoint in the
range may also be used when
any point in a continuous range
is as likely as another. The best
estimate for a single obligation
may be the most likely
outcome, although other
possible outcomes should still
be considered.
Once management has
“demonstrably committed” (i.e.,
a legal or constructive
obligation has been incurred) to
a detailed exit plan, the general
provisions of IAS 37 apply.
Costs typically are recognized
earlier than under US GAAP
because IAS 37 focuses on the
exit plan as a whole, rather than
the plan’s individual cost
components.