US GAAP vs. IFRS: Top 5 biggest differences

March 29, 2012 | IFRS, IFRS accounting, IFRS reporting, US GAAP | Comments

As I explained in the in the previous article, IFRS and US GAAP come closer to each other and hopefully, we will have a single set of the reporting standards until 2015.

However, there is still a long way to go. Until then, there are still many companies who need to cope with IFRS reporting as well as US GAAP reporting. Finance people working for those companies know it the best—identification of differences between IFRS and US GAAP and making correct adjustments is simply laborious and demanding work.

During my professional career, I came across numerous IFRS and US GAAP reconciliations, adjustments, transformations—just name it. Here, I would like to outline the biggest differences between IFRS and US GAAP, at least those that I consider the biggest and the most challenging to remove. So let’s take a look.

1. Revenue recognition

In my opinion, it is very difficult to simply list all the differences between US GAAP and IFRS related to revenue recognition. The reason is that the guidance on revenue recognition is significantly more extensive in US GAAP than in IFRS.

March 18, 2012 | financial instruments, IAS 39, IFRS 9 | Comments

In this article, I would like to come back to our small series about IFRSs related to financial instruments. As I have already written in the previous article, standard IFRS 9 is currently under development and its aim is to replace IAS 39—older standard dealing with financial instruments.

International Accounting Standards Board (IASB) decided to replace IAS 39 gradually in the process consisting of 3 phases: Phase 1—Classification and measurement of financial assets and financial liabilities, Phase 2—Impairment Methodology and Phase 3—Hedge Accounting.

At the time of writing this article, Phase 1 is completed and IFRS 9 contains new rules for classification and measurement of financial assets and financial liabilities. These will be discussed below. Phase 2 and Phase 3 are still in progress, so old IAS 39 applies.

March 4, 2012 | financial instruments, IAS 39, IFRS 9 | Comments

IAS 39 is a standard currently under major revisions, or removal to be precise. It will be fully replaced by the new standard on financial instruments IFRS 9. If you would like to know more about this process, please read our article IAS 39 vs. IFRS 9: Clarifying the Confusion.

As a result of the replacement process, big parts of IAS 39 have already been removed and replaced by IFRS 9. However, as mandatory application of IFRS 9 starts in 2015, companies can choose to continue reporting in line with “old” IAS 39. Therefore, this summary describes the standard IAS 39 in full, including parts replaced by IFRS 9 as these are still in place until 2015.

IAS 39 prescribes rules for accounting and reporting of almost all types of financial instruments. Typical examples include cash, deposits, debt and equity securities (bonds, treasury bills, shares…), derivatives, loans and receivables and many others.

February 13, 2012 | financial instruments, IAS 39, IFRS 9 | Comments

People are very creative and inventive. So they created and invented numerous kinds of financial instruments. Just admit it—are you really versed well in derivatives, various share options, warrants, certificates, convertible bonds and many others?

This area happens to be so complicated and difficult to understand, also from IFRS accounting and reporting point of view. Adding to the complications—there are two different standards about financial instruments: IAS 39 and IFRS 9.

To clarify this matter a bit here I’d like to explain:

Why do we currently have 2 IFRS standards dealing with financial instruments? (IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9 Financial Instruments—oh gosh, they have even almost identical name!)
What is the current status?
Should we apply IAS 39 or IFRS 9?

The reason for IAS 39 and IFRS 9

Standard IAS 39 in its current form came to effect in 2005. Its aim was to prescribe unified rules for reporting of the financial instruments so that companies presented them in a transparent and a consistent way.

February 2, 2012 | financial statements, IAS 1, IFRS | Comments

Today, I’d like to continue in our series dealing with the IFRS/IAS summaries and to give you the overview of one of the most important standards—IAS 1.

IAS 1 represents a skeleton of the whole IFRS reporting, as it sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

Financial Statements

Purpose of the financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

January 25, 2012 | IAS 17, IAS 19, IAS 36, IAS 39, IFRS 9, IFRS accounting, tips | Comments

This is another useful tip I would like to give you. With these formulas, you can really speed up your IFRS accounting process, especially when dealing with sophisticated calculations. So let’s start.

Top Financial Formula #1: IRR

What is IRR?

IRR formula calculates Internal Rate of Return for series of cash flows. The cash flows must be expressed as numbers or values. And, they must occur in regular intervals—daily, weekly, monthly, annually, whatever you need.

What is internal rate of return? Simply speaking, it is an interest that you pay on initial loan (which is a negative value) with regular installments in later periods (which are positive values). Installments do not need to be the same in size, though.

Where do you need to apply IRR?

Certainly, if you need to perform valuation of financial assets or liabilities in line with IAS 39/IFRS 9, you need to calculate effective interest rate—that’s exactly internal rate of return for cash flows from your financial instrument.

January 12, 2012 | framework, IFRS | Comments

The Conceptual Framework for the Financial Reporting (I will call it just “IFRS Framework”) serves as a pillar on which the whole IFRS stand. It describes the basic principles for presentation and preparation of financial statements in line with IFRS. In my opinion it’s a “must-read” document prior starting to dig in any other IFRS or IAS standard.

The IFRS Framework underwent certain changes over past years. Previously, it was called “Framework for the Preparation and Presentation of Financial Statements”. IASB, the standard setter body, is in the process of updating it. Last update happened in September 2010, but it was just partial update. Currently, it is a kind of a mix—new text approved in September 2010 plus old text that is to be replaced in the future.

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