Historical cost or valuation

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IFRS: Historical cost is the main accounting convention. However, IFRS permits the revaluation of intangible assets, property, plant and equipment (PPE) and investment property. IFRS also requires certain categories of financial instruments and certain biological assets to be reported at fair value.

US GAAP: Similar to IFRS but prohibits revaluations except for certain categories of financial instruments which are carried at fair value.

 

First-time adoption of accounting framework

IFRS: The IFRS framework includes a specific standard on how to apply IFRS for the first time. It introduces certain reliefs and imposes certain requirements and disclosures. First-time adoption of IFRS as the primary accounting basis requires full retrospective application of IFRS effective at the reporting date for an entity’s first IFRS financial statements, with optional exemptions primarily for PPE and other assets, business combinations, share-based payments and pension plan accounting and limited mandatory exceptions. Comparative information is prepared and presented on the basis of IFRS. Almost all adjustments arising from the first-time application of IFRS are adjusted Against opening retained earnings of the first period presented on an IFRS basis. Some adjustments are made against goodwill or against other classes of equity. Further, in an entity’s first IFRS financial statements, it must present reconciliations of profit or loss in respect of the last period reported under previous GAAP, of equity at the end of that period and of equity at the start of the earliest period presented in comparatives in those first IFRS financial statements.

US GAAP: Accounting principles should be consistent for financial information presented in comparative financial statements. US GAAP does not give specific guidance on first-time adoption of its accounting principles. However, first-time adoption of US GAAP requires full retrospective application. Some standards specify the transitional treatment upon first-time application of a standard. Specific rules apply for carve-out entities and first-time preparation of financial statements for the public. There is no requirement to present reconciliations of equity or profit or loss on first time adoption of US GAAP.

 

Recent proposals – IFRS

In February 2007, the IASB published an exposure draft of an IFRS for small and medium-sized entities (IFRS for SMEs). The aim of the proposed standard is to provide a simplified, self-contained set of accounting principles that are appropriate for companies that are not publicly accountable (for example, unlisted) and are based on full IFRSs. By removing choices for accounting treatment, eliminating topics that are not generally relevant to SMEs, simplifying methods for recognition and measurement and reducing disclosure requirements, the resulting draft standard reduces the volume of accounting guidance applicable to SMEs by more than 85% when compared to the full set of IFRSs. Once issued in final form, it may be available for use by subsidiaries in preparing their single entity accounts even though they are part of a large listed group. The final authority for the standard when issued will come from national regulatory authorities and standard-setters.

 

Financial statements

Imminent changes – IFRS

In mid 2007, the IASB voted to approve the issuance of a revised version of IAS 1, Presentation of Financial Statements. The publication of IAS 1 Revised marks the completion of the first phase of the IASB’s joint initiative with the FASB to review and harmonise the presentation of financial statements. The changes made to IAS 1 include the introduction of a statement of comprehensive income. The revised standard will give preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The revisions include changes in the titles of some of the financial statements, for example, the balance sheet is renamed a statement of financial position. The new titles will be used in accounting standards, but are not mandatory for use in financial statements.

 

General requirements

Compliance

IFRS: Entities should make an explicit statement that financial statements comply with IFRS. Compliance cannot be claimed unless the financial statements comply with all the requirements of each applicable standard and each applicable interpretation.

US GAAP: SEC registrants should comply with US GAAP, and the SEC’s rules and regulations and financial interpretations.

Comparatives

IFRS: One year of comparatives is required for all numerical information in the financial statements, with limited exceptions in disclosures. In limited note disclosures, more than one year of comparative information is required.

US GAAP: SEC requirements specify that all registrants should give two years of comparatives (to the current year) for all statements except for the balance sheet, which requires one comparative year. This rule applies whichever accounting principles are used in the primary financial statements.