GAAP vs.

IFRS according to CMA LOS

5) GAAP and IFRS differences

Because differences and differences between GAAP and IFRS are vast amount of
information, I will copy here the related part from the LOS and go through them
only in a way that matches the LOS, for exam purposes, ignoring (II) expense
recognition with respect to share-based payments and employee benefits.

U.S. GAAP: Generally Accepted Accounting Principles

Financial Accounting Standards Board (FASB).
IFRS: International Financial Reporting Standards
International Accounting Standards Board (IASB).

(I) Revenue recognition, with respect to the sale of goods, services, deferred
receipts and construction contracts
GAAP
Sale of Generally, the guidance focuses Revenue is recognized only when 5
goods on revenue being (1) either
realized or realizable and (2)
earned. Revenue recognition is
considered to involve an
exchange transaction; that is,
revenue should not be
recognized until an exchange
transaction has occurred.
Rendering Same as goods
of services
IFRS
conditions are met:
●risks and rewards of ownership
have been transferred
●the seller retains neither
continuing managerial involvement
to the degree usually associated
with ownership nor effective
control over the goods sold
●revenues can be measured
reliably
●it is probable that the economic
benefits will flow to the entity
●the costs incurred or to be
incurred in respect of the
transaction can be measured
reliably
Revenue may be recognized in
accordance with long-term
contract accounting whenever
revenues, costs and the stage of

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GAAP vs. IFRS according to CMA LOS

completion can be measured

reliably, and it is probable that
economic benefits will flow to the
company.
Constructi Similarity between GAAP and IFRS: Construction contracts are
on accounted for using the percentage-of-completion method if certain
contracts criteria are met.
Otherwise, the completed Otherwise, 1) The completed
contract method must be used. contract method is not permitted
(prohibited).
2) If the company is unable to
estimate (reliably estimated) the
future costs of the contract,
revenue recognition is limited to
recoverable costs incurred, 3)
which means contract costs must
be recognized as an expense in the
period in which they are incurred.

(III) Intangible assets, with respect to development costs and revaluation

GAAP
Developme Generally, development costs
nt costs are expensed as incurred.
(may be capitalized only if a specific
U.S. GAAP standard allows
capitalization for that asset)
IFRS
Development costs are capitalized
as an intangible asset item if the
entity can demonstrate the
technical feasibility of completion
of the asset.

Revaluation Revaluation is not permitted. Revaluation to fair value of

intangible assets other than
goodwill is a permitted accounting
policy, for a class of intangible
assets. can be applied only if the
intangible asset is traded in an
active market.
Reversal of prohibits any reversal of write- a previously recognized
loss down. impairment loss on an intangible
asset may be reversed if the

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GAAP vs. IFRS according to CMA LOS

estimates of the recoverable

amount have changed.
(IV) Inventories: with respect to costing methods, valuation and write-downs
(e.g., LIFO)
GAAP IFRS
Costing LIFO is an acceptable method. LIFO is prohibited.
methods
Measurem In U.S. GAAP, inventories Inventory is measured (carried) at
ent measured using any method the lower of cost or net realizable
other than LIFO or the retail value.
method should also be No calculation of market value
measured at the lower of cost or
net realizable value. (similar to
IFRS)
However, in U.S. GAAP,
inventory valued using LIFO or
the Retail Method is valued at
the lower of cost or market
value (different to IFRS)

Reversal of prohibits any reversal of write- previous write-downs of inventory

inventory down. may be recovered up to the
write- original cost of the inventory.
downs Gains cannot be recognized on
appreciated inventory, but
previous losses can be reversed

(V) Leases, with respect to leases of land and buildings

GAAP IFRS
Capital One criterion under U.S. GAAP is Has a similar condition but refers to
lease that a capital lease exists if the a “major part” of the asset’s
(regarding lease term is equal to or greater economic life rather than a specific
determinin than 75% of the asset’s economic percentage which is 75% under
g if the life. GAAP.
lease is a
capital U.S. GAAP also refers to 90% of
lease) the asset’s economic fair value

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GAAP vs. IFRS according to CMA LOS

IFRS refers to “substantially all” of

the fair value which is 90% under
GAAP.

(VI) Fixed Assets (long lived assets): with respect to revaluation, depreciation,
and capitalization of borrowing costs
GAAP IFRS
Revaluation Revaluation Revaluation is a permitted (which means increase
of assets not the value of the fixed asset according to the new
permitted. fair market value) accounting policy election for
two conditions 1- an entire class (grouping of assets
of similar nature and use)
2- requiring revaluation to fair value on a regular
basis.
The increase in the value is recognized in Other
Comprehensive Income and carried in the equity
section of the balance sheet as a Revaluation
Surplus.
Component component if individual components of a large fixed asset have
depreciation depreciation different usage patterns and useful lives, then the
is allowed but individual components should be depreciated
not required. separately. For example, if the engine on a machine
has a 5-year life while the rest of the machine has a
15-year life, the engine must be depreciated over 5
years and the remaining cost of the machine must
be depreciated over 15 years

(VII) Impairment of assets, with respect to determination, calculation and

reversal of loss
GAAP IFRS
calculation The amount by which the The impairment process is a one-
carrying amount of the asset step process. The carrying value of
exceeds its fair value (carrying the asset is compared to the
amount of the asset is compared recoverable amount. The
with the sum of future recoverable amount is the higher
undiscounted cash flows of 1) the fair value of the asset, if

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GAAP vs. IFRS according to CMA LOS

generated through use and sold, minus any costs of sale, or 2)

eventual disposition) the Discounted future cash flows it
will generate
Reversal of Prohibited. No reversal after If the revaluation is the recovery of
loss impairment made a previously recognized loss when
the asset was impaired, the
revaluation gain is reported on the
income statement (notice the
increase for reevaluation goes to
OCI)
Notice from last to points for IFRS:
Re-evaluation gains happen first to an asset, so gains go to OCI, if subsequent
impairment so losses goes to OCI also.
While if impairment first so losses go to income statement, then if subsequent
re-evaluation gain after impairment it will go to income statement.

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