Similarities and Differences

In Income Statement
Between IFRS & US GAAP
INRODUCTION of US GAAP
 Generally accepted accounting principles
(GAAP) are the accounting rules used to
prepare financial statements for publicly traded
companies and many private companies in the
United States. Generally accepted accounting
principles for local and state governments
operates under a different set of assumptions,
principles, and constraints, as determined by the
Governmental Accounting Standards Board.
INRODUCTION TO IFRS
 International Financial Reporting Standards
(IFRS) adopted for the first time in 2005 in many
countries around the world including, for listed
companies initially, in the EU. The International
Accounting Standards Board (IASB) has been
busy putting in place a stable platform of IFRS
for first-time adopters. Since 2002, the IASB and
the US Financial Accounting Standards Board
(FASB) have been committed to working
towards converging the two frameworks.
Income statement
 IFRS
 Does not prescribe a standard format, although
expenditure is presented in one of two formats (function
or nature). Certain
minimum items are presented on the face of the income
statement.
US GAAP
 Present as either a single-step or multiple step format.
 Expenditures are presented by function.
 US public companies should follow SEC
 regulations.
Exceptional items
 IFRS
 Does not use the term, but requires separate
disclosure of items that are of such size,
incidence or nature that their separate
disclosure is necessary to explain the
performance of the entity.
 US GAAP
 Similar to IFRS, but individually significant items
are presented on the face of the income
statement and disclosed in the notes
Extraordinary items

 IFRS
 Prohibited.
 US GAAP
 Defined as being both infrequent and
unusual, and are rare.
 Negative goodwill is
 presented as an extraordinary item.
Revenue Definition
 IFRS
 Income is defined in the Framework to include revenues
and gains. A specific standard on revenue recognition
defines revenue as the gross inflow of economic benefits
during the period arising from the ordinary activities of an
enterprise when the inflows result in an increase in
equity, other than increases relating to contributions from
equity participants.
 US GAAP
 Revenue is defined by the Concept Statement to
represent actual or expected cash inflows (or the
equivalent) that have occurred or will result from the
entity’s major ongoing operations.
Revenue Recognition
 IFRS
 Recognition of revenue when the risk and rewards and control have
been transferred and revenue can be measured.
 Additional recognition criteria apply to revenue arising from the sale of
goods
 IFRS requires that the
 seller has transferred the significant risks and rewards of ownership to the
buyer and retains neither
 management involvement in, nor control over, the goods.
 Revenue from the rendering of services must
 be recognized by reference to the state of completion of the transaction at
the balance sheet date.
 Interest revenue must be recognized on a basis that takes into account the
asset’s effective yield.
 Royalties are recognized on an accrual basis, and dividends are recognized
when the shareholder’s
 right to receive payment is established.
Continued
 US GAAP
 Similar to IFRS in principle, based on four key criteria.
 Extensive detailed guidance
 exists for specific types of transactions.
 Revenue recognition involves an exchange transaction –
i.e., there should be no revenue recognition unless and
until an exchange has taken place.
 Additional guidance for SEC registrants sets
 out criteria that an entity must meet before revenue is
realized and earned
Expenses
 IFRS
 Expenses are defined in the Framework to
include losses. Expenses are decreases in
economic benefits that result in a decrease in
equity.
 US GAAP
 Expenses are defined by the Concept Statement
to represent actual or expected cash outflows, or
the equivalent, that have occurred or will result
from the entity’s ongoing major operations.
Interest expense
 IFRS
 Interest expense is recognized on an accrual basis
 Where interest expense includes a discount or premium
arising on the issue of a debt instrument, the discount or
premium is amortized using the effective interest rate
method.
 The effective interest rate is the rate that discounts the
estimated future cash payments through the expected
life of the debt instrument to the carrying amount of the
debt instrument.
 US GAAP
 Similar to IFRS.
Earnings per share

 Earnings per share (EPS) must be

disclosed by entities whose ordinary
shares are publicly traded, and by entities
in the process of issuing such shares
under all three frameworks.
Basic EPS
 IFRS
 Basic EPS is calculated as profit available to common
shareholders, divided by the weighted average number
of shares in issue during the period.
 Shares issued as a result of a bonus issue are treated as
if in issue for the whole year. Bonus issues occurring
after the year-end must be incorporated into the
calculations.
 For rights issues, a theoretical ex-rights formula is used
to calculate the bonus element. Comparative EPS is
adjusted for bonus issues and rights issues.
 US GAAP
 Similar to IFRS.
Earnings per share –
diluted
 IFRS
 Weighted average potential dilutive shares
are used as denominator for diluted EPS.
 ‘Treasury share’ method is used for share
options/warrants.
 US GAAP
 Similar to IFRS