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A U.S. manager's guide to differences between IFRS and U.S. GAAP: with the greater likelihood that you will face situations that require an understanding of the differences between U.S. GAAP and IFRS, the odds increase that you will also have to be able to estimate the impact of these differences.

Article Excerpt
Accountants know that financial reporting standards differ by country or region. In the United States, financial accountants, auditors, and analysts are very familiar with U.S. GAAP. Accountants and auditors in other countries may be well-versed in their home-country GAAP, or they may be familiar with the requirements of International Financial Reporting Standards (IFRS) developed by the International Accounting Standards Board (IASB). The European Commission's adoption of IFRS for EU public company consolidated reports in 2005 required many preparers, auditors, and analysts to become familiar with the content and application of IFRS. Standards similar to IFRS were required in Australia for the first time in 2005 as well. It has been estimated that, during that year, 8,000 additional financial statements were based on IFRS. This number will continue to grow as more countries adopt IFRS or IFRS-equivalent financial reporting standards. Canada, for example, is expected to adopt IFRS effective January 1, 2011. (1)

In today's global business environment, it is likely that U.S. businesses have customers, suppliers, or potential acquisition candidates that prepare their financial statements in accordance with IFRS. To evaluate the financial condition and net income of these companies appropriately, accountants familiar with U.S. GAAP need to understand where U.S. GAAP and IFRS differ and be able to estimate the potential impact of these differences. We will look at current differences between U.S. GAAP and IFRS using three steps:

1. The FASB and IASB identified short- and long-term convergence projects in their 2006 "Roadmap for Convergence." (2) The accounting topics mentioned in these convergence projects are listed in two tables, and key differences between IFRS and U.S. GAAP are provided.

2. A few additional accounting topics not addressed by either convergence project are noted, and key differences are highlighted.

3. The actual impact of the key differences on net income is illustrated using Form 20-F reconciliations of IFRS-based net income compared to that computed using U.S. GAAP.

In 2006, the IASB announced that no major changes in IFRS will occur before 2009. (3) The implementation dates for new standards adopted during the next two years will be delayed until then. This means that even if differences between the two sets of accounting standards are resolved through the FASB and IASB convergence projects, important differences in the existing financial reporting standards will continue for at least the next few years. There are other differences between the two sets of financial reporting standards that are not included in the convergence projects, and these differences may continue to exist indefinitely.

SHORT- AND LONG-TERM CONVERGENCE PROJECTS

Short-term Convergence Projects. The Boards are working individually and jointly on nine short-term convergence projects. The goal is to complete work on these specific standard-setting projects by the end of 2008. See Table 1 for a list of the short-term convergence projects. The table provides information on which Board is examining the topic, the underlying differences between IFRS and U.S. GAAP, and the status of the project as of July 2007. (4)

As indicated in Table 1, three of the short-term convergence projects have been completed: IFRS 8, "Operating Segments," was issued by the IASB in 2006; Statement of Financial Accounting Standards (SFAS) No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities--Including an amendment of FASB Statement No. 115," was issued by the FASB in 2007; and Revised IAS 23, "Borrowing Costs," was issued by the IASB in 2007. Completion of these projects indicates that significant accounting differences in these topics no longer exist. For the six ongoing projects, the project status and key differences column of Table 1 describes the existing points of divergence between IFRS and U.S. GAAP, and it provides the expected timetable for each project. Exposure drafts are expected for three of the projects (income taxes, joint ventures, and subsequent events) by the first quarter of 2008. Neither the FASB nor the IASB website lists the anticipated work schedule for projects related to impairments or research and development. The IASB website indicates...

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