Appendix C: Comparison of IAS, US GAAP, and UK GAAP

IAS 2003 chapter	Topic	IFRS treatment	US GAAP treatment	UK GAA
1	Introduction to International Accounting Standards	Comprehensive guidance on presentation of financial statements provided; minimum line items (captions) identified for all financial statements; fair presentation goal may necessitate IFRS departures; mixed attribute model with historical cost, fair value.	No comprehensive guide to statement presentation is offered; however, basic financial statements are the same under IFRS; GAAP departures when necessary are audit reporting issue, mixed attribute model but less revaluation than under IFRS.	Mixed attribute model similar to IFRS, but no fair value reporting of derivatives; some required departures from historical costing.
		FASB's Conceptual Framework is similar to IASB's Framework for the Preparation and Presentation of Financial Statements, but the latter is less detailed.	FASB's Conceptual Framework is similar to IASB's Framework for the Preparation and Presentation of Financial Statements.	ASB's Statement of Principles similar to IASB's Framework.
		Comparative financials are required, including footnote data; disclosure can often be optionally in financials or in notes.	Comparative financials urged, but not required; greater specificity as to location of disclosures in body of statements or in notes.	Comparative statements required, as under IFRS.
		No hierarchy established beyond IAS, but one is proposed for revised IAS 8 (Improvements Project).	Formal GAAP hierarchy defined.
2	Balance Sheet	Specific guidance on offsetting of assets and liabilities; classified balance sheet not mandatory, some difference from US GAAP definitions of current/noncurrent.	Limited guidance on offsetting of assets and liabilities; classified balance sheet not required, but definition of current/noncurrent differs from IFRS somewhat.	Classified balance sheet required, but some differences from IFRS regarding definition of fixed assets vs. current assets.
		Some differences re: exclusion of long-term debt from current liabilities, etc.	Some differences from IFRS re: exclusion of long-term debt being refinanced, etc.
3	Income Statement, Statement of Changes in Equity, and Statement of Recognized Gains and Losses	Minimum income statement (line item) disclosures specified; format not limited; very few items qualify as "extraordinary."	Either single-step or multiple-step income statements are allowed; detail items set forth by SEC rules, not GAAP; slightly broader definition of "extraordinary items" vs. under IFRS.	Multiple alternative formats set forth in company law; requirement to disclose "exceptional" items; statement is called the "profit and loss account"; no extraordinary items qualify for net of tax, "below the line" presentation under UK GAAP.
		Statement of recognized gains and losses can be either stand-alone statement or incorporated in changes in stockholders' equity statement.	Similar to IFRS, but called "comprehensive income" statement, and a third presentation alternative is to include as section of income statement.	Separate primary financial statement was required under UK GAAP. but now merged with profit and loss account as new performance report.
		Discontinuing operation is defined as a separate major component of the business entity.	Discontinued operation is an identifiable component of the reporting entity.	Discontinued operation is one that is material in terms of effect on the nature of the reporting entity.
		For discontinuing operations, accrual of some future costs allowed if stated criteria are met.	Under current GAAP, accrual of future costs required, but proposed changes will eliminate this.	Rules are similar to those under IFRS.
		For discontinuing operations, extensive disclosures required, including segregation of pretax effect on income statement.	Segregation on after-tax basis on face of income statement.	Segregation of constituent elements on face of income statement (not netted as under US GAAP).
4	Cash Flow Statement	Format similar to US GAAP, with three sections.	Similar to that under IFRS, with three sections.	More detailed format, with more separate sections mandated.
		Choice allowed in classifying Dividends and interest paid or received as operating cash flows, or Interest or dividends paid as financing cash flows and interest or dividends received as investing cash flows.	Interest paid and dividends received must be classified as operating cash flows, and dividends paid must be classified as financing cash flows.	Interest paid and received can be either investment or finance activity; dividends paid are either investment or finance (if to preferred shareholders) but are special dividends paid category if to common shareholders.
		Cash includes overdrafts; cash equivalents included in cash also.	Overdrafts excluded from cash; cash equivalents included in cash.	Overdrafts included in cash, but cash equivalents are not defined as cash.
5	Financial Instruments—Cash and Receivables	No specific guidance to cash or receivables offered under IFRS.	No specific guidance to cash or receivables offered under US GAAP.	No specific guidance to cash or receivables offered under UK GAAP.
		Slightly looser definition of "sales" of financial assets under IFRS, resulting in more instances of derecognition.	Stricter definition of "sales" resulting in more recognition of secured borrowing transactions.
		Hedging gains and losses from cash flow hedges of firm commitments and of forecasted transactions can be included as part of the initial measurement of the cost basis of the related hedged item (basis adjustment).	Basis adjustment arising from firm commitments and forecasted transactions not in initial measurement of hedged item; hedging gains and losses on cash flow hedges recorded in other comprehensive income when they occur, reclass to income with hedged item.
		Regarding derivatives, mostly similar to US GAAP, but gain or loss on hedge position related to forecasted transaction is used to adjust carrying value of the asset or liability.	Similar to IFRS, except that gain or loss on cash flow hedge related to forecasted transaction is not used to adjust carrying value.	Little or no guidance currently on hedging and derivatives under UK GAAP.
6	Inventory	Recognition in interim periods of inventory losses from market declines that reasonably can be expected to be restored in the fiscal year is required; guidance in the areas of disclosure and accounting for inventories of service providers offered.	Recognition in interim periods of inventory losses from market declines that reasonably can be expected to be restored in the fiscal year not required.
		Currently, same methods allowed as under US GAAP, but 2002 "improvements" proposal will eliminate LIFO.	Allowable methods include FIFO, average cost, and LIFO.	LIFO not permitted.
7	Revenue Recognition, Including Construction Contracts	If percentage of completion cannot be reliably estimated, use of "zero profit" method required; "revenue-cost" approach to percentage of completion mandatory.	Use of completed contract method under certain circumstances is required; revenue-cost and gross-profit approaches both allowed.	Percentage of completion generally used, but zero-profit method also permitted for construction contracts.
		Specific guidance on revenue recognition principles based on transfers of risks and rewards, as well as reliable measurement.	No standard on revenue recognition in general, although under Concepts Statement four criteria are specified.	No specific standards.
8	Plant, Property, and Equipment	Change in depreciation method accounted for prospectively; impairment losses may be reversed; trigger for impairment is excess over the higher of net selling price or value-in-use.	Change in depreciation method treated as cumulative effect item; different recognition threshold for timing of recognition of impairment losses; impairment losses irreversible.
		Optional expensing or capitalization of construction period interest.	Mandatory capitalization of construction period interest costs.	Interest capitalization optional as under IFRS.
		Alternatively can use cost basis or revaluation to current values.	Cost basis required.	Alternatively can use cost basis or revaluation to current values.
		Impaired assets written down to greater of net selling price or value in use; reversals of impairments recognized.	Two-step testing, with high threshold (gross future cash flows) for recognition, and different rules for assets to be held and used, vs. those to be disposed of; no reversals permitted.	Impairment approach similar to that under IFRS.
		Under 2002 "improvements" proposal, practice would be brought into closer conformity with US GAAP as to component depreciation, accrual of asset retirement obligations.
		Under 2002 "improvements" proposal, most exchanges of similar assets would be measured at fair value.	Like-kind exchanges of productive assets generally accounted for at book value.
9	Intangible Assets	Research costs expensed, but development capitalized and amortized with cash flows shown as "investing."	Research and development costs are all expensed, related cash flows in "operating"; goodwill not amortized, but tested for impairment; trigger for impairment recognition excess over fair value; cost basis required for intangibles.	Internally generated intangibles other than research and development may be capitalized and amortized.
		Intangibles amortized over up to twenty years (longer if impairment tested); revaluation of intangibles permitted.	Capitalize and amortize purchased intangibles; indefinite lives permitted with impairment testing.	Similar to IFRS, but definite lives (no amortization) permitted under limited circumstances.
		Under business combinations project proposal, goodwill will not be amortized but will be tested for impairment: indefinite life intangibles to be recognized, twenty-year limit to be lifted without annual impairment testing.
10	Interests in Financial Instruments, Associates. Joint Ventures, and Investment Property	Classification as trading, available-for-sale, or held-to-maturity applies to all types of financial assets, not just to securities; similar to US GAAP except gain/loss on available-for-sale can be in equity or earnings.	Classification as trading, available-for-sale, or held-to-maturity limited to securities: gain/loss on available-for-sale in equity section.	Accounting for investments based on current/ noncurrent classification, with multiple accepted methods in use.
		Use of equity method for investments in "associates" with presumption of 20% threshold.	Similar to IFRS; use of equity method required when significant influence over investee exists.	Use of expanded equity method provides more details in income statements.
		Under 2002 "improvements" proposal, IFRS would even more closely correspond to US GAAP.	Equity method accounting similar under US GAAP and IFRS, but expanded note disclosures under US GAAP.	Disclosures required of associates similar to US GAAP.
		Joint ventures accounted for by equity method or proportional consolidation.	Joint ventures generally accounted for by equity method, but some exceptions permit proportional consolidation method.	Equity method required for joint ventures: proportional consolidation not permitted.
		Investment property accounted for by cost or revaluation methods; if cost. subject to depreciation.	Cost basis required for investment property, with required depreciation.	Use of fair value method required, depreciation not recognized; changes in fair values reported in statement of total recognized gains and losses.
11	Business Combinations and Consolidated Financial Statements	Poolings (unitings) permitted under narrow set of conditions, but project to eliminate on agenda; in-process research and development capitalized and amortized; consolidation rules based on control criterion.	Poolings now prohibited; in-process research and development must be expensed; consolidation rules effectively based on majority ownership criterion.	Both purchase and pooling accounting still allowed, under defined conditions.
		Contingent consideration estimated at acquisition date, adjusted subsequently as necessary.	No estimation of contingent consideration permitted; recorded only as governing events occur.	Contingent consideration estimated at acquisition date, adjusted subsequently as necessary.
		Consolidation required unless control is not exercised by parent, or unless control is temporary (to lapse within twelve months, per 2002 "improvements" proposal).	Consolidation of majority-owned subsidiaries required unless control is not exercised by parent (former exemption for temporary control deleted by SFAS 144).
		Goodwill to be amortized over twenty years.	Goodwill no longer amortized, but subject to annual impairment testing.	Generally to be amortized, but exceptions when indefinite life can be shown.
		To extent negative goodwill is related to expected future losses/costs, credit to income when these occur; otherwise, record as negative asset and recognize over useful lives of identifiable, non-monetary assets; with excess immediately in income.	Negative goodwill will offset against most noncurrent assets, with excess taken into earnings as extraordinary item.	Show as negative asset, amortize to income as noncurrent assets are depreciated; any excess over fair value of assets taken to income over expected period of benefit.
		Special-purpose entities to be consolidated when control by parent is substantively present.	More complex rules for consolidation of SPE has meant that nonconsolidation has been more common than under IFRS.	"Quasi subsidiaries" have to be consolidated.
		Broader concept of control vs. that under US GAAP.	Majority ownership of voting shares required.	Similar to US GAAP criterion.
11	Business Combinations and Consolidated Financial Statements	Under 2002 "improvements" proposal, in "parent company only" financials, the investment in subsidiaries, equity investees, and joint ventures to be presented at cost or under rules for investments in securities.	No promulgated rules governing "parent company only" financial statements.
		Under 2002 "improvements" proposal, minority interest would have to be included in equity.	Minority interest in consolidated subsidiary can be presented in liabilities, in equity, or in special category.
12	Current Liabilities, Provisions, Contingencies, and Events After the Balance Sheet Date	A variety of recognition criteria for different items that may enter into the measurement of a provision are identified, missing under US GAAP.	Different recognition threshold for timing of recognition of liabilities associated with a restructuring than under IFRS.
13	Financial Instruments—Long-Term Debt	No specific rules under IFRS for accounting for straight debt.	No specific rules under US GAAP for accounting for straight debt.	Similar to US GAAP.
		In the case of convertible debt (compound instruments), under IFRS allocate proceeds to debt and equity components.	Under US GAAP, generally ignore equity component.	Ignore equity component of compound instruments.
		Mandatorily redeemable preferred stock accounted for as debt.	Display all redeemable preferred stock between debt and equity under SEC rules, but may be classified as equity under US GAAP.	Special display rules for all types of preferred shares.
14	Leases	Very similar to US GAAP; profit recognition on sale-leasebacks permitted if fair value priced; some differences in definition of minimum lease payments and the rate used to discount minimum lease payments.	Similar to IFRS, but with more guidance on specialized topics; deferral of profit on sale-leasebacks; some differences in minimum lease payments and the rate used to discount minimum lease payments.	Profit on sale-leaseback deferred and amortized over lesser of term or useful life of asset.
		Definition of finance (capital) lease based on transfer of risks and rewards, with focus on substance rather than form.	Definition of capital lease based on form (meeting defined criteria).	Closer to IFRS approach.
14	Leases	Lessor income recognition based on constant return on net investment method.	Similar income recognition for lessor as under IFRS.	Method of income recognition by lessor differs from IFRS and US GAAP. based on cash flows.
		Under 2002 "improvements" proposal, separation of land and building components of lease would be mandatory.	Separate accounting for land and building in combined lease depends on terms and materiality of land.
15	Income Taxes	Recognize effects of rate changes when "substantively enacted" which may precede US GAAP recognition.	Prohibits recognition of effects of temporary differences related to Foreign currency nonmonetary assets when the reporting currency is the functional currency, and Intercompany transfers of inventory or other assets remaining within the company.
		Liability approach, but deferred tax assets reported only when probable of realization.	All deferred tax assets recognized, but allowance may be necessary if not "more likely than not' to be realized.	Similar, but more exceptions to comprehensive allocation than under IFRS or US GAAP.
16	Employee Benefits	Expense for equity compensation benefits not recognized, but current agenda item; prior service cost related to retirees and active vested employees to be expensed; benefit obligation for multiemployer recognized.	Expense recognition for certain types of equity compensation benefits; opposed to mandatory stock compensation expensing; prior service cost to be amortized over the expected service life of existing employees; contributions to multiemployer plans expensed.
		No minimum liability to be reported in the balance sheet.	Recognition of a minimum liability on the balance sheet to at least the unfunded accumulated pension benefit obligation.
		Anticipate changes in future postemployment benefits based on its expectations in the law.	Anticipating changes in the law that would affect variables such as state medical or social security benefits expressly prohibited.
17	Stockholders' Equity	Mandatorily redeemable preferred shown as liability with dividends deducted as expense.	Mandatorily redeemable preferred shown as "mezzanine" with dividends deducted to derive income available for common shareholders.
		No current standard on stock-based compensation, but project being undertaken to mandate that income statement effect of stock-based compensation be formally recognized.	Stock-based compensation can often escape classification as expense, with only footnote disclosure of effects required; however, use of fair value (SFAS 123) method likely to be made mandatory.	Intrinsic value method (like APB 25) still the mandatory technique of measurement.
18	Earnings Per Share	Similar to US GAAP; under 2002 "improvements" proposals, this similarity would be further enhanced.	Very similar to IFRS, but with more detailed guidance on calculations.
19	Interim Financial Reporting	Some timing differences in recognition of interim revenues and expenses vs. US GAAP; if issued, comparative data required.	Some timing differences in recognition of interim revenues and expenses vs. IFRS; not required (except public companies filing quarterlies).	Similar to IFRS rules, not required except for publicly held entities filing semiannual reports.
20	Segment Reporting	Specific requirements governing the format and content of a reportable segment; segment results using same accounting policies as financial statements; both primary and secondary analyses of segments required.	"Management approach" provides flexibility in defining segments; segment results using internal managerial approach okay, even if these differ from financial statements.	Similar to that under IFRS, with dual categorization of disclosures.
		Required of public companies only.	Same as under IFRS.	Required of both public and large private entities.
		Extensive disclosures, including revenues, net income, capital expenditures, total assets, liabilities (for primary categorization), revenues, assets, capital expenditures (for secondary).	Disclosures similar to those for primary categorization under IFRS, but liabilities and capital expenditures for geographical categories not needed; if reported internally, also depreciation, other items to be noted.	Fewer segment disclosures required than under IFRS or US GAAP, but parallel requirements for business and geographical categories.
21	Accounting Changes and Corrections of Errors	Choice permitted re: correction of "fundamental" errors; either prior period/opening retained earnings restated, or else current income effect.	Correction of errors must be prior period/opening retained earnings adjustment.	Similar to US GAAP treatment for error corrections.
		Choice permitted re: changes in principle; either prior period/opening retained earnings adjusted, or include in current earnings.	Most changes in principle affect current, future periods only; some require retroactive application.	Restatement of comparative statements and earliest opening retained earnings balance required.
		Under 2002 "improvements" proposal, election to include correction of errors in current earnings, and to continue to present prior period as originally shown, would be eliminated; retrospective restatement would be mandatory.
22	Foreign Currency	Exchange losses on a liability for the recent acquisition of an asset invoiced in a foreign currency either as Charge to expense, or Add to the cost of the asset when the related liability cannot be settled and there is no practical means to hedge.	Exchange losses to be expensed in all instances.
		Either current exchange rate or historical exchange rate permitted in translating goodwill and fair value adjustments to assets and liabilities arising from purchase accounting for acquisition of foreign entity if foreign currency is functional currency.	Current exchange rate used to translate all balance sheet items, including goodwill and fair value adjustments.
		Reporting in currency different from measurement currency is addressed.	Reporting in functional currency is presumed.	Issue is not addressed.
		Under 2002 "improvements" proposal, goodwill and fair value adjustments would be deemed part of acquired assets/liabilities and translated at current rate.
23	Related-Party Disclosures	Extensive disclosures required under IFRS, including those about control relationships even in the absence of actual transactions.	Similar to IFRS, but disclosures of relationships in absence of transactions is often missing.	Similar to requirements under IFRS.
24	Specialized Industry GAAP	Guidance provided for government grants, agriculture, reporting by banks.	No primary guidance for government grants, agriculture.
		No further sources of guidance offered; there is no "secondary" source for IFRS guidance.	Specialized guidance on inventories related to the motion picture, software, and agricultural industries, and others, found in "secondary" GAAP sources such as AICPA Guides, SOP, etc.
25	Inflation and Hyperinflation	General inflation accounting rules to be withdrawn; for hyperinflationary economy, financials must be presented based on balance sheet date measuring unit, with comparative (prior period) statements restated on same basis.	Similar to IFRS, with some limitations.	Rules not specified but in practice reporting is similar to that under IFRS rules.
26	Government Grants	Government grants received as compensation for expenses already incurred are recognized as income once conditions are met; revenue-based grants deferred and matched as expense incurred; capital grants amortized as depreciation recognized.	No rules promulgated under US GAAP, but IFRS-like approach would be acceptable.	Similar to IFRS, but some company law limitations to offsetting against asset cost basis must be observed.