background paper for relevant differences between us gaap and ifrs

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This whitepaper is a ready reference for the relevant US GAAP and IFRS differences, which will help finance controllers to understand more about the Financial Statements of the Company. This document will also provide knowledge to the finance controllers to prepare themselves with respect to the intricacies involved in conversion of the Financial Statements in an efficient and timely manner.

Both the GAAPs by in large does not have much difference from all practical purposes. Instead of going through all the topics, this document could be helpful in providing snapshot.

1. Preference Shares- Contingent Settlement Provisions

IFRS US GAAP

A financial instrument may require an entity to deliver cash or another financial asset in the event of the occurrence or nonoccurrence of uncertain future events beyond the control of both the issuer and the holder of the instrument. Contingencies may include linkages to such events as a change in control or to other matters such as further share issue, interest rates, net income etc. (IAS 32).

If the contingency is outside of the issuer’s and holder’s control, then the issuer of such an instrument does not have the unconditional right to avoid delivering cash or another financial asset on redemption. Therefore, except in limited circumstances (such as if the contingency is triggered only in the event of a liquidation of the issuer), instruments with contingent settlement provisions represent financial liabilities.

There is no concept of mezzanine classification under IFRS.

A contingently redeemable financial instrument (e.g. one redeemable only if there is a change in control) is outside the scope of ASC 480 because its redemption is not unconditional. ASC 480 deals only with the financial instruments falling within its limited scope (eg. Mandatorily convertible instruments, certain freestanding instruments etc.). Any conditional provisions must be assessed to ensure that the contingency is substantive. This assessment would need to be carried out under the provisions of ASC 815 to determine whether the instruments should be bifurcated and accounted separately as an embedded derivative.

For SEC-listed companies applying US GAAP, certain types of securities require classification outside of permanent equity as mezzanine equity on the balance sheet. Examples of items requiring mezzanine classification are instruments with contingent settlement provisions or puttable shares as discussed in the Puttable shares section. Mezzanine classification is a US public company concept that is also encouraged (but not required) for private companies. (ASR 268)

Background paper for relevant differences between US GAAP and IFRS for preparation of Financial Statements under US GAAP for

E- Commerce Entities.

2. Discounting of long term security deposits (Assets)

IFRS US GAAP

Security deposits are discounted and carried at discounted value. [IAS 19]

Security deposits given are not discounted and are carried at original value as per exceptions given under Para 3 of APB 21 (Guidelines issued by FASB).

3. Retirement benefits – Actuarial benefit

IFRS US GAAP

Government bond rate is used for the purpose of discounting. [IAS 19(2011).83]

The Company has a choice to follow corridor approach or upfront recognition of actuarial gain/ loss in Income statement. [IAS 19]

AAA corporate bond rate is used for discounting actuarial amounts to be recorded in financials as per ASC Topic 715.

Actuarial gain/ loss is permanently recorded in Other Comprehensive Income (OCI).

4. Deferred Tax Assets/ Liabilities Recognition

IFRS US GAAP

Deferred tax assets are recognized to the extent that it is probable (or “more likely than not”) that sufficient taxable profits will be available to utilize the deductible temporary difference or unused tax losses. [IAS 12]

Deferred tax assets are recognized in full, but are then reduced by a valuation allowance if it is considered more likely than not that some portion of the deferred tax assets will not be realized.

5. Cash Flow Statements

IFRS US GAAP

There is an option to classify these items such as interest paid (and expensed), interest received, and dividends received under operating activities or financing activities. [IAS 7]

These are classified under operating activities. (ASC 230)













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Vikas Mandelia

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Valueonshore Advisors

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Vice President

Valueonshore Advisors

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Singapore - 208315

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background paper for relevant differences between us gaap and ifrs

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