What are the major differences between a company that reports under IFRS and a company that reports under Aspe?
Effect of IFRS and GAAP Lessees’ RequirementsEffective January 1, 2019 for many companies, the IASB’s and the FASB’s new leases standards1 require nearly all leases to be reported on lessees’ balance sheets as assets and liabilities. The IFRS and US GAAP requirements are similar for lessees on ‘Day One’. However, the ‘Day Two’ accounting will create significant implementation issues for dual reporters. Show
The leasing project was a joint project between the IASB and the FASB. As a result, the lease definition and Day One lessee accounting are mostly converged. However, the Boards’ views diverged over the course of the project and resulted in significant differences on Day Two lessee accounting and transition provisions. Comparing IFRS vs. GAAP lessee requirementsIn particular, lessees no longer classify their leases between operating and finance under IFRS, but will continue to do so under US GAAP.
And in applying those accounting models, one notable difference that will need to be captured in the implementation process is the accounting for lease payments that depends on an index or rate. In a simple real estate lease, suppose that lease payments increase by the respective change in the consumer price index (CPI) each year. Under IFRS, the liability is remeasured each year to reflect the most current CPI. Under US GAAP, the liability is not remeasured for changes in the CPI unless remeasurement is required for another reason; instead, the additional payments are recognized as incurred. As a result, the liability under IFRS could grow to be significantly greater than the liability under US GAAP, which would exaggerate the income statement difference (because those impacted will often be operating leases under US GAAP). Challenges of complying with both IFRS and GAAP requirementsWe believe these and other areas of divergence will cause significant challenges for companies that report under both IFRS and US GAAP. Companies will need to maintain different processes, controls and accounting systems for each framework to comply with the different lessee reporting requirements. IFRS 16 is effective January 1, 2019 for all calendar-year companies, similar to ASC 842 for calendar-year public business entities. Nonpublic entities in the United States may therefore decide not to take advantage of the one year deferral offered by ASC 842 if they are also IFRS preparers. IFRS 16 vs. ASC 842: Differences and ConsiderationsHere are our top lessee differences between IFRS and US GAAP. This selection is based on the potential effect on earnings that these differences may have, as well as the complexity they may create related to systems, controls and process implementation to comply with both GAAPs. For a more comprehensive listing of differences, including for lessor accounting, see KPMG’s publication, IFRS compared to US GAAP.
1 IFRS 16, Leases, issued January 2016; and ASC 842 issued as ASU 2016-02, Leases (Topic 842), in February 2016 2 IAS 17, Leases Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.Where can a difference arise between ASPE and IFRS?The requirements of ASPE and IFRS for the presentation of the Income Statement (ASPE) and the Statement of Comprehensive Income (IFRS) are similar. The differences arise on the classification of expenses, and the presentation of items as extraordinary or unusual.
When accounting for bonds What is the primary difference between ASPE and IFRS?ASPE is based around the principal of “incurred” losses, being that impairment losses are recognized when loss events occur whereas, IFRS is based on “expected credit losses”. ASPE's requirements relating to financial instrument disclosures are significantly less than the scope of IFRS 7.
What are the differences between IFRS reporting and US GAAP?The primary difference between the two systems is that GAAP is rules-based and IFRS is principles-based. This disconnect manifests itself in specific details and interpretations. Basically, IFRS guidelines provide much less overall detail than GAAP.
What are some of the advantages of using Aspe rather than IFRS?The greatest advantage to a small Canadian business owner when using ASPE is the far less complicated disclosure and preparation requirements for financial statements as compared to IFRS. ASPE was specifically designed to simplify certain key accounting procedures that can help save both time and money.
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