Auditor - other accounting and reporting topics

Auditor - other accounting and reporting topics

SUBJECT	IFRS	US GAAP
Other accounting and reporting topics
Functional currency definition	Currency of primary economic environment in which entity operates.	Similar to IFRS.
Functional currency – determination	If indicators are mixed and functional currency is not obvious, use judgment to determine the functional currency that most faithfully represents the economic results of the entity's operations by focusing on the currency of the economy that determines the pricing of transactions (not the currency in which transactions are denominated).	Similar to IFRS; however, no specific hierarchy of factors to consider. Generally the currency in which the majority of revenues and expenses are settled.
Presentation currency	When financial statements are presented in a currency other than functional currency, assets and liabilities are translated at exchange rate at balance sheet date. Income statement items are translated at exchange rate at dates of transactions, or use average rates if rates do not fluctuate significantly.	Similar to IFRS.
Hyperinflationary economy – definition	Hyperinflation indicated by characteristics of economic environment of country, which include: population's attitude towards local currency and prices linked to price index; and if cumulative inflation rate over three years is approaching, or exceeds, 100%.	Currency in highly inflationary environment (three-year inflation rate of approximately 100% or more).
Hyperinflationary economy – measurement	Entities that have as functional currency the currency of a hyperinflationary economy must use it for measuring transactions. However, re-measurement of the measurement unit at the balance sheet date is required.	Generally does not permit inflation-adjusted financial statements; instead requires the use of a more stable currency as functional currency (usually the presentation currency). However, foreign issuers that use IFRS permitted to omit quantification of any differences that would have resulted from application of FAS 52.
Earnings per share – diluted	Use weighted average potential dilutive shares as denominator for diluted EPS. Use 'treasury share' method for share options/warrants.	Similar to IFRS.
Related-party transactions – definition	Determine by level of direct or indirect control, joint control and significant influence of one party over another or common control of both parties.	Similar to IFRS.
Related-party transactions – disclosures	Disclose name of related party, nature of relationship and types of transaction. For control relationships, give disclosures regardless of whether transactions occur. Some exemptions available for separate financial statements of subsidiaries.	Similar to IFRS. Exemptions are narrower than under IFRS.
Segment reporting – scope and basis of formats	Public entities: report primary and secondary (business and geographic) segments based on risks and returns and internal reporting structure.	Public entities: report based on operating segments and the way the chief operating decision-maker evaluates financial information for purposes of allocating resources and assessing performance.
Segment reporting – accounting policies	Use group accounting policies.	Use internal financial reporting policies (even if accounting policies differ from group accounting policy).
Segment reporting – disclosures	Disclosures for primary segment include revenues, results, capital expenditures, total assets and liabilities, and other items. For secondary segment, report revenues, total assets and capital expenditures.	Similar disclosures to IFRS (primary segment) except liabilities and geographical capital expenditures not required. Depreciation, amortisation, tax, interest and exceptional/ extraordinary items disclosed if reported internally. Disclosure of factors used to identify segments is required.
Discontinued operations – definition	Operations and cash flows that can be clearly distinguished for financial reporting and represent a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.	Similar to IFRS. Component that is clearly distinguishable operationally and for financial reporting can be a: reporting segment, operating segment, reporting unit, subsidiary or asset grouping.
Discontinued operations – measurement	Measured at the lower of carrying amount or fair value less costs to sell.	Similar to IFRS.
Discontinued operations – presentation and main disclosures	Disclose at a minimum a single amount on the face of the income statement with analysis further disclosed in the notes for both current and prior periods. Assets and liabilities of a discontinued operation to be presented separately from other assets and liabilities on the balance sheet.	Similar to IFRS. Report discontinued and held-for-sale operations as a separate line item on face of income statement before extraordinary items and cumulative effect of accounting changes. Assets and liabilities of held-for-sale disposal groups segregated on balance sheet.
Post-balance-sheet events	Adjust financial statements for subsequent events, providing evidence of conditions at balance sheet date and materially affecting amounts in financial statements (adjusting events). Disclose non-adjusting events.	Similar to IFRS.
Interim financial reporting	Not mandatory to prepare interim statements but must use the standard if prepared. Basis should be consistent with full year statements and include comparatives.	If issued, the contents of interim statements are prescribed and basis must be consistent with full year statements. Quarterly reporting required for SEC registrants (domestic US entities only).
Insurance and reinsurance contracts – definition	Provides definition of insurance and reinsurance contracts.	No single definition of insurance contract. The resulting population of insurance contracts is a subset of the IFRS classification due to stricter criteria for reinsurance. Accounting requirements for 'universal-life-type' insurance contracts is deposit accounting rather than deferral and matching.
Discretionary participation feature (DPF)	Provides definition of DPF and introduces certain requirements for financial instruments that contain such feature. Insurance contracts or financial instruments with DPF may have a compound nature and present a DPF equity component. Consideration received for financial instruments with DPF may be recognised as revenue with an expense representing the increase in the liability.	DPF not specifically covered, other than implicitly in SOP 95-1 for insurance contracts only. Insurance contracts and financial instruments with DPF are measured under existing GAAP and resulting equity component is not separately disclosed. Financial instruments with DPF are deposit accounted.
Insurance and reinsurance contract – measurement	Subject to a few minimum requirements. The most important requirements are the tests on insurance liability adequacy and reinsurance asset impairment. Equalisation and similar provisions are prohibited.	Detailed measurement bases for the different types of insurance and reinsurance contracts. Also prescribes liability adequacy test and reinsurance impairment test and prohibits equalisation provisions.
Insurance and reinsurance contracts – deposit accounting and unbundling of deposit components	Deposit accounting required when measurement of deposit component is reliable and rights and obligations arising from it are not reflected in balance sheet. Unbundling permitted if deposit is reliably measurable. If unbundling is not required, deposit components may be recognised as revenue.	Concept of policyholders' account balance has been developed, and detailed rules require deposit accounting (under FAS 97). Deposit accounting for a component of a contract is covered by EITF 93-6. Reinsurance contracts that transfer only timing risk or only underwriting risk are deposit accounted.
Insurance contracts sold by an insurer to its own defined benefit plan	Eliminate and do not treat as plan assets in pension obligation accounting.	No specific guidance; however, practice is to treat such contracts as plan assets under FAS 87.
Insurance and reinsurance contracts – embedded derivatives	Exemptions from separation and fair value are given for certain embedded derivatives. Persistency bonuses are considered embedded derivatives.	Embedded derivatives must be separated and fair valued unless they are clearly and closely related. Fixed dollar persistency bonuses are not embedded derivatives but a variation of interest rates.
Insurance and reinsurance contracts – disclosures	Extensive disclosure requirements focussed on the accounting policies adopted, material amounts reported and factors that affect the uncertainty of the amounts and timing of insurance and reinsurance cash flows. Claims development tables are required.	Disclosure requirements are less demanding. However, a number of disclosure items are covered in the MD&A and other non-audited sections of annual report. Claims development tables are disclosed outside financial statements.
Separate accounts	Single line presentation not permitted.	FAS 60 and SOP 03-1 allow single line presentation in the balance sheet and offsetting of investment results with changes in policyholder liabilities in the income statement.

Auditor - other accounting and reporting topics