CFA Level I - US GAAP vs IFRS - Part I (of 2)

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This Video lecture was recorded by our popular trainer for CFA, Mr. Utkarsh Jain, during one of his live CFA Level I Classes in Pune (India).

This Video Lecture series covers following key differences between US GAAP vs IFRS which can be tested on CFA Level I Exams.

1. Statement of Comprehensive Income

IFRS : Income Statement can be Combined with Other Comprehensive Income and presented a Single Statement of Comprehensive Income i.e. IS + OCI = CI OR IS and CI can be presented separately

US GAAP: Similar Presentation except that firms can choose to report Comprehensive Income in Statement of Shareholders Equity

2. Elements Related to Performance

IFRS : Income , Expenses
US GAAP : Revenues, Expenses, Gains, Losses, Comprehensive Income

3. Revenue Recognition Criteria for Sale of Goods
IFRS :
Risk and Reward is transferred
No control over the goods
Revenue reliably measured
Probable flow of economic benefits
Cost can be reliably measured
US GAAP :

Revenue is realized/ realizable
Earned

4. Long Term Contracts

IFRS : When outcome can’t be reliably measured-revenue is recognized to the extent of cost, cost are expenses when incurred, profit recognized on completion

US GAAP : When outcome can’t be reliably measured- Completed Contract Method, Revenue, expenses and profit is recognized when the contract is complete

5. Barter Transactions

IFRS : Revenue must be based on fair value of revenue from similar non barter transaction with non related parties

US GAAP : Revenue can be recognized at fair value only if firm has historically received cash payments for such goods/services

6. Extraordinary Items

IFRS : Does not allow extraordinary items to be reported separately

US GAAP : Unusual and Infrequent items- Reported separately in the income statement , net of tax, after income from continuing operations

7.Balance Sheet Presentation

IFRS : IFRS does not specify the order in which current or non current assets/ liability should be presented
Generally, Companies using IFRS order balance sheet information from least liquid to most liquid.

US GAAP : Generally, Companies using U.S. GAAP (e.g., Colgate) order items on the balance sheet from most liquid to least liquid

8. Cash Flow Statement Items- Non Financial Firm

IFRS :

Dividend Paid: CFO/CFF
Interest Paid: CFO/CFF
Dividend Received: CFO/CFI
Interest Received: CFO/CFI
Taxes Related to Operating activities: CFO
Taxes related to Financing Activities: CFF
Taxes Related to Investing activities: CFI

US GAAP :

Dividend Paid: CFF
Interest Paid: CFO
Dividend Received: CFO
Interest Received: CFO
Taxes Related to Operating activities: CFO
Taxes related to Financing Activities: CFO
Taxes Related to Investing activities: CFO

9.Cash Flow Statement Presentation

US GAAP:
If direct method is used, Firm must add a disclosure of indirect method
Most companies use indirect method

IFRS: No such disclosure required

10. Inventory Valuation Methods

IFRS:

Specific Identification
Weighted Average
FIFO

US GAAP:
Specific Identification
Weighted Average
FIFO
LIFO

11. Inventory Write Downs
Explained through a Flow Chart.

12. Capitalized Interest

IFRS: Income earned by temporary investing borrowed funds reduces the interest that is eligible for capitalization

US GAAP: No such reduction

13. Research and Development cost

IFRS : Research cost - Expensed
Development Cost - Capitalized

US GAAP : Research Cost- Expensed
Development Cost – Expensed
(* Software Development Cost )

14.Software Development Cost
Explained through a Flow Chart.

15. Component Depreciation

IFRS : IFRS Requires firms to depreciate component of Assets separately
Requiring useful life estimates for each component

US GAAP: Component Depreciation is allowed, but seldom used.

16. Cost vs. Revaluation Model

IFRS :

Firms can either use Cost or Revaluation Model
However, same model should be asset for entire asset class
Revaluation model is rarely used in practice

US GAAP : Assets are reported at Cost (–) Accumulated Depreciation

17.Impairment of PPE

Explained through a Flow Chart/

18. Investment PPE

IFRS :

Property owned for the purpose of collecting rental income or capital appreciation is classified as Investment PPE.
Gives a choice of Cost or Fair Value for Investment PPE
Use same valuation model for all PPE

19. Long Term Bond Liability- Calculation
20. Bond Issuance Cost
21. Deferred Tax Assets/ Deferred Tax Liabilities
22. Classification of Lease- Books of Lessee
23. Classification of Lease- Books of Lessor
24. Component of Pension Expense
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