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

• published: 24 Nov 2014
• views: 3

Part II of this video series is available to FinTree On-line Program Subscribers. To know more visit us at : FinTree website link: http://www.fintreeindia.com FB Page link :http://www.facebook.com/Fin... We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with! 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 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