IASB and GAAP

[ca_mike]

What are the most significant differences between rev rec in GAAP and the International Accounting Standards, where is that headed?

[jt504]

The IAS depends on a principles-based standard which is open to interpretation and can actually be quite permissive. GAAP, on the other hand, is rules-based with highly-detailed strictures.

For example, the IAS standards have only very brief discussions about multiple-element arrangements, where EITF 00-21 is a huge thing in the US. We have contingent revenue issues in the US that can be very difficult. I think it would be positive if GAAP moved a little closer to IAS 18 and if IAS 18 moved a bit closer to the GAAP standard. The middle ground is probably a preferable place.

[dr_ifrs]

The IASB and FASB are currently working on a joint Revenue Recognition project as part of the "Roadmap to Convergence" between the two sets of standards. A major goal of this roadmap is to eliminate the SEC-required reconciliation to US GAAP by listed companies who report under IFRS.

The next step in the due process for this joint standard is to issue a discussion paper, propably by March 2008.

Check the IASB website for details: www.iasb.co.uk
Navigate to: Curent Projects....IASB Projects.....Revenue Recognition

[letterman]

Yes. "Prudence" seems to be the big driver there. I am having trouble in a dispute about bill-and-hold transactions. You don't have the benefit of SAB 104-type rules in the IFRS arena.

[dr_ifrs]

IAS 8, which deals with accounting policies among other things, reads in part:

10. In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is:
(a) relevant to the economic decision-making needs of users; and
(b) reliable, in that the financial statements:
(i) represent faithfully the financial position, financial performance and
cash flows of the entity;
(ii) reflect the economic substance of transactions, other events and
conditions, and not merely the legal form;
(iii) are neutral, ie free from bias;
(iv) are prudent; and
(v) are complete in all material respects.
11. In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
12. In making the judgement described in paragraph 10, management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11.


This implies that it is reasonable to refer to US (or other) GAAP on issues on which IFRS are silent. As we are aware, IAS 18 is silent on several issues.

[puravida]

A SEC study states that the Commission is in favor of Objectives-based accounting which combines advantages from the current rules-based system (GAAP) and principles-based accounting as seen in international standards.

One important change is that the current GAAP structure will be revised to include the SFACs at a higher hierarchy level. Revising and reprioritizing the Concepts will facilitate the convergence of standards. Moreover, I've that the role of the EITF will be changing. Has anyone heard more about this?

[dr_ifrs]

Perhaps you are referring to the 2003 SEC staff study: Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System (July 25, 2003).

This study concluded that: "an optimal approach to accounting standard setting would be based on a consistently applied conceptual framework and clearly stated objectives rather than solely on either rules or principles, one benefit of which would be the facilitation of greater convergence between U.S. GAAP and international accounting standards" This was one step in the SEC's continued support of convergence between IFRS and US GAAP.

The same study speaks to the consequential need to redefine the GAAP hierarchy and amend the role of the EITF under an "objectives based" standard-setting regime.

Thus far, the SEC agreed this month to drop the requirement for foreign private issuers to reconcile to US GAAP. In mid-December, the SEC will convene round-table discussions to consider giving US domestic issuers the option of preparing IFRS financial statements.

[dr_ifrs]

In response to an earlier post, the following are, in my opinion, key:

1. In IFRS there are probably only 3 main standards that address revenue recognition -IAS 11-Construction Contracts, IAS 17-Leases and IAS 18-Revenue Recognition. Under US GAAP, there is a plethora of guidance in the AAERs, EITFs, FAS, SABs and SOPs.

2.IFRSs do not have the detailed industry-specific guidance as in US GAAP.

3. The completed contract method is not permitted under IFRS.

[jedijd]

One popular misconception is that U.S. GAAP has a general standard on revenue recognition. In fact, U.S. GAAP has none. SAB 104 -- based largely on FASB Concepts Statements 5 and 6 -- is not a binding rule because it is only the opinion of SEC staff. SEC staff don't have authority to issue binding rules. Therefore, one major difference between IFRS and U.S. GAAP in the area of revenue recognition is that the U.S. doesn't have a general revenue recognition standard but the IASB does.