US GAAP vs IFRS Differences + Cheat Sheet PDF

The statement of cash flows is a central component of a company’s financial statements and provides users with key information to evaluate a company’s financial performance for investing or other decisions. However, cash flows can be classified differently under IFRS Accounting Standards and US GAAP – due to differences in accounting for the underlying item to which a cash flow relates, as well as differing requirements in IAS 7 and ASC 230. Financial statement preparers and users should develop a clear understanding of these classification differences when analyzing and using statements of cash flows prepared under IFRS Accounting Standards or US GAAP. As the topline, revenue is a key performance indicator for users of financial statements where an understanding of GAAP differences is essential to benchmark against peers. A few years back, IFRS 15 and Topic 606 were introduced to account for revenue from contracts with customers under a common set of principles across IFRS Standards and US GAAP. Fast forward to 2022, implementation has settled but standard setting has not – for example, the FASB amended its guidance on licenses and on revenue contracts in business combinations.

• These GAAP differences, combined with the various accounting judgments that often affect the recognition of revenue, mean that revenue and performance from customer contracts may be reported differently across peer companies.
• When the IASB sets a brand new accounting standard, several countries tend to adopt the standard, or at least interpret it, and fit it into their individual country’s accounting standards.
• The new disclosures would include jurisdictional information and greater disaggregation of information in the rate reconciliation and income taxes paid disclosure.
• The amendments in the ASU are effective for fiscal years beginning after December 15, 2022 for public business entities and December 15, 2023 for all other entities.
• The IFRS governs how companies around the world prepare their financial statements.
• Under GAAP, current assets are listed first, while a sheet prepared under IFRS begins with non-current assets.

For US GAAP, the analysis requires sufficient documentation to substantiate that the ‘indefinite reversal criteria’ are met. This requires a robust process involving people not only from within, but also outside the tax department. Under IAS 12, the current tax effects for the seller are recognized in the current tax provision. Unlike IAS 12, subsequent changes are generally recognized in profit or loss—i.e. A company recognizes revenue under that principle by applying a 5-step model as follows. KPMG’s multi-disciplinary approach and deep, practical industry knowledge help clients meet challenges and respond to opportunities.

Measuring Progress Toward Complete Satisfaction of a Performance Obligation

The traditional business model in the automotive industry has gradually begun to shift from one-time purchases to continuous post-sale revenue. Up until 1998, TSAI had employed conservative revenue recognition practices and only recorded revenues from agreements when the customers were billed through the course of the 5-year agreement. But once sales began to decline, TSAI changed its revenue recognition practices to record approximately 5 years’ worth us accounting vs international accounting of revenues upfront. In addition, IFRS requires separate depreciation processes for separable components of PP&E. IFRS allows companies to elect fair value treatment of fixed assets, meaning their reported value can increase or decrease as their fair value changes. US GAAP requires that interest expense, interest income and dividend income be accounted for in the operating activities section, and dividends paid be reported in the financing section.

• Demand deposits are not defined in IFRS Accounting Standards, but we believe they should have the same level of liquidity as cash and therefore should be able to be withdrawn at any time without penalty.
• Unlike IAS 2, US GAAP companies using either LIFO or the retail method compare the items’ cost to their market value, rather than NRV.
• Proceeds from the sale would be accounted for in a manner consistent with the nature of the asset, which may be different from IFRS Standards.
• GAAP and IFRS® Accounting Standards — two of the most widely used accounting standards in the world.
• It is the established system in the European Union (EU) and many Asian and South American countries.
• IFRS generally uses the expected value in its measurement of the amount of the liability recognized, while the amount under US GAAP depends on the distribution of potential outcomes.

We believe it is generally appropriate to classify payments as shown in the following table. This absence of definitions may lead to differences in practice between amounts reported as restricted cash under IFRS Accounting Standards and US GAAP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Pay versus Performance Disclosures: A Snapshot

Harvard Business School Online’s Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills. Member firms of the KPMG network of independent firms are affiliated with KPMG International. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any https://www.bookstime.com/ member firm. IFRS is standard in the European Union (EU) and many countries in Asia and South America, but not in the United States. The Securities and Exchange Commission won’t switch to International Financial Reporting Standards in the near term but will continue reviewing a proposal to allow IFRS information to supplement U.S. financial filings. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.