GAAP/IFRS Differences

Inventory

GAAP- allows the use of LIFO

IFRS- does not allow the use of LIFO, requires inventory to be reported at the lower of cost or net realizable value

Long term tangible and intangible assets

GAAP- requires tangible/intangible assets to be recorded at their historical cost and not revalued for later increases in asset values

IFRS- allows companies the option of reporting these assets at fair value

Impairment of Assets

GAAP- uses undiscounted future cash flows

IFRS- uses discounted cash flows

Reversal of Impairment Losses

GAAP- does not permit the reversal of impairment losses

IFRS- allows reversals when recoverable amount exceeds new carrying amount. This means that if an asset's recoverable value increases after a prior impairment, IFRS permits adjusting the asset's value upwards, while GAAP does not allow such adjustments.

Contingent Liabilities

GAAP- Contingent liabilities are recorded if the estimated loss is “probable”

IFRS- Contingent liabilities are recorded if the estimated loss is “more likely than not” to occur

Violating Loan Covenants

GAAP- if the firm violates a loan covenant, the liability is still considered long term (debt) if the lender waives the violation prior to the firm releasing its financial statements

IFRS- If the firm violates a loan covenant, the liability will be reclassified on the balance sheet to a current liability.

Income Taxes deferred tax asset (DTA)

GAAP- recognize the deferred tax asset if realization is more likely than not

IFRS- recognize the deferred tax asset if future realization of a tax benefit is probable

Which is higher: probable or more likely than not?

Probable is higher than more likely than not.

Inventory Write Downs

GAAP- does not allow the reversal of write-downs

IFRS- allows reversal of write down when selling price increases

Research and Development

GAAP- expenses R&D as incurred

IFRS- can capitalize development costs if certain criteria are met.