
































Microsoft Word - 156-CopyEdited-FINAL.docx


http://journals.sfu.ca/abr  ADVANCES IN BUSINESS RESEARCH 
2016, Volume 7, pages 29-50 

	
	

29 
	

Which IFRS Should the United States Adopt? 
 

George Schmidt 
University of Arkansas – Fort Smith 

 
Kaitlyn Schoeppey 

University of Arkansas – Fort Smith 
 

Accounting is a byproduct of its environment. It takes information and transmits it 
for users that are both internal and external to the company. The United States has been 
working to converge with IFRS since the Norwalk Agreement in 2002.  These 
environmental factors have caused different accounting standards to develop in different 
countries. The International Financial Reporting Standards (IFRS) were developed to 
address the differences in accounting standards worldwide. However problems persist with 
IFRS. Comparability even within countries that use IFRS is not perfect. Many countries use 
a local variation of IFRS. In addition, the European Union has a formal endorsement 
process for every IFRS standard published by the IASB to decide if the EU will adopt the 
standard. In addition to the political pressure this causes, it could cause further problems 
with comparability in the future if the United States adopt IFRS. The fundamental rules vs. 
principles debate and the cost of conversion to IFRS for US companies is also a barrier to 
the convergence project. 

 
Keywords: Accounting standards, IFRS, GAAP, IFRS adoption, international accounting. 

 
Introduction 

 
Accounting is the language of business. It takes information and transmits it for users that 

are both internal and external to the company. In order to begin the discussion of the differences 
between the international language of business (International Financial Reporting Standards) and the 
United States version (United States Generally Accepted Accounting Principles) it is important to 
understand how accounting develops within a region. 

International Accounting: A User Perspective gives ten ways accounting interacts with its 
environment. These are the nature of capital markets, type of reporting regime, size and complexity 
of business entities, type of legal system, level of enforcement of regulations, rate of inflation, 
political and economic ties, stature of the accounting profession, existence of a conceptual 
framework, and quality of accounting education (Saudagaran, 2009). In addition, there is another 
source affecting accounting in various regions. Prior accounting scandals contribute to the future of 
accounting in a region. 

The nature of capital markets affects the foundation of accounting in a region. In some 
areas, companies primarily raise the capital needed for business from stock markets. In other 
regions, this capital is acquired from banks or the government. Banks and stockholders have 
different information needs and the language of business has adapted differently to provide them. 

The type of reporting regime also affects the accounting in a region. In some countries, such 
as the United States, there are different rules in reporting to the government for tax purposes and 
reporting to stock markets or other external accounting users. In other countries, the same rules 



SHOULD THE US ADOPT IFRS?	

30 
	

apply for both. As mentioned previously, the needs of the external users influence accounting in a 
region. 

The size and complexity of business entities in an area also shapes the local accounting 
practices. As businesses increase in size and complexity, accounting rules must also become more 
complex to translate the substance of the transaction to external users of financial statements.  

The type of legal system is another contributor to the type of accounting reporting adopted.  
Some countries, including the U.S., use a common law system. Other countries use a code law 
system. In code law countries, the focus is on protecting the creditors of the company.  In a 
common law country, more attention is placed on presenting a true and fair picture to shareholders 
(Saudagaran, 2009).  

The level of enforcement of regulations is another important point. It does not matter what 
the accounting rule is if no one enforces it consistently. One problem with using consistent 
accounting rules internationally is that it may give some shareholders a false sense of security. They 
may assume the company is correctly applying the same rules as everyone else, when in reality the 
company may be reporting transactions incorrectly either by mistake or as an intentional act of 
fraud. 

The rate of inflation shapes accounting in an area. In the United States, the rate of inflation 
tends to run at about 2% a year. Some countries may have a 20% rate of inflation this year or even 
higher. Particularly in those countries with high inflation, the historical cost of assets does not make 
sense as a way to value assets because it leaves the assets undervalued on the balance sheet.  

The political and economic ties of a country shape accounting for transactions in the 
country. Countries want to use similar accounting methods as their  international trading partners to 
encourage their companies to trade and invest more freely with each other. 

The stature of the accounting profession also notably shapes accounting in an area. In some 
countries the accounting profession is held in high esteem. In other countries, accountants are held 
at about the same status as a clerk. This stature will influence the quality of the accounting standards 
produced (Saudagaran, 2009). Directly related to the stature of the accounting profession is the 
quality of accounting education. The quality of accounting education is better in countries that hold 
it in high esteem because the stature of the profession can help attract some of the best and 
brightest students into accounting careers (Saudagaran, 2009). 

The existence of a conceptual framework is another factor that shapes accounting in a 
country. “… accounting in countries that have developed or adopted a conceptual framework are 
likely to be more similar to each other than to countries that lack a conceptual framework” 
(Saudagaran, 2009, p. 10).  

In addition, there is another factor that has historically shaped accounting in a region: prior 
accounting scandals. One of the most famous accounting scandals involved Enron. In part because 
of the Enron scandal, the U.S. Congress passed the Sarbanes Oxley law to reduce accounting 
scandals. When companies take advantage of relatively vague rules, it can cause policymakers to set 
more strict ones. 

All of these factors come together to influence accounting in an area. This is why countries 
all over the world have historically developed different accounting systems. These varied accounting 
systems are leading to problems as the world becomes increasingly one market. Because countries 
are reporting the same transaction in different ways, there is a lack of comparability in the financial 
statements of companies worldwide. This paper will focus on two accounting standards: The United 
States Generally Accepted Accounting Principles and the International Financial Reporting 
Standards. 

 



Schmidt & Schoeppey	

31 
 

Literature Review 
 

 The United States Generally Accepted Accounting Principles is the legacy of the history of 
accounting in this country. Before the industrial revolution, companies accounted for transactions, 
but everyone followed their own rules. There was no standardization and therefore no comparability 
among companies (“Accounting Standards,” n.d.).  
 The industrial revolution began to change that. Companies, particular railroad companies, 
started to standardize financial reporting. This led to an influx of capital from investors. Public 
companies continued to take the lead in accounting innovation for many years until the Great 
Depression. After poor accounting and reporting procedures were blamed for contributing to the 
downturn, the American Institute of Accountants and the New York Stock Exchange worked 
together to fix the accounting problems. A few years later, the Securities Act of 1934 was passed. 
This act chartered the Securities and Exchange Commission and gave the Securities and Exchange 
Commission the power to oversee the methods used for accounting and auditing (“Accounting 
Standards,” n.d.).  
 By the 1970’s, the accounting profession decided that it is necessary to have an independent 
standard-setting structure that is distinct from the accounting profession. Its purpose is to keep the 
standards from being tainted by the self-interests of practicing accountants and their clients. In 1972, 
the accounting foundation recommended creation of a new standard-setting body and the Financial 
Accounting Foundation was born. The following year, the Financial Accounting Foundation 
established the Financial Accounting Standards Board which became responsible for setting 
financial accounting standards (“Accounting Standards,” n.d.). 
 This set the foundation for modern day accounting in America. Publicly traded companies 
must comply with the Generally Accepted Accounting Principles, which are set by the Financial 
Accounting Standards Board. New standards are developed regularly both to address new business 
transactions and to improve the accounting reporting of existing ones. This allows the companies to 
be compared because every company reports every transaction using the same rules. However, 
because of the impact environment has on accounting standards, not every stock exchange requires 
their companies to record transactions the same way that the United States Generally Accepted 
Accounting Principles does. As more and more investors choose to invest money in foreign 
companies on foreign stock exchanges, there must be comparability across companies worldwide 
instead of only being comparable on individual exchanges.  
 The idea of international convergence first arose following World War II. The world was 
becoming economically integrated and it needed accounting to follow suit. The International 
Accounting Standards Committee was formed in 1973. It was the first international standard-setting 
body. In 2001, the International Accounting Standards Committee reorganized into the International 
Accounting Standards Board. It became an independent international standard-setter 
(“Comparability in International Accounting,” n.d.). “As of 2013, the European Union and more 
than 100 other countries either require or permit the use of international financial reporting 
standards (IFRSs) issued by the IASB or a local variant of them” (“Comparability in International 
Accounting,” n.d.). 
 
Political Challenges Faced by Standard-Setters 
 Accounting standard-setters face many challenges trying to create the rules accountants must 
follow to report transactions. Many of the challenges are political. The United States Financial 
Accounting Standards Board is funded through fees that are paid by companies who choose to list 
their securities on stock exchanges (Spiceland, Sepe, & Nelson, 2013). This is done to prevent the 



SHOULD THE US ADOPT IFRS?	

32 
	

Financial Accounting Standards Board from having to bend to the will of interest groups in order to 
stay funded. For example, airlines have to report huge liabilities for the leased aircraft they essentially 
own. It would appear much better on the airlines’ books if they only had to report an expense every 
time they make the lease payment. Their vested interest could have prevented the Financial 
Accounting Standard Board from passing the standard that showed the substance of the transaction. 
Therefore, it is important the standards board does not have to fundraise or to receive funding from 
interest groups.  
 In contrast, the International Accounting Standards Board receives a large amount of its 
funding from voluntary donations, both from accounting firms and corporations (Spiceland, Sepe, & 
Nelson, 2013). Accounting firms have a vested interest in the standards as well because their clients 
do. As long as the IASB has to fundraise then they cannot be entirely independent. This keeps them 
from having the independence to make the right decisions when interest groups are pushing for the 
wrong ones. The Financial Accounting Standards Board thinks it is so important that one of the 
milestones specified by the Securities and Exchange Commission for the adoption of IFRS in the 
United States is that the International Accounting Standards Board’s independence be enhanced by 
a funding mechanism similar to the Financial Accounting Standard Board’s mechanism (Spiceland, 
Sepe, & Nelson, 2013).  
 The International Accounting Standards Board faces political pressure from other sources in 
addition to the pressure from interest groups. Countries have a vested interest in making the 
companies in their country look as profitable as possible. The European Union has demonstrated 
that vested interest by requiring a formal evaluation process for determining whether an IFRS 
standard will be endorsed for use in European Union countries (“IFRS in Europe – Background,” 
n.d.).  

…the European Union is required to decide on the applicability of individual IASs within 
the EU. It may adopt an IAS only if: it is not contrary to the principles of the EU Fourth 
and Seventh Directives, it is conducive to the European public good, and it meets the criteria 
of understandability, relevance, reliability and comparability required of financial information 
needed for making economic decisions and assessing stewardship of management. 
(Alexander, 2007, pp. 52-53)  

If the European Union decided that an International Financial Reporting Standard was not in its 
best interest then it could refuse to adopt it in the European Union. Then the IASB would be forced 
to choose between having comparability in financial statements or using the standard it originally 
wanted all the countries to adopt. In addition to the political problems this creates, it could 
potentially cause future problems with comparability. 
 
Comparability in International Financial Reporting Standards  
 While the International Financial Reporting Standards purpose is to move countries to one 
set of unified accounting standards, variations within the International Financial Reporting 
Standards exist. For example, remember this quote, “As of 2013, the European Union and more 
than 100 other countries either require or permit the use of international financial reporting 
standards (IFRSs) issued by the IASB or a local variant of them” (“Comparability in International 
Accounting,” n.d.). A local variant of the International Financial Reporting Standards is not the 
same as using the International Financial Reporting Standards. Investors will still need to research 
differences between the accounting method the country uses and the standard International 
Financial Reporting Standards. Typically, the differences between the countries’ local variation of 
IFRS and IFRS as published by the IASB are small, but too many countries have local variations for 
the differences between them to be ignored. 



Schmidt & Schoeppey	

33 
 

 The chart in Appendix A was compiled based on PricewaterhouseCoopers 2014 report: 
IFRS Adoption by Country. Approximately 28.33% of the countries that use some version of IFRS in 
the chart fall into a category of “Other”. This means that they use some form of the International 
Financial Reporting Standards, but they do not use the version published by the International 
Accounting Standards Board or endorsed by the European Union. The category “Other” can range 
from Venezuela that uses IFRS as adopted locally to Japan that uses IFRS as designated by the 
Financial Services Agency of Japan (IFRS Adoption by Country,  2014).   
 An additional 25.83% of the countries in the chart that use some form of IFRS use IFRS as 
endorsed by the European Union. As discussed earlier, standards published by the International 
Accounting Standards Board must be formally approved in order to be used by the European 
Union. Currently all of the IASB documents that are not currently endorsed are expected to be 
endorsed before the IASB effective date (The EU Endorsement Status, 2015). However, the European 
Union has the option of refusing to endorse any IASB standard. If they choose to do so, then 
25.83% of the countries that use some form of IFRS will not be using the same form of IFRS as the 
rest of the countries. If the European Union is committed enough to fight a standard, potentially 
two main forms of IFRS could exist.  This may seem farfetched except that it’s already happened. 
The European Union refused to endorse controversial parts of IAS 39, which dealt with hedge 
accounting (Brackney & Witmer, 2005).  
 The other 45.83% of the countries in the chart that use some form of IFRS, use IFRS 
exactly as published by the IASB. That means that less than half precisely follow every standard. 
Admittedly, they are close to what the IASB publishes, but the whole point of an international 
accounting standard is to have comparability in accounting practices worldwide. If the International 
Accounting Standards Board cannot get stock exchanges to commit to using IFRS exactly as 
published then it may be time to look for other international accounting solutions that can. 
Regardless, until recently, the United States Generally Accepted Accounting Procedures have 
attempted to converge with the International Financial Reporting Standards. It’s important to 
understand the history behind that decision in order to understand the reasons that led to the 
convergence project. 
 
History of U.S. GAAP and IFRS Convergence 
 Foreign companies that wished to trade on United States stock exchanges had to complete a 
form 20-F to reconcile their financial statements to US GAAP. This expensive burden in addition to 
the costs of complying with the Sarbanes Oxley law led many foreign entities to pull their companies 
from US stock exchanges (Sullivan, 2014).   This led many groups to hold public discussions about 
whether the US was losing its competitive edge as a market for raising capital (Erchinger & Melcher, 
2007).  

When the FASB and IASB met in Norwalk, Connecticut on September 18, 2002, they both 
acknowledged their commitment to developing both high-quality and compatible accounting 
standards for domestic and international financial reporting (Memorandum of Understanding, 2002).  

At the meeting, both the FASB and IASB pledged to use their best efforts to: 
“(a) make their existing financial reporting standards fully compatible as soon as is 
practicable and  
(b) to coordinate their future work programs to ensure that once achieved, compatibility is 
maintained.” (Memorandum of Understanding, 2002, p. 1). 

This “memorandum of understanding” started the process of convergence between IFRS and 
GAAP.  



SHOULD THE US ADOPT IFRS?	

34 
	

 In 2006, the FASB and IASB demonstrated again their commitment to this convergence 
project by setting specific milestones to be reached by 2008 (“Convergence between IFRSs and US 
GAAP,” 2006,n.d.). In 2007, the United States Securities and Exchange Commission (SEC) 
removed the requirement for all non-US companies registered in the US to reconcile their financial 
reports with US GAAP if their accounts complied with IFRS as issued by the IASB. The SEC also 
published a proposed roadmap for adoption of IFRSs by domestic companies (“Convergence 
between IFRS and US GAAP,”2007, n.d.). Additionally, the European Commission proposed that 
the European Union remove the need for U.S. companies with securities registered on European 
stock exchanges and with financial information prepared in accordance with U.S. GAAP to 
reconcile their accounts to IFRSs or provide other compensating disclosures (Completing the February 
2006, 2008). 
 In 2013, Russell Golden was nominated as the chairman of the Financial Accounting 
Standards Board. He became chairman at a time when our relationship with the International 
Accounting Standards Board was changing. The IASB set up an Accounting Standards Advisory 
Council of which the United States is one of multiple members (Cohn, 2013). The ASAF generally 
meets for two days on four occasions a year (“Accounting Standards Advisory Forum,” 2013,n.d.).  
Meeting eight days a year is a big change from the commitment to convergence both standard 
setters had just a few years before. Priorities had clearly shifted, and it left many firms wondering, 
“What happened?” Christopher Cox, chairman of the SEC from 2005-2009, blames the 
International Accounting Standards Board, but says the Financial Accounting Standards Board and a 
lack of interest by US investors and corporations enabled it to happen (Katz, 2014).  

Three main factors led to the end of the convergence project between IFRS and US GAAP: 
The US remained competitive in the world’s capital markets, the fundamental rules vs. principles 
split in the standards that neither side was willing to compromise on, and the cost of converting 
financial statements to IFRS.  

No doubt there was concern after the financial scandals in the early 2000’s and the extensive 
regulation that followed (Sarbanes-Oxley) that companies would stop trading on US exchanges and 
instead trade on other exchanges elsewhere in the world. The costs of compliance was high both 
because companies had to follow US Generally Accepted Accounting Principles and because they 
had to meet the requirements of Sarbanes-Oxley. This caused many foreign companies to remove 
themselves from US stock exchanges (Sullivan, 2014).  

It was a difficult game that regulators had to play with the financial market. Too much 
regulation and companies may run a cost-benefit analysis and decide to leave US capital markets. 
Too little regulation and investors will not trust the financial information provided by companies 
and may decide not to invest money in companies in US capital markets. In this uncertain 
environment, the convergence project seemed like an important step in securing the future of the 
US capital markets. By converging our accounting standards with the International Financial 
Reporting Standards, foreign companies could save the costs of reconciling their financial 
statements to GAAP. This would lessen the burden of the new financial regulation and make 
companies more likely to continue trading on US markets. 

However, now the SEC has allowed companies that use IFRS as published by the IASB to 
use IFRS in their financial statements without providing a reconciliation to US GAAP (Acceptance 
from Foreign Private, 2008). This change effectively accomplished the same goal. Foreign companies 
save the compliance costs of reconciling their financial statements with GAAP, and domestic 
companies are spared the costs of becoming compliant with IFRS. The SEC’s decisions paid off. 
The US markets are continuing to succeed. Almost 50% of the world’s equity shares (by market 
capitalization) are traded in the United States (Donaldson, 2005). Foreign issuers are also continuing 
to trade in the US. Non-US investors have nearly $4.5 trillion invested in stock markets in the 



Schmidt & Schoeppey	

35 
 

United States (Donaldson, 2005).  Now that the worries have mostly past, people are less concerned 
about switching to IFRS. They see the costs of convergence unnecessary after the change in the U.S. 
markets acceptance of IASB IFRS and the International stock markets acceptance of U.S. GAAP. 

One of the main problems with switching to IFRS is the rules vs. principles debate. The 
question of how much guidance is appropriate with every standard is a fundamental difference 
between GAAP and IFRS. Both sides are defensive of their approach. Leases provide a good 
example. GAAP makes the distinction between capital leases and operating leases. An operating 
lease is a traditional lease. A one-year rent agreement for an apartment is a good example. In 
contrast, capital leases are essentially rent-to-own agreements. The lease agreement lasts for so long 
that the asset has essentially been bought. Under GAAP, a lease is a capital lease if one or more of 
these criteria are met: 

1. The agreement specifies that ownership of the asset transfers to the lessee. 
2. The agreement contains a bargain purchase option. 
3. The noncancelable lease term is equal to 75% or more of the expected economic life of 

the asset. 
4. The present value of the “minimum lease payments” is equal to or greater than 90% of 

the fair value of the asset. (Spiceland, Sepe, & Nelson, 2013, p. 863)  
Under IFRS, a lease is a capital lease if substantially all the risks and rewards of ownership are judged 
to have been transferred (Spiceland, Sepe, & Nelson, 2013). They specify some things that may 
imply it’s a capital lease, but the IASB does not specify percentages and the judgments are left to the 
accountant.  
 There are advantages and disadvantages to both systems. Under a rules-based system, there 
is little room for judgment so every company will account for the same transactions the same way. If 
none of the four criteria are met then it’s not an operating lease. It doesn’t matter if it comes close to 
being a capital lease on every criterion. Because of this, companies will purposely find loopholes to 
the rules. They will set up transactions so that none of the criterion are met even though they are 
still essentially renting-to-own the asset.  
 In a principles-based system, the accountant makes the judgment. If the accountant decides 
that it’s essentially a rent-to-own asset then it is a capital lease and is accounted for accordingly. 
However, that also means that an accountant could decide that it’s not a capital lease even if one of 
the rules for the rules-based system is met. Accounting in this manner potentially sacrifices 
consistency, but should do a better job of translating the substance of the transaction for external 
users. Another problem with the principles-based system is since accountants make a judgment 
about the transaction, two accountants could make different decisions about how to report the same 
transaction.  This could lead to managers pressuring accountants to record a transaction in a way 
that appears better on the financial statements. Managers could even purposely hire accountants that 
will report transactions in a way that looks as good as possible for the company. This could create a 
conflict of interest between the accountant trying to translate transactions for external users of 
financial statements and also trying to translate the transactions such that they keep their jobs. 
 Both the rules-based and principles-based standards for accounting have their share of 
problems. They are fundamentally different ways to set standards and they do not leave much room 
for compromise. Scot Taub identified areas in which U.S. GAAP and IFRS have had difficulty 
dealing with:  

1. revenue recognition,  
2. common control transactions,  
3. rate regulation,  
4. extractive industries, and  
5. insurance.  



SHOULD THE US ADOPT IFRS?	

36 
	

Of those, the most important by far is revenue recognition, and that will be resolved shortly by the 
issuance of the new joint standard (Taub, 2014). 
 Another reason the convergence project did not succeed in full is the cost of switching to 
IFRS for US companies. IFRS does almost everything in accounting at least a little bit different than 
GAAP does. This chart summarizes the differences between GAAP and IFRS. It is based on the 
differences between GAAP and IFRS given in Spiceland, Sepe, and Nelson’s 7th Edition 
Intermediate Accounting textbook. This chart is not meant to be all-inclusive. It gives a sample of 
some of the many differences remaining between US GAAP and IFRS. 
 
 
Concept US GAAP IFRS 
Income Statement Allows extraordinary items Prohibits extraordinary items 
Classification of Cash Flows Cash outflows for interest payments 

and inflows from interest and 
dividends are operating cash flows. 
Dividends the company pays out are 
financing cash flows. 

Interest and dividends paid can be an 
operating or a financing cash flow and 
interest and dividends received can be 
either an operating or investing cash 
flow. 

Long-term Construction Contracts Requires the completed contract 
method when reliable estimates can’t 
be made. 

Requires the cost recovery method 
when reliable estimates can’t be made. 

Interim Reporting Views interim periods as integral parts 
of the annual period. 

Views interim periods as discrete 
periods. 

Cash and Cash Equivalents Overdrafts are treated as liabilities. Overdrafts can be offset against other 
cash accounts. 

Transfer of Receivables The decision is made whether it is a 
secured borrowing or a sale depending 
on whether control of assets has 
transferred to the transferee. 

The decision is made whether it is a 
secured borrowing or a sale based on 
if the company receives the 
receivable’s cash flows, substantially all 
the risks and rewards of ownership, 
and whether control has been 
transferred. 

Inventory Cost Flow Assumptions Allows LIFO Prohibits LIFO 
Inventory Valuation For calculating lower of cost or 

market, market is replacement cost 
with a ceiling of net realizable value 
and a floor of net realizable value 
minus normal profit margin. 

For calculating lower of cost or 
market, market is always net realizable 
value. 

Research and Development 
Expenditures 

Expensed in the period incurred. Research expenditures are expensed in 
the period incurred. Development 
expenditures are capitalized as an 
intangible asset. 

Depreciation Allows depreciation of components, 
but most companies do not do so. 

Requires that each component of an 
item be depreciated separately if its 
cost is significant in relation to the 
total item cost. 

Valuation of Property, Plant, and 
Equipment and Intangible Assets 

Property, plant, and equipment are 
reported at cost less accumulated 
depreciation. 

Property, plant, and equipment can be 
reported at cost less accumulated 
depreciation or at its fair value. 

Biological Assets Valued at cost less accumulated 
depreciation 

Valued at fair value minus estimated 
costs to sell 

Impairment Reversals of impairment loss are 
prohibited. 

IFRS requires the reversal of an 
impairment loss if the cause of the 
loss is resolved. 

Costs of Defending Intangible Rights Capitalized and amortized over the Expensed as incurred. 



Schmidt & Schoeppey	

37 
 

Concept US GAAP IFRS 
remaining useful life of the intangible. 

Investments Accounted for using the 
Equity Method 

Fair value option permitted. Does not provide fair value option for 
most investments accounted for using 
the equity method. 

Recoveries of Other-than-Temporary 
Impairments 

Does not allow recovery of any other-
than-temporary impairment of equity 
or debt with the exception of loans. 

Recognized in earnings for debt 
investments, but not for equity 
investments. 

Liabilities to be Refinanced Classified as long-term if refinancing is 
completed before the date of issuance 
of the financial statements. 

Classified as long-term if refinancing is 
completed before the balance sheet 
date. 

Loss Contingencies If there is a range of equally likely 
outcomes, GAAP would use the low 
end of the range. 

If there is a range of equally likely 
outcomes, IFRS would use the 
midpoint of the range. 

Gain Contingencies Never accrued. Accrued if future realization is 
virtually certain. 

Debt Issue Costs Recorded as an asset. Reduce the recorded amount of the 
debt. 

Convertible Bonds Recorded as debt (liability). Divided into liability and equity 
elements. 

Leases Four classification criteria to 
determine if a lease is a capital lease. 

A lease is a capital lease if substantially 
all risks and rewards of ownership are 
transferred. 

Error Corrections An error in a prior financial statement 
must be reported for retrospectively. 

When correcting errors in prior 
financial statements, the effect of the 
error can be reported in the current 
period if it’s not considered practical 
to report it retrospectively. 

 
Conclusion 

 
If full adoption of IFRS were to occur, the twenty-two differences listed in the chart are only 

a small sample of the many changes awaiting US companies. Appendix B contains all eighty-nine of 
the differences in the Intermediate Accounting PowerPoints accompanying the textbook by 
Spiceland, Sepe, & Nelson. The list of the differences between GAAP and IFRS for many of 
concepts are in most of the textbooks. This list does not include every financial accounting 
difference between GAAP and IFRS. There are likely also differences on industry-specific guidelines 
and on consolidation practices.  

All of these changes have costs associated with them. Deloitte, for instance, gives four 
categories of costs when converting to IFRS. These costs are internal human resource costs, external 
resources (for instance accountants and lawyers hired to help with the transition), information 
technology resources, and potential costs such as the cost of erroneous conversion (2009). Even 
though the changes in each of the categories are small, US companies will be summarily forced to 
make all of these changes and more. It’s both time-consuming and expensive. In addition, it could 
lead to increased litigation cost. The people who prepare the financial statements could make 
mistakes in their application of the unfamiliar rules. The users of those financial statements could 
then sue based on the harm caused by the improperly prepared financial statements (Epstein & 
Cheng, 2009). The CEO and CFO could be held personally accountable for those mistakes under 
Sarbanes Oxley (Marden, Edwards, & Stout, n.d.). All of these costs discourage US investors and 
corporations to push for a transition to IFRS.  



SHOULD THE US ADOPT IFRS?	

38 
	

These litigation and change-over costs are in addition to the increased comparability 
problems that a switch to IFRS could cause. Many investors realize they cannot directly compare 
two companies’ financial statements that use different accounting standards. Therefore, they will not 
try to compare the companies without making some adjustments for the differing standards. In 
contrast, if both of the companies were using the International Financial Reporting Standards, 
investors are more likely to directly compare them without any adjustment. This could lead to 
misguided decisions if the two companies decide to report the same transaction in different ways. 
Big investors who know about the comparability problems will have to spend money hiring people 
to research and dig into the notes of the financial statements to examine the comparability issues 
and make informed decisions. FASB’s Statements of Accounting Concepts addresses the 
importance of comparability.  

Left to themselves, business enterprises, even in the same industry, would probably choose 
to adopt different reporting methods for similar circumstances. But in return for the sacrifice 
of some of that freedom, there is a gain from the greater comparability and consistency that 
adherence to externally imposed standards brings with it. There also is a gain in credibility. 
The public is naturally skeptical about the reliability of financial reporting if two enterprises 
account differently for the same economic phenomena. (Financial Accounting Standards 
Board, 1989) 

In addition, the change to IFRS would cause comparability problems as companies are converting. 
Generally, GAAP allows companies a few years to make major changes like this, and early 
conversion is generally allowed. This means that for the few years until everyone is required to use 
IFRS, some companies will be using IFRS and others will continue to use GAAP.   

One thing the US’ markets do not want to lose is credibility. Investors need to know they 
can trust the financial information that comes from financial statement preparers in the US. The 
convergence project has gone as far as it needed to. The marginal costs of continuing to converge 
far exceed the marginal benefits. The U.S. should remain with GAAP until IFRS  becomes more 
uniform with all countries to avoid consistency and comparability problems in accounting reporting.  

 
References 

 
Acceptance from foreign private issuers of financial statements prepared in accordance with international financial 

reporting standards without reconciliation to U.S. GAAP. (2008, March). Retrieved from 
http://www.sec.gov/rules/final/2007/33-8879.pdf 

Accounting standards. (n.d.). Retrieved March 4, 2015, from 
http://www.accountingfoundation.org/jsp/Foundation/Page/FAFSectionPage&cid=13510
27541272 

Accounting standards advisory forum (ASAF). (n.d.). Retrieved March 5, 2015, from 
http://www.ifrs.org/About-us/IASB/Advisory-bodies/ASAF/Pages/Accounting-
Standards-Advisory-Forum.aspx  

Alexander, D. (2007). Globalisation of accounting standards: A UK perspective. In J. M. Godfrey & 
K. Chalmers (Eds.), Globalisation of accounting standards (pp. 46-63). Cheltenham, UK: Edward 
Elgar. 

Booker, J., Caldwell, C., Galbreath, S., & Rooney, C. J. (2011). Intermediate accounting (Sixth ed.) 
[PowerPoint slides]. 

Booker, J., Caldwell, C., Galbreath, S., & Rooney, C. J. (2013). Intermediate accounting (Seventh ed.) 
[PowerPoint slides]. 



Schmidt & Schoeppey	

39 
 

Brackney, K. S., & Witmer, P. R. (2005). The European Union's role in international standards 
setting. The CPA Journal. Retrieved from 
http://www.nysscpa.org/cpajournal/2005/1105/infocus/p20.htm 

Cohn, M. (2013, July 29). New FASB chairman makes plans for future accounting standards. 
Retrieved March 5, 2015, from http://www.accountingtoday.com/news/New-FASB-
Chairman-Makes-Plans-Future-Accounting-Standards-67541-1.html 

Comparability in international accounting standards- A brief history. (n.d.). Retrieved March 4, 2015, 
from http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156304264 

Completing the February 2006 memorandum of understanding: A progress report and timetable for completion. 
(2008, September). Retrieved from http://www.ifrs.org/Use-around-the-world/Global-
convergence/Convergence-with-US-GAAP/Documents/ 
Memorandum_of_Understanding_progress_report_and_timetable.pdf 

Convergence between IFRSs and US GAAP. (n.d.). Retrieved March 5, 2015, from 
http://www.ifrs.org/Use-around-the-world/Global-convergence/Convergence-with-US-
GAAP/Pages/Convergence-with-US-GAAP.aspx 

Deloitte. (2009). The road to a cost-effective conversion: Maximizing the return on your IFRS investment. 
Retrieved from http://www.iasplus.com/en/binary/ca/0908roadtoconversion3_en.pdf 

Donaldson, W. H. (2005, January 25). U.S. capital markets in the post-sarbanes-oxley world: Why 
our markets should matter to foreign issuers [Speech transcript]. Retrieved March 5, 2015, 
from http://www.sec.gov/news/speech/spch012505whd.htm 

Epstein, B. J., & Cheng, S. (2009). The coming transition from U.S. GAAP to IFRS: Implications 
for attorneys. Retrieved March 15, 2015, from http://www.ifrsaccountant.com/nysba-gaap-
ifrs.html 

Erchinger, H., & Melcher, W. (2007). Convergence between US GAAP and IFRS: Acceptance of 
IFRS by the US Securities and Exchange Commission (SEC).Accounting In Europe, 4(2), 123-
139. doi:10.1080/17449480701727908 

The EU endorsement status report. (2015, February 19). Retrieved March 4, 2015, from 
http://www.efrag.org/WebSites/UploadFolder/1/CMS/Files/Endorsement%20status%20
report/EFRAG_Endorsement_Status_Report_19_February_2015.pdf 

Financial Accounting Standards Board. (1989). Statements of financial accounting concepts. Norwalk, CT: 
Author. 

IFRS adoption by country. (2014, October). Retrieved from 
http://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/pwc-ifrs-by-
country-2014.pdf 

IFRS in Europe - background information. (n.d.). Retrieved March 4, 2015, from 
http://www.iasplus.com/en/resources/ifrs-topics/europe 

Katz, D. M. (2014, October 17). The split over convergence. Retrieved March 5, 2015, from 
http://ww2.cfo.com/gaap-ifrs/2014/10/split-convergence/ 

Marden, R. E., Edwards, R. K., & Stout, W. D. (n.d.). The CEO/CFO certification requirement. The 
CPA Journal. Retrieved from 
http://www.nysscpa.org/cpajournal/2003/0703/features/f073603.htm 

Memorandum of understanding. (2002, September). Retrieved from 
http://www.fasb.org/memorandum.pdf 

Saudagaran, S. M. (2009). International accounting: A user perspective (Third ed.). Chicago, IL: CCH. 
Spiceland, J. D., Sepe, J. F., & Nelson, M. W. (2013). Intermediate accounting (Seventh ed.). New York, 

NY: McGraw-Hill/Irwin. 



SHOULD THE US ADOPT IFRS?	

40 
	

Sullivan, M. (2014, March 4). The rise and stall the U.S. GAAP and IFRS convergence movement. 
Retrieved March 5, 2015, from http://insurancenewsnet.com/oarticle/2014/03/04/the-
rise-and-stall-the-us-gaap-and-ifrs-convergence-movement-a-468950.html#.VPgNUfnF-So 

Scott Taub. (2014,August 7) Busting some myths about IFRS and GAAP. Retrieved June 2014 
edition from Compliance Week. 

 
 
 
George Schmidt earned his Ph.D. in accounting from the University of North Texas. He is an 

associate professor of accounting at the University of Arkansas – Fort Smith. He can be 
contacted at George.Schmidt@uafs.edu. 

 
Kaitlyn Schoeppey is an accounting graduate of the University of Arkansas – Fort Smith. 
 
 
 

Appendix A 
 

Appendix A was compiled based on PricewaterhouseCooper’s 2014 report, IFRS Adoption by 
Country. 
 IFRS as 

published 
by IASB 

IFRS as 
endorsed 
by the EU 

Don't use 
IFRS 

No local 
exchange 

Other 

      
North America      
Antigua and Barbuda x     
Aruba    x  
Bahamas x     
Barbados x     
Bermuda x     
British Virgin Islands    x  
Canada     x 
Cayman Islands x     
Costa Rica x     
Dominican Republic x     
Dutch Caribbean x     
El Salvador x     
Guatemala    x  
Honduras x     
Jamaica x     
Mexico x     
Nicaragua    x  
Panama x     
St. Kitts and Nevis x     



Schmidt & Schoeppey	

41 
 

St. Lucia    x  
Trinidad and Tobago x     
United States   x   
South America      
Argentina     x 
Bolivia   x   
Brazil     x 
Chile     x 
Colombia   x   
Ecuador x     
Paraguay x     
Peru     x 
Uruguay x     
Venezuela     x 
Europe      
Albania x     
Austria  x    
Belarus     x 
Belgium  x    
Bosnia and Herzegovina     x 
Bulgaria  x    
Channel Islands     x 
Cyprus  x    
Czech Republic  x    
Denmark  x    
Estonia  x    
Finland  x    
France  x    
Georgia     x 
Germany  x    
Greece  x    
Greenland  x    
Hungary  x    
Iceland  x    
Ireland  x    
Isle of Man     x 
Italy  x    
Kosovo    x  
Latvia  x    
Lithuania  x    
Luxembourg  x    
Macedonia     x 
Malta  x    



SHOULD THE US ADOPT IFRS?	

42 
	

Moldova     x 
Montenegro     x 
Netherlands  x    
Norway  x    
Poland  x    
Portugal  x    
Romania  x    
Russian Federation x     
Serbia     x 
Slovak Republic  x    
Slovenia  x    
Spain  x    
Sweden  x    
Switzerland x     
Ukraine x     
United Kingdom  x    
Asia      
Afghanistan    x  
Armenia x     
Azerbaijan     x 
Bahrain x     
Cambodia x     
China   x   
Hong Kong x     
India x     
Indonesia   x   
Israel x     
Japan     x 
Jordan x     
Kazakhstan x     
Korea (Republic of Korea)     x 
Kuwait     x 
Kyrgyz Republic x     
Laos x     
Lebanon x     
Macao Special Administrative Region    x  
Malaysia     x 
Mongolia x     
Oman x     
Pakistan     x 
Philippines     x 
Qatar x     
Saudi Arabia x     



Schmidt & Schoeppey	

43 
 

Singapore     x 
Sri Lanka     x 
Taiwan     x 
Thailand     x 
Turkey     x 
United Arab Emirates x     
Uzbekistan x     
Vietnam     x 
West Bank/Gaza x     
Africa      
Algeria     x 
Angola    x  
Botswana x     
Cameroon   x   
Chad   x   
Cote D'Ivoire   x   
Democratic Republic of Congo    x  
Egypt   x   
Equatorial Guinea   x   
Gabon   x   
Ghana x     
Guinea Conakry    x  
Kenya x     
Libya x     
Madagascar    x  
Malawi x     
Mauritius x     
Morocco     x 
Mozambique     x 
Namibia x     
Nigeria x     
Republic of Congo   x   
Rwanda x     
Senegal   x   
South Africa x     
Swaziland x     
Tanzania x     
Tunisia   x   
Uganda x     
Zambia x     
Zimbabwe     x 
Oceana      
Australia     x 



SHOULD THE US ADOPT IFRS?	

44 
	

New Caledonia  x    
New Zealand     x 
Papua New Guinea x     
Totals 55 31 14 12 34 
 
Of the countries that use some form of IFRS (Don't use IFRS and no local exchange excluded):  
 45.83% use IFRS as published by the IASB      
 25.83% use IFRS as endorsed by the EU      
 28.33% fall into a category of "other"  
Less than half of the countries directly use IFRS as published by the IASB.    
    
 
 

Appendix B 
 

Appendix B is taken from the PowerPoint slides created by Booker, Caldwell, Galbreath, & 
Rooney. They are meant to accompany Spiceland, Sepe, and Nelson’s Intermediate Accounting 
textbook. Every chapter’s PowerPoints contained differences between GAAP and IFRS and they are 
directly quoted here. Differences 1-51 are based on the PowerPoint’s that accompanied the 2011 
(Sixth Edition) of the textbook. The remaining differences are based on the 2013 (Seventh Edition) 
of the same textbook. 
 
Differences between US GAAP and IFRS 

 GAAP IFRS 
1 Does not specify a minimum list of items to 

be presented in the balance sheet. 
Specifies a minimum list of items to be presented 
in the balance sheet. 

2 Some U.S. companies use the statement of 
financial position title as well.  

Statement title changed to statement of financial 
position 

3 Presents current assets and liabilities before 
noncurrent assets and liabilities. 

Does not prescribe the format of the balance sheet, 
but balance sheets prepared using IFRS often 
report noncurrent items first. 

4 Has no minimum requirements.  Specifies certain minimum information to be 
reported on the face of the income statement. 

5 SEC requires that expenses be classified by 
function. 

Allows expenses classified by function or natural 
description. 

6 “Bottom line” called net income or net loss. “Bottom line” called profit or loss. 
7 Report extraordinary items separately. Prohibits reporting extraordinary items. 
8 Includes four possible Other Comprehensive 

Income items. 
Includes same four. 

  Includes a fifth possible item, changes in 
revaluation surplus, from the optional revaluation 
of property, plant, and equipment and intangible 
assets. 

9 Operating Activities: Dividends Received,  
Interest Received, Interest Paid 

Operating Activities 



Schmidt & Schoeppey	

45 
 

10 Investing Activities Investing Activities: Dividends Received, Interest 
Received 

11 Financing Activities: Dividends Paid Financing Activities: Dividends Paid, Interest Paid 
12 Earnings process is complete or virtually 

complete. 
Revenue and costs can be measured reliably. 

13 Reasonable certainty as to the collectibility of 
the asset to be received. 

Probable that economic benefits will flow to the 
seller. 

  Risk and rewards are transferred to buyer and seller 
does not manage or control the goods. 

  Stage of completion can be measured reliably. 
14 Requires completed contract method when 

reliable estimates can’t be made.  
Requires cost recovery method when reliable 
estimates can’t be made. 

15 Revenue should be allocated to the various 
elements based on the stand-alone selling 
prices of the individual elements. These can 
be estimated for non-software arrangements 
if VSOE is not available, but have to use 
VSOE for software arrangements. 

May be necessary to apply the recognition criteria 
to the separately identifiable components of a 
single transaction. 

  Allocation of total revenue to individual 
components are based on fair value. 

16 Has over 100 revenue-related standards that 
sometimes contradict each other. 

Has two primary standards that also sometimes 
contradict each other and that don’t offer guidance 
in some important areas (like multiple deliverables). 

17 Bank overdrafts are treated as liabilities. Bank overdrafts may be offset against other cash 
accounts. 

18 U.S. GAAP allows a “fair value option” for 
accounting for receivables. 

IFRS restricts the circumstances in which a “fair 
value option” for accounting for receivables is 
allowed 

19 U.S. GAAP does not allow receivables to be 
accounted for as “available for sale” 
investments. 

In the years between 2010 and 2012, companies 
may account for receivables as “available for sale” 
investments if the approach is elected initially.  
After January 1, 2013, this treatment is no longer 
allowed 

20 U.S. GAAP requires more disaggregation of 
accounts and notes receivable in the balance 
sheet or notes. 

 

21 U.S. GAAP focuses on whether control of 
assets has shifted from the transferor to the 
transferee. 

IFRS requires a more complex decision process.  
The company has to have transferred the rights to 
receive the cash flows from the receivable, and 
then considers whether the company has 
transferred “substantially all of the risks and 
rewards of ownership,” as well as whether the 
company has transferred control. 

22 LIFO is permitted and used by U.S. 
Companies. 

IAS No. 2, Inventories, does not permit the use of 
LIFO. 

23 If used for income tax reporting, the 
company must use LIFO for financial 

Because of this restriction, many U.S. companies 
use LIFO only for domestic inventories. 



SHOULD THE US ADOPT IFRS?	

46 
	

reporting. 

24 LCM requires selecting market from 
replacement cost, net realizable value or NRV 
reduced by the normal profit margin. 

IAS No. 2, states that the designated market will 
always be net realizable value. 

25 Designated market is compared to historical 
cost to determine LCM. 

 

26 Under U.S. GAAP, the LCM rule can be 
applied to individual items, logical inventory 
categories, or the entire inventory. 

The LCM assessment usually is applied to 
individual items, although using logical inventory 
categories is allowed under certain circumstances. 

27 Reversals are not permitted under GAAP. If an inventory write-down is not longer 
appropriate, it must be reversed. 

28 Except for software development costs 
incurred after technological feasibility, all 
research and development expenditures are 
expensed in the period incurred. 

Research expenditures are expensed in the period 
incurred.  Development expenditures that meet 
specified criteria are capitalized as an intangible 
asset. 

29 The percentage used to amortize software 
development costs is the greater of (1) the 
ratio of current revenues to current and 
anticipated revenues or (2) the straight-line 
percentage over the useful life of the 
software. 

The same approach is allowed, but not required. 

30 Component depreciation is allowed but not 
often used in practice. 

Each component of an item of property, plant, and 
equipment is depreciated separately if its cost is 
significant to the total cost of the item. 

31 The depreciable base is determined by 
subtracting estimated residual value from 
cost.  Annual reviews of residual values are 
not required. 

Depreciable base is determined by subtracting 
estimated residual value from cost. IFRS requires a 
review of residual values annually. 

32 Property, plant, and equipment is reported in 
the balance sheet at cost less accumulated 
depreciation (book value). 

Property, plant, and equipment may be reported at 
cost less accumulated depreciation, or alternatively, 
at fair value (revaluation). 

33 Revaluation is prohibited. If revaluation is chosen, all assets within a class of 
property, plant, and equipment must be revalued 
on a regular basis. 

34 Biological assets, such as timber tracts, are 
valued at cost less accumulated depletion. 

Biological assets are valued at fair value less 
estimated costs to sell. 

35 Intangible assets are reported  at cost less 
accumulated amortization. 

Intangible assets may be reported at (1) cost less 
accumulated amortization or (2) fair value, if fair 
value can be determined in an active market. 

36 U.S.GAAP prohibits revaluation of any 
intangible asset. 

If revaluation is chosen, all assets within the class 
of intangibles must be revalued on a regular basis.  

37 Assets are tested for impairment when events 
or changes in indicators suggest that book 
value may not be recoverable. 

Assets must be assessed for circumstances of 
impairment at the end of each reporting period. 



Schmidt & Schoeppey	

47 
 

38 An impairment loss is required when an 
asset’s book value exceeds the undiscounted 
sum of the estimated future cash flows. 

An impairment loss is required when an asset’s 
book value exceeds the higher of the asset’s value-
in-use (present value of estimated future cash flow) 
and fair value less costs to sell. 

39 The impairment loss is the difference 
between book value and fair value. 

The impairment loss is the difference between 
book value and the recoverable amount,  the higher 
of the asset’s value-in-use and fair value less costs 
to sell. 

40 Reversals of impairment losses are prohibited. An impairment loss is reversed if the circumstances 
that caused the impairment is resolved. 

41 If certain criteria are met, indefinite-life 
intangible assets are combined for the 
required annual impairment test. 

Indefinite-life intangible assets may not be 
combined with other indefinite-life intangible 
assets for the required annual impairment test. 

42 The level of testing (reporting unit) is a 
segment or a component of an operating 
segment for which discrete financial 
information is available. 

The level of testing (cash-generating unit) is the 
smallest identifiable group of assets that generates 
cash flows that are largely independent of the cash 
flows from other assets. 

43 Measurement of an impairment loss is a two-
step process. In step one the fair value of the 
reporting unit is compared to its book value.  
A loss is indicated if the fair value is less than 
the book value.  In step two, the impairment 
loss is calculated as the excess of book value 
of goodwill over the implied fair value of 
goodwill 

Measurement of an impairment loss is a one-step 
process.  The recoverable amount of the cash-
generating unit is compared to its book value.  If 
the recoverable amount is less, goodwill is reduced 
before other assets are reduced. 

44 Litigation costs to successfully defend 
intangible rights are capitalized and amortized 
over the remaining useful life of the asset. 

Litigation costs are expensed, except in rare 
situations when an expenditure increases future 
benefits. 

45 U.S. GAAP also allows transfers out of the 
trading security category. 

IAS No. 39 now allows transfer of debt 
investments out of the fair value category into AFS 
or HTM in “rare circumstances”. 

46 Reclassifications under U.S. GAAP are rare. The current financial crisis qualified as one of those 
circumstances. 

47 U.S. GAAP permits classification as HTM, 
AFS, and TS. 

Investments in debt securities are classified as 
either “Amortized Cost” or FVTPL. 

48 No significant tests are required to classify a 
debt investment. 

To be classified as a debt investment, two 
important tests must be met. The current financial 
crisis qualified as one of those circumstances. 

49 There is no comparable FVTPL or FVTOCI 
classification. 

Investments in equity securities are classified as 
either “FVTPL” or “FVTOCI” (“Fair Value 
through Other Comprehensive Income). 

50 IFRS, unlike U.S. GAAP, there is no 
equivalent to recognizing OCI any non-credit 
losses on debt investments. 

Calculation of the amount of impairment differs 
depending on the classification of an investment. 



SHOULD THE US ADOPT IFRS?	

48 
	

51  Under IFRS, an OTT impairment for a debt 
investment is likely to be larger if it is classified as 
AFS than if it is classified as HTM, because it 
includes the entire decline in fair value if classified 
as AFS but only the credit loss if classified as 
HTM. 

52 Liabilities payable within the coming year are 
classified as long‐term liabilities if refinancing 
is completed before date of issuance of the 
financial statements. 

Liabilities payable within the coming year are 
classified as long‐term liabilities if refinancing is 
completed before the balance sheet date. 

53 Refers to both accrued and non-accrued 
obligations as contingent liabilities. 

Refers to accrued liabilities as provisions and 
nonaccrued as contingent liabilities. 

54 Defines probable as an event is likely to 
occur. 

Defines probable as more likely than not, a lower 
threshold than U.S. GAAP. 

55 Does not make a distinction between the two 
types of contingencies, distinguished under 
IFRS, but typically requires disclosure of the 
same contingencies. 

Makes a distinction between and requires 
disclosure of two types of contingent liabilities: 
Those whose existence will be confirmed by 
uncertain future event(s) that the company does 
not control, and Those where a present obligation 
for a future outflow is not probable or where the 
future outflow cannot be measured. 

56 Requires use of low end of a range of equally 
likely outcomes. 

Requires use of midpoint of a range of equally 
likely outcomes. 

57 Allows using present value under some 
circumstances. 

Requires reporting present values when material. 

58 With the exception of long-term construction 
contracts and terminated contracts, 
anticipated losses on money losing contracts 
are generally not recognized or disclosed until 
incurred. 

IFRS recognizes provisions and contingencies for 
contracts, where the unavoidable costs of meeting 
the obligations exceed the expected benefits.  

59 Gain contingencies are never accrued.  Gain contingencies are accrued if their future 
realization is virtually certain to occur. 

60 Debt issue costs are recorded separately as an 
asset. 

“Transaction costs” reduce the recorded amount of 
the debt. 

61 Amortized over the term to maturity. The cost of these services reduces the net cash the 
issuing company receives and the amount recorded 
for the debt.   

62 The fair value option may be elected by the 
firm. Although U.S. GAAP guidance 
indicates that the intent of the fair value 
option under U.S. GAAP is to address these 
sorts of circumstances, it does not require 
that those circumstances exist. 

Companies may only elect the fair value option 
when: When a group of financial assets or liabilities 
is managed and its performance is evaluated on a 
fair value basis, or If the fair value option reduces 
"accounting mismatch." 

63 Situations that require classification as a 
capital lease if any one (or more) is met are: 

Situations that normally would lead to classification 
as a finance lease are: 

64 "Major portion" is defined specifically as 75% 
or more. 

The noncancelable lease term is for a "major 
portion" of the expected economic life of the asset. 



Schmidt & Schoeppey	

49 
 

65 "Substantially all" is defined specifically as 
90%. 

The present value of the minimum lease payments 
is equal to or greater than "substantially all" of the 
fair value of the asset. 

66 No similar situation specified. The leased asset is of a specialized nature such that 
only the lessee can use it without major 
modifications being made. 

67 No similar situation specified. The lessor's losses are borne by the lessee upon 
cancellation. 

68 No similar situation specified. Gains or losses from changes in the fair value of 
the residual value go to the lessee (for instance, by 
means of a rebate of lease payments).  

69 No similar situation specified. The lease contains a "bargain renewal option" 
whereby the lessee can continue the lease for 
substantially less than market rent. 

70 For example, U.S. GAAP requires a loss 
contingency be accrued if it is both probable 
and can be reasonably estimated.  Accruing a 
loss contingency leads to a deferred tax asset. 

For loss contingencies, IFRS uses a “more likely 
than not” threshold, which is lower than the U.S. 
“probable” requirement.   As a result, under the 
lower threshold of IFRS, a loss contingency and a 
deferred tax asset sometimes is recorded for IFRS 
but not for U.S. GAAP. 

71 GAAP separately reports both discontinued 
operations and extraordinary items on the 
income statement and each are shown net of 
tax. 

IFRS does not separately report extraordinary 
items on the income statement.  As a result, the 
only income statement item reported separately net 
of tax using IFRS is discontinued operations. 

72 Gains and losses are the difference between 
the actual and expected returns, where the 
expected return is different from company to 
company and usually different from the 
interest rate used to determine the interest 
cost. 

Requires that we use the same rate (the rate for 
“high -grade corporate bonds”) for both the 
interest cost on the defined benefit obligation 
(called projected benefit obligation or PBO under 
GAAP) and the interest revenue on the plan assets. 

73 Requires that gains and losses are to be (a) 
included among OCI items in the statement 
of comprehensive income when they first 
arise and then (b) gradually amortized or 
recycled out of OCI and into expense (when 
the accumulated net gain or net loss exceeds 
the 10% threshold). 

Gains and losses are included in OCI when they 
first arise, but unlike U.S. GAAP those amounts 
are not subsequently amortized out of OCI and 
into expense. Instead, under IFRS those amounts 
remain in the balance sheet as accumulated other 
comprehensive income.  

74 Capital stock: Share capital: 
75 Common stock. Ordinary shares. 
76 Preferred stock Preference shares. 
77 Paid‐in capital—excess of par, common. Share premium, ordinary shares. 
78 Paid‐in capital—excess of par, preferred. Share premium, preference shares. 
79 Accumulated other comprehensive income: Reserves: 
80 Net gains (losses) on investment- AOCI Investment revaluation reserve. 
81 Net gains (losses) foreign currency 

translation- AOCI 
Translation reserve. 



SHOULD THE US ADOPT IFRS?	

50 
	

82 Fair value adjustments not permitted. Revaluation reserve. 
83 Retained earnings. Retained earnings. 
84 Total shareholders' equity. Total equity. 
85 Presented after liabilities. Often presented before liabilities. 
86 Preferred stock normally is reported as equity, 

but is reported as debt with the dividends 
reported in the income statement as interest 
expense if it is “mandatorily redeemable” 
preferred stock. 

Most non-mandatorily redeemable preferred stock 
(preference shares) also is reported as debt as well 
as some preference shares that aren’t redeemable. 
Under IFRS (IAS No. 32), the critical feature that 
distinguishes a liability is if the issuer is or can be 
required to deliver cash (or another financial 
instrument) to the holder. 

87 A deferred tax asset (DTA) is created for the 
cumulative amount of the fair value of the 
options the company has recorded for 
compensation expense. 

The deferred tax asset is not created until the award 
is “in the money;” that is it has intrinsic value. 

88 Account for each vesting amount separately 
or account for the entire award on the 
straight-line basis over the entire vesting 
period. 

Straight-line choice is not permitted. Companies 
not required to recognize the award that has vested 
by each reporting date. 

89 GAAP requires it to be reported 
retrospectively. 

When correcting errors in previously issued 
financial statements, IFRS (IAS No. 8) permits the 
effect of the error to be reported in the current 
period if it’s not considered practicable to report it 
retrospectively. 

 
 
 
 


