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US GAAP versus IFRS - Financial statement presentation - EY - United States

US GAAP versus IFRS

Financial statement presentation

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Similarities

There are many similarities in US GAAP and IFRS guidance on financial statement presentation. Under both frameworks, the components of a complete set of financial statements include: balance sheet, income statement, other comprehensive income, cash flows and notes to the financial statements.

Both US GAAP and IFRS also require that the financial statements be prepared on the accrual basis of accounting (with the exception of the cash flow statement) except for rare circumstances. Both sets of standards have similar concepts regarding materiality and consistency that entities have to consider in preparing their financial statements. Differences between the two sets of standards tend to arise in the level of specific guidance provided.

Significant differences


 US GAAPIFRS
Financial periods requiredGenerally, comparative financial statements are presented; however, a single year may be presented in certain circumstances. Public companies must follow SEC rules, which typically require balance sheets for the two most recent years, while all other statements must cover the three-year period ended on the balance sheet date.Comparative information must be disclosed with respect to the previous period for all amounts reported in the financial statements.
Layout of balance sheet and income statementNo general requirement within US GAAP to prepare the balance sheet and income statement in accordance with a specific layout; however, public companies must follow the detailed requirements in Regulation S-X.IAS 1, Presentation of Financial Statements, does not prescribe a standard layout, but includes a list of minimum items. These minimum items are less prescriptive than the requirements in Regulation S-X.
Presentation of debt as current versus non-current in the balance sheetDebt for which there has been a covenant violation may be presented as non-current if a lender agreement to waive the right to demand repayment for more than one year exists prior to the issuance of the financial statements.Debt associated with a covenant violation must be presented as current unless the lender agreement was reached prior to the balance sheet date.
Classification of deferred tax assets and liabilities in balance sheetCurrent or non-current classification, based on the nature of the related asset or liability, is required.All amounts classified as non-current in the balance sheet.
Income statement — classification of expensesSEC registrants are required to present expenses based on function (e.g., cost of sales, administrative).Entities may present expenses based on either function or nature (e.g., salaries, depreciation). However, if function is selected, certain disclosures about the nature of expenses must be included in the notes.
Income statement — extraordinary itemsRestricted to items that are both unusual and infrequent.Prohibited.
Income statement — discontinued operations presentationDiscontinued operations classification is for components held for sale or disposed of, provided that there will not be significant continuing cash flows or involvement with the disposed component.Discontinued operations classification is for components held for sale or disposed of that are either a separate major line of business or geographical area or a subsidiary acquired exclusively with an intention to resell.
Disclosure of performance measuresSEC regulations define certain key measures and require the presentation of certain headings and subtotals. Additionally, public companies are prohibited from disclosing non-GAAP measures in the financial statements and accompanying notes.Certain traditional concepts such as "operating profit" are not defined; therefore, diversity in practice exists regarding line items, headings and subtotals presented on the income statement, as the presentation is based on what is relevant to an understanding of the entity's financial performance.
Third balance sheetNot required.A third balance sheet (and related notes) are required as of the beginning of the earliest comparative period presented when an entity restates its financial statements or retrospectively applies a new accounting policy.

Convergence

The Boards' joint project on financial statement presentation may ultimately result in significant changes to the format of the financial statements under both US GAAP and IFRS, but further action is not expected in the near term. The Boards have delayed this project so they can focus on priority convergence projects. Before putting the project on hold, the Boards issued a staff draft of the proposed standards and engaged in a targeted outreach program.

The Boards have also delayed work on their efforts to converge presentation of discontinued operations.

In September 2008, they issued proposed amendments to ASC 205-20, Presentation of Financial Statements — Discontinued Operations, and IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. In redeliberations, the Boards tentatively decided that the definition of discontinued operations would be consistent with the current definition in IFRS 5 and that certain requirements in existing US GAAP for discontinued operations classification (i.e., elimination of cash flows of the component and prohibition of significant continuing involvement) would be eliminated, although disclosure of those and additional items would be required.

The FASB plans to re-expose the proposal before issuing a final standard. The IASB will discuss whether re-exposure is necessary. This project has been assessed as lower priority, and further action is not expected in the near term.



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