IFRS® compared to US GAAP March 2020 home.kpmg 2 1 Background 1.1 Introduction 1.1 IFRS compared to US GAAP IFRS Contents Mind the growing gap 1 5 Special topics 306 5.1 Leases 306 About this publication 2 5.2 Operating segments 327 US GAAP 5.3 Earnings per share 333 1 Background 6 5.4 Non-current assets held for sale and 1.1 Introduction 6 discontinued operations 1.2 The Conceptual Framework 12 (Long-lived assets held for sale and 2 General issues 18 discontinued operations) 346 2.1 Basis of preparation of financial statements 18 5.5 Related party disclosures 356 2.2 Form and components of financial statements 22 5.6 Investment entity consolidation exception 2.3 Statement of cash flows 27 (Investment company consolidation exception) 362 2.4 Fair value measurement 36 5.7 Non-monetary transactions 368 2.5 Consolidation 48 5.8 Accompanying financial and other information 371 2.6 Business combinations 67 5.9 Interim financial reporting 374 2.7 Foreign currency translation 86 5.10 Disclosure of interests in other entities 381 2.8 Accounting policies, errors and estimates 97 5.11 Extractive activities 385 2.9 Events after the reporting date 104 5.12 Service concession arrangements 393 2.10 Hyperinflation (Highly inflationary economies) 108 5.13 Common control transactions and Newco formations 399 3 Statement of financial position 111 3.1 General 111 6 [Not used] 3.2 Property, plant and equipment 116 7 Financial instruments 404 3.3 Intangible assets and goodwill 126 7.1 Scope and definitions 404 3.4 Investment property 139 7.2 Derivatives and embedded derivatives 412 3.5 Associates and the equity method 7.3 Equity and financial liabilities 419 (Equity-method investees) 146 All rights reserved. guarantee. limited by Limited, a UK company, © 2020 KPMG IFRG 7.4 Classification of financial assets 432 3.6 Joint arrangements (Ventures carried on jointly) 162 7.5 Classification of financial liabilities 438 3.7 [Not used] 7.6 Recognition and derecognition 440 3.8 Inventories 167 7.7 Measurement 449 3.9 Biological assets (Agriculture) 175 7.8 Impairment 462 3.10 Impairment of non-financial assets 178 7.9 Hedge accounting (IFRS 9) 475 3.11 [Not used] 7.9I Hedge accounting (IAS 39) 497 3.12 Provisions, contingent assets and liabilities 7.10 Presentation and disclosure 515 (Contingencies and other ‘provisions’) 192 3.13 Income taxes 209 8 Insurance contracts 526 8.1 Insurance contracts 526 IFRS Standards IFRS 4 Specific items of profit or loss and OCI 229 4.1 General 229 Appendix – Effective dates: US GAAP 535 4.2 Revenue from contracts with customers 235 All rights reserved. a Swiss entity. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, limited liability partnership and the U.S. a Delaware © 2020 KPMG LLP, 4.3 Government grants 250 Keeping in touch 540 4.4 Employee benefits 253 4.5 Share-based payments 275 Acknowledgements 542 4.6 Borrowing costs (Capitalised interest) 302 Mind the growing gap Over the past five years, companies have faced unprecedented accounting change under both IFRS Standards and US GAAP – with major new standards on revenue, leases, financial instruments and insurance. For IFRS Standards, implementation efforts are complete, except for insurance. For US GAAP, however, only the revenue standard is fully effective in annual periods. The FASB has deferred the effective dates of the remaining standards for many entities. As a result, the new leases standard – as well as the amendments for derivatives and hedge accounting – will not be fully effective until 2021; and the new credit impairment standard will not be fully effective until 2023. The insurance standard is effective in 2022 for the first wave of public companies. Adding to this complexity, the FASB has long used different effective dates for public and non-public companies, sometimes with a separate distinction for SEC filers. It recently introduced a further distinction for SEC filers that are eligible to be ‘smaller reporting companies’. Both the International Accounting Standards Board (IASB Board) and the FASB have now shifted most of their efforts to maintenance and research activities. Despite ongoing liaison between the two Boards, each is focused on meeting its own constituents’ needs, rather than on convergence. The gap between the two sets of standards may indeed be growing. This edition of our comparison of IFRS Standards and US GAAP is based on 2019 calendar year ends, with 2020 and later requirements included as forthcoming requirements. Reinhard Dotzlaw and Irina Ipatova Kimber Bascom and Julie Santoro KPMG International Department of Professional Practice Standards Group KPMG in the US © 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2020 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. IFRS compared to US GAAP 2 About this publication About this publication Purpose This publication helps you understand the significant differences between IFRS Standards and US GAAP. Although it does not discuss every possible difference, this publication provides a summary of those differences that we have encountered most frequently, resulting from either a difference in emphasis, specific application guidance or practice. The focus of this publication is primarily on recognition, measurement and presentation. However, areas that are disclosure-based, such as segment reporting and the assessment of going concern, are also covered. Scope This publication highlights what we believe are the main differences of principle, emphasis or application between IFRS Standards and US GAAP. It does not address the requirements of the IFRS for SMEs® Standard or the initiative of the FASB and the Private Company Council in determining accounting alternatives for private companies under US GAAP. It also does not address the requirements of IAS 26 Accounting and Reporting by Retirement Benefit Plans or the equivalent US GAAP. Otherwise, this publication addresses the types of businesses and activities that IFRS Standards address. So, for example, the accounting for biological assets is included, but accounting by not-for-profit entities is not. In addition, this publication focuses on consolidated financial statements − separate (i.e. unconsolidated) financial statements are not addressed. The transition requirements to adopt specific standards are not addressed. Therefore, for example, this publication does not compare the transition requirements of IFRS 16 Leases and Topic 842 Leases. In addition, the requirements for adopting IFRS Standards as a framework are discussed on the basis that the entity has adopted them already and therefore the following are excluded from this publication: IFRS 1 First-time Adoption of IFRS and IFRS 14 Regulatory Deferral Accounts. The special transition requirements that apply in the period in which an entity changes its GAAP to IFRS Standards, including the implications for an entity in the scope of IFRS 14, are discussed in our publication Insights into IFRS, KPMG’s practical guide to IFRS Standards. © 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2020 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. IFRS compared to US GAAP 3 About this publication Organisation of the text This publication is largely organised consistently with Insights into IFRS. It summarises the requirements of IFRS Standards in the left-hand column. In the right-hand column, it compares US GAAP to IFRS Standards, highlighting similarities and differences. At the start of each chapter is a brief summary of the key requirements of IFRS Standards, contrasted with the parallel requirements of US GAAP. The summary provides a quick overview for easy reference, but is not detailed enough to allow a full understanding of the significant differences. Although we have highlighted what we regard as significant differences, we recognise that the significance of any difference will vary by entity. Some differences that appear major may not be relevant to your business; by contrast, a seemingly minor difference may cause you significant additional work. One way to obtain an appreciation of the differences that may affect your business is to browse through the summary at the start of each chapter. In certain cases, this publication includes the specific views that we have developed in the absence of explicit guidance under IFRS Standards or US GAAP. Sometimes we note what we would expect in practice or we simply note that practice varies or may vary. Our commentary is referenced to current requirements of IFRS Standards and the FASB’s Accounting Standards Codification® as follows. – For IFRS Standards, references in square brackets identify any relevant paragraphs of the standards or other literature – e.g. IFRS 3.18 is paragraph 18 of IFRS 3; IFRS 2.IGEx2 is Example 2 of the IFRS 2 implementation guidance. References to IFRS Interpretations Committee decisions, addressed in its publication IFRIC® Update, are also indicated – e.g. IU 01-13 is IFRIC Update January 2013. – For US GAAP, references in square brackets identify any relevant paragraphs of the Codification – e.g. 220-10-45-3 is paragraph 45-3 of ASC Subtopic 220- 10; TQA 1300.15 is paragraph 15 of Technical Questions & Answers 1300, issued by the American Institute of Certified Public Accountants. References to SEC Regulations are also indicated – e.g. Reg S-X Rule 10-01(b)(6). The references at the start of each chapter indicate the main literature related to that topic, based on currently effective requirements. Effective dates Generally, the standards and interpretations included in this publication are those that are mandatory for an annual reporting period beginning on 1 January 2019.