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Accounting for Investments (Passive)
IFRS versus GAAP
Listed below are some of the major differences in accounting for passive investments between International Financial Reporting Standards (IFRS) and U.S. GAAP. This material is excerpted from Wiley IFRS 2010: Interpretation and Application of International Financial Reporting Standards.
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U.S. GAAP Investments (Passive) |
IFRS Investments (Passive) |
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Classification as trading, available-for-sale, or held-to-maturity limited to securities; equity method required for investee accounting
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Classification as trading, available-for-sale, or held-to-maturity applies to all types of financial assets, not just to securities; choice of equity, cost, fair value methods for some investees |
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U.S. GAAP adopted IFRS “fair value option” recently |
“Fair value option” allows any financial asset or liability to be designated at inception to be accounted for at fair value with changes reported in current earnings
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If held-to-maturity securities are sold, use of this category is prohibited thereafter
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If held-to-maturity securities are sold, use of this category is prohibited for next two years |
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Investment in unlisted securities valued at cost
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Investments in unlisted securities can be valued at fair value, if reliable measure available |
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Derecognition of financial assets based on loss of control, which requires isolation from the transferor, transferee ability to pledge or sell, and absence of repurchase obligation by transferor. |
Derecognition of financial assets based on risks-and-rewards and control analyses |
Contact IFRS international accounting expert Dr. Barry Epstein, CPA for more information. Learn more about Dr. Epstein at www.ifrsaccountant.com. He can be reached at bepstein@rnco.com or 312-464-3520.
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