Key Differences between US GAAP and IFRS

Introduction

There are many similarities with respect to income tax accounting under IFRS and US GAAP. There are however also many notable differences. For example, although both IFRS and US GAAP require a provision for deferred taxes, there are differences in the methodologies.

Key Provisions and Differences in deferred tax methodologies under IFRS and US GAAP

The following table highlights the key similarities and differences in the methodologies for deferred income tax under IFRS and US GAAP (Sources: IFRS: IAS 1, IAS 12, and IFRS 3; US GAAP: FAS 109 and FIN 48 – “Similarities and Differences – A Comparison of IFRS and US GAAP, “PriceWaterhouseCoopers, October 2006).

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Question 1

In relation to the recognition of deferred tax assets, which of the following statements is correct?

A. Under US GAAP, a deferred tax asset is recognized in full, but is then reduced by a valuation allowance if it is more likely than not that some or all will not be realized.

B. Under IFRS, a deferred tax asset is recognized in full, but is then reduced by a valuation allowance if it is more likely than not that some or all will not be realized.

C. Under US GAAP, a deferred tax asset is recognized if it is probable that sufficient taxable profit will be available against which the temporary difference can be utilized.

Solution

The correct answer is A. Under US GAAP, a deferred tax asset is recognized in full, but is then reduced by a valuation allowance if it is more likely than not that some or all will not be realized. Choice B is inaccurate because it describes the recognition of a deferred tax asset under US GAAP and not IFRS. Choice C is incorrect because it describes the recognition of a deferred tax asset under IFRS and not under US GAAP.

Question 2

MMO reported in its latest financial reports a tax asset of one million dollars. The company’s management believes that the company would be able to reverse only $700,000 of the tax asset. Which of these choices best describes the situation if the company reports under IFRS versus what it may report under US GAAP?

A. The reported assets under IFRS would be more than the reported assets under US GAAP.

B. Assets reported under IFRS and US GAAP would be equal.

C. The reported assets under US GAAP would be more than the reported assets under IFRS.

Solution

The correct answer is C.

The only difference in treatment between US GAAP and IFRS for tax assets with susceptible recovery is that the former requires creating a valuation allowance, while the later deducts the susceptible amount directly. Although the tax loss net value would be equal under both reporting standards, the company would report a higher level of total assets under US GAAP.

 

Reading 30 LOS 30j:

Identify the key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP)

 

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