The Impact of IFRS for EPM Reporting – Part 3

In Part 3, I want to provide more detail on the similarities differences and convergences regarding: Consolidations, Joint Venture Accounting, and Equity Method Investees. The details below were from a presentation I viewed during a company sponsored educational seminar about IFRS.

Similarities

• The basis for determining whether or not subsidiaries are consolidated is based on control, but there are differences in the definition of control. Generally, subsidiaries subject to control by the parent are consolidated.
• Equity investments (referred to as “an associate” in IFRS) in which the investor has “significant influence” (generally 20% or more) but not consolidated is considered an equity method investment

Differences

Consolidation Model

• US GAAP – focus on controlling financial interest (FIN 46)
• IFRS – focus on the concept of the power to control – presumed to exist at 50% voting

Special Purpose Entities

• US GAAP – FIN 46 requires the primary beneficiary (determined based on the consideration of economic risks and rewards) to consolidate
• IFRS – consolidate when the substance of the relationship indicates that an entity controls the SPE – No concept of QSPE

Significant events between reporting dates

• US GAAP – Disclosed in financial statements when different dates are used
• IFRS – adjusted for in the financial statements

Joint Ventures

• US GAAP – generally accounted for using the equity method
• IFRS – either the proportionate consolidation method or the equity method

Convergence

FASB and IASB had a joint project that addressed non-controlling interests, which culminated in the issuance of FAS 160, Non-controlling Interests in the US and a revision of the accounting for non-controlling interests for IFRS.

IASB recently issued an exposure draft that proposes the elimination of proportionate consolidation for joint ventures.

In Part 4, I will provide more detail about our next two topics business combinations and inventory.