The Impact of IFRS for EPM Reporting – Part 4

In Part 4, I want to provide more detail on the similarities and differences regarding: Business Combinations and Inventory. The details below were from a presentation I viewed during a company sponsored educational seminar about IFRS.

Business Combinations

Similarities

• All accounted for using the purchase, or acquisition method
• Recognized at fair value, but currently differing definitions of fair value
• Acquisition date is the date that the acquirer obtains control
• Contingent consideration recognized at fair value at acquisition date, subsequent changes in earnings
• Negative goodwill recognized immediately as income
• Acquired in-process R&D recognized at acquisition date fair value
• Restructuring liabilities only recognized if criteria have been met, and is recognized at the acquiree level at the acquisition date
• Net identifiable assets of acquiree are recognized at their full fair value
• All transaction costs expensed as incurred

Differences

Acquisition of less than 100% of acquiree

• US GAAP – noncontrolling interest is measured at fair value, including goodwill
• IFRS – Choice of measuring noncontrolling interest at either full fair value including goodwill or at its proportionate share of the fair value, exclusive of goodwill

Inventory

Similarities

Same principle that the primary basis of accounting for inventory is at cost

Both define inventory as assets held for sale in the ordinary course of business, in the process of production for such sale, or to be consumed in the production of goods or services

Permitted techniques for cost measurement, such as standard cost method or retail margin method are similar

Cost of inventory includes all direct expenditures to ready inventory for sale, including allocable overhead

Differences

Costing methods

• US GAAP – LIFO permitted
• IFRS – LIFO is prohibited

Measurement

• US GAAP – carried at lower of cost or market
• IFRS – carried at lower of cost or net realizable value

Reversal of inventory writedowns

• US GAAP – cannot be reversed
• IFRS – can be reversed up to the amount of the original impairment loss