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EY IFRSComments

For example some us companies might conclude that

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Unformatted text preview: principles and illustrative examples of specific transactions. some US companies might conclude that their current US practices are entirely consistent with the more general IFRS principles, thereby resulting in no changes when adopting IFRS. On the other hand, other US companies might conclude that IFRS allows for additional revenue recognition policies not allowed under US GAAP, thereby creating a difference that justifies a change. This could be the case, for example, when a US company observes that its foreign competitors, which were never bound by US interpretations, follow revenue recognition policies under IFRS that might not comply fully with US standards. Substantial differences in the accounting for revenue recognition under US GAAP and IFRS may exist as a result of differing interpretations of the more general IFRS principles. For example, A brief summary of significant differences between US GAAP and IFRS related to revenue recognition, exclusive of the industry-specific differences between the two, follows. Revenue recognition reporting differences US GAAP IFRS Sale of goods Public companies must follow SAB 104 Revenue Recognition which requires that delivery has occurred (the risks and rewards of ownership have been transferred), there is persuasive evidence of the sale, the fee is fixed or determinable and collectibility is reasonably assured. Revenue is recognized only when risks and rewards of ownership have been transferred, the buyer has control of the goods, revenues can be measured reliably and it is probable that the economic benefits will flow to the company. Rendering of services Certain types of service revenue, primarily relating to services sold with software, have been addressed separately in US GAAP literature. All other service revenue should follow SAB 104. Application of longterm contract accounting (SOP 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts) is not permitted for non-construction services. Revenue may be recognized in accordance with longterm contract accounting, including considering the stage of completion, whenever revenues and costs can be measured reliably and it is probable that economic benefits will flow to the company. 10 BoardMatters Quarterly April 2008 Revenue recognition reporting differences (cont.) US GAAP IFRS Multiple elements Specific criteria are required in order for each element to be a separate unit of accounting, including delivered elements that must have standalone value, and undelivered elements that must have reliable and objective evidence of fair value. If those criteria are met, revenue for each element of the transaction can be recognized when the element is complete. IAS 18 requires recognition of revenue on an element of a transaction if that element has commercial substance on its own; otherwise, the separate elements must be linked and accounted for as a single transaction. IAS 18 does not provide specific criteria for mak...
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