EY IFRSComments

Further a variety of interested parties have noted in

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Unformatted text preview: (e.g., the company records inventory at first in, first out (FIFO) and makes a separate adjustment to LIFO). Conversely, the adoption of IFRS may be more complex if such consistency and other acceptable method costing processes are not in place. Further, a variety of interested parties have noted in the public dialogue on IFRS that the US government may need to reconsider LIFO tax conformity rules (i.e., a company following LIFO for tax purposes must follow LIFO for book purposes) if US companies are required or permitted to adopt IFRS. The table below summarizes the significant differences between US GAAP and IFRS related to inventory reporting. Revenue recognition In other areas of the financial statements, the differences between US GAAP and IFRS are more substantial, both in number and significance. Understanding the differences in these areas may be complicated by current continued efforts at convergence. Revenue recognition is a good example. Revenue recognition under both US GAAP and IFRS is tied to the completion of the earnings process and the realization of assets from such completion. Both US GAAP and IFRS base revenue recognition on the transfer of risks and require revenue to be both realized and earned prior to recognition. Inventory reporting differences US GAAP IFRS Costing methods LIFO is an acceptable method. Consistent cost formula for all inventories similar in nature is not explicitly required. LIFO is prohibited. Same cost formula must be applied to all inventories similar in nature or use to the entity. Measurement Inventory is carried at the lower of cost or market. Market is defined as current replacement cost as long as market is not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and is not less than net realizable value reduced by a normal sales margin. Inventory is carried at the lower of cost or net realizable value (best estimate of the amounts inventories are expected to realize, taking into consideration the purpose for which the inventory is held. This amount may or may not equal fair value). Reversal of inventory write-downs Any write-downs of inventory to the lower of cost or market create a new cost basis that subsequently cannot be reversed. Previously recognized impairment losses are reversed, up to the amount of the original impairment loss when the reasons for the impairment no longer exist. Continued on page 10 BoardMatters Quarterly April 2008 9 Continued from page 9 Under US GAAP, extensive, highlyprescriptive revenue recognition guidance exists that often applies only to transactions in specific industries (e.g., software revenue recognition, sales of real estate). Comparably detailed guidance does not exist under IFRS. In addition, detailed US rules often contain exceptions for certain types of transactions, and public companies in the US must also follow additional guidance provided by the SEC. By contrast, IFRS has only a single revenue recognition standard (IAS 18 Revenue) which contains general...
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