Verified Document

GAAP Vs IFRS On Intangible Assets Case Study

Introduction There are a number of different areas of difference between US GAAP and IFRS. Nguyen (2017) points out that one of those areas of difference is with respect to the treatment of intangible assets. Intangible assets show on the balance sheet, but what types of intangible assets and how they are valued differ between these two different accounting systems. This report will highlight these differences, and their implications.

US GAAP Treatment

There are several areas of intangible assets that are covered by the different systems. These include R&D costs, advertising costs, goodwill, and impairment of intangible assets (IAS Plus, 2017). R&D costs, for example, are treated under GAAP on expensed as they occur. Further, intangible assets are measured at historical cost less accumulated amortization and impairments. For goodwill, the reporting unit can be an operating segment or one below. If the implied fair value of the intangible asset – including goodwill – is below the book value, then an impairment loss can be recognized (IAS Plus, 2017).

IFRS Treatment

IFRS differs on these particular areas that pertain to intangible assets. The first key difference is that intangible assets are recognized where it is probable that future economic benefits are attributable. This...

IFRS allows, contrary to GAAP, revaluation of historical costs for intangible assets.
Under IFRS, intangible assets are recognized at the lowest possible unit, and can go no higher than the operating segment. There is less leeway than under GAAP in this regard. Impairment is valued at fair value (not historical cost), and starts by reducing goodwill first, and only when goodwill has been exhausted is impairment of the other intangible assets allowed. This has implications for the valuation of goodwill on the balance sheet under IFRS (IAS Plus, 2017).

Changes

The implications for conversion from GAAP to IFRS are as follows. First, the company must determine the probability of future economic value for investments in things like R&D and advertising. The current financial statements will reflect all such costs, but the IFRS statements may require the exclusion of some of these costs. There is less incentive to pursue high risk activities under IFRS because there are fewer potential tax benefits to them – GAAP is more encouraging for investment in activities that have low probability of success. The income statement…

Sources used in this document:

References

E&Y (2011) US GAAP versus IFRS: The basics. Ernst & Young Retrieved November 11, 2017 from http://www.ey.com/Publication/vwLUAssets/US_GAAP_v_IFRS:_The_Basics/$FILE/US%20GAAP%20v%20IFRS%20Dec%202011.pdf

IAS Plus (2017) Goodwill and other intangible assets – key differences between US GAAP and IFRS. IAS Plus.com Retrieved November 13, 2017 from https://www.iasplus.com/en-us/standards/ifrs-usgaap/goodwill

Nguyen, J. (2017). What are some of the key differences between IFRS and US GAAP? Investopedia. Retrieved November 13, 2017 from https://www.investopedia.com/ask/answers/09/ifrs-gaap.asp


Cite this Document:
Copy Bibliography Citation

Related Documents

IFRS Human Resource Accounting the United States
Words: 1742 Length: 6 Document Type: Essay

IFRS Human Resource Accounting The United States has a radically different accounting system than virtually every other the countries considered. The United States has their own system known as the general accepted accounting principles (GAAP). Other countries have used this system in the past, such as the UK and Germany, but there has been an international standard that has developed over the course of the last few years and virtually every other

Switch to IAS/IFRS: The Challenge
Words: 10455 Length: 38 Document Type: Term Paper

Some mergers and acquisitions (M&as) did not generate any goodwill because they were accounted for using the pooling-of-interests method. In 1969, Leonard M. Savoie (then Executive Vice President of the AICPA) stated that he expected the then-prevailing accounting pronouncement authority, the Accounting Principles Board (APB), to abolish the pooling of interests method. However, the death-knell for this accounting method was not sounded until 2001 with the issuance of SEAS

Accounting GAAP and IFRS
Words: 2554 Length: 8 Document Type: Essay

Accounting includes recording, summarizing, and reporting of the economic activities and events of an organization. It is pertinent in business decision-making and the management and control of operations. The financial statements reported by a company include the income statement, balance sheet, statement of retained earnings and statement of cash flows. Globally, there are two sets of accounting standards, the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Accounting Approach to Valuation by GAAP and
Words: 1280 Length: 4 Document Type: Essay

Accounting Approach to Valuation by GAAP and IFRS: Key Differences When it comes to valuation by U.S. GAAP and IFRS, there exists a number of differences in terms of the approaches used. To begin with, in regard to inventory valuation, both FIFO and LIFO are permitted in the case of U.S. GAAP. On the other hand, IFRS do not permit the usage of LIFO. However, in the latter case, FIFO is permitted

Convergence of GAAP and IFRS
Words: 1144 Length: 4 Document Type: Research Paper

In this order of ideas: a. The primary financial statements requested under the GAAP and the IFRS are virtually the same b. In terms of standards used for setting the environment, the IFRS use the standards of the IASB whereas the GAAP use the standards of FASB. The two boards implement similar means of setting the standards c. The conceptual frameworks for IFRS and GAAP are highly similar d. The recording process is

Convergence of IFRS Briginshaw, J.
Words: 456 Length: 2 Document Type: Essay

Investors will have to adjust and discount IFRS figures, one additional dollar of IFRS profit indicates slightly lesser incremental economic health and, if the underlying assumptions of accounting are accepted, slightly lesser ability to pay down debt and pay dividends in the future than one dollar of income calculated under GAAP. Reaction Capital markets are becoming more global and demand for a single set of high-quality global accounting standards is increasing.

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now