IFRS and the US GAAP: A Comparative Analysis

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In the 2008 Memorandum of Understanding between the FASB and IASB regarding the ongoing convergence project involving GAAP and IFRS, revenue recognition was one of the subjects that was supposed to be settled by 2011. This indicates that there is a difference between the way that revenue is recognized under IFRS and the way it is recognized under US GAAP. Deloitte & Touche has prepared a white paper outlining some of the differences between the two that the two agencies are attempting to resolve as part of the convergence process. There are five different areas of difference between the two systems. These are percentage of completion, sell-through-type arrangements, contingent consideration, variable consideration and royalties, and modifications. Percentage of completion may compel changes to US companies to systems that recognize revenue on the basis of proportional performance, for example. In Europe, sell-through-type arrangements are allowed as recognized revenue as long as the company has completed its obligation and the revenue can reasonably be estimated, something that is not the case under US GAAP. Revenue may also be recognized under IFRS at the time of delivery even if the amount of contingent consideration is not known, provided it can be estimated. Likewise, companies under IFRS may recognize variable consideration even before the consideration has been received. Lastly, contract modifications under IFRS are not viewed as separate contracts, and this can
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