IFRS for SMEs — U.S. GAAP Comparison Wiki

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Accounting Policies Estimates and Errors

SME Par. IFRS SME U.S. GAAP
Scope of this section
10.1 This section provides guidance for selecting and applying the accounting policies used in preparing financial statements. It also covers changes in accounting estimates and corrections of errors in prior period financial statements.  
Selection and application of accounting policies
10.2 Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Same.
10.3 If this IFRS specifically addresses a transaction, other event or condition, an entity shall apply this IFRS. However, the entity need not follow a requirement in this IFRS if the effect of doing so would not be material. Same.
10.4 If this IFRS does not specifically address a transaction, other event or condition, an entity’s management shall use its judgement in developing and applying an accounting policy that results in information that is:
  1. relevant to the economic decision-making needs of users, and
  2. reliable, in that the financial statements:
    1. represent faithfully the financial position, financial performance and cash flows of the entity;
    2. reflect the economic substance of transactions, other events and conditions, and not merely the legal form;
    3. are neutral, ie free from bias
    4. are prudent; and
    5. are complete in all material respects.
 Unlike IFRS SMEs, if the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity, an entity must first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity. U.S. GAAP does not require an assessment of the qualitative characteristics of the resulting information.
10.5 In making the judgement described in paragraph 10.4, management shall refer to, and consider the applicability of, the following sources in descending order:
  1. the requirements and guidance in this IFRS dealing with similar and related issues, and
  2. the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in Section 2 Concepts and Pervasive Principles.
  1. See 10.4.
  2. Although the definitions, recognition criteria, and measurement concepts for assets liabilities, income, and expenses are contained in the FASB Concepts Statements, which are nonauthoritative, no difference in the consideration of the definitions, recognition criteria, and measurement concepts would be expected in practice.
10.6 In making the judgement described in paragraph 10.4, management may also consider the requirements and guidance in full IFRSs dealing with similar and related issues. As U.S. GAAP does not have a separate accounting standard for entities that do not have public accountability, a fallback to the full U.S. GAAP is not an issue.

However, U.S. GAAP requires an entity to consider nonauthoritative guidance and literature if (a) the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity and (b) there are no accounting principles for sufficiently similar transactions or events within a source of authoritative GAAP for that entity, or those accounting principles are prohibited from being applied to the transaction or event. The following are examples of such sources of nonauthoritative guidance:
  • Widely recognized and prevalent practices
  • FASB Concepts Statements
  • American Institute of Certified Public Accountants (AICPA) Issues Papers
  • IFRS
  • Pronouncements of professional associations or regulatory agencies
  • AICPA Technical Information Services Inquiries and Replies
  • Accounting textbooks, handbooks, and articles
Paragraph 10.6 can be interpreted to mean that the full IFRS are the exclusive alternative source of accounting guidance.
Consistency of accounting policies
10.7 An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless this IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. If this IFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. Same. However, U.S. GAAP permits the use of different accounting policies for similar transactions, events, and conditions in more circumstances, e.g., inventory cost flow assumptions and the fair value option for financial instruments.
Changes in accounting policies
10.8 An entity shall change an accounting policy only if the change:
  1. is required by changes to this IFRS, or
  2. results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.
 U.S. GAAP permits a change in accounting principle only if (a) a change is required by a newly issued accounting pronouncement or (b) the entity can justify the use of an allowable alternative accounting principle on the basis that it it preferable. Unlike IFRS SMEs, U.S. GAAP does not specify the criteria against which preferability should be judged; however, significant differences would not be expected in practice.
10.9 The following are not changes in accounting policies:
  1. the application of an accounting policy for transactions, other events or conditions that differ in substance from those previously occurring.
  2. the application of a new accounting policy for transactions, other events or conditions that did not occur previously or were not material.
  3. a change to the cost model when a reliable measure of fair value is no longer available (or vice versa) for an asset that this IFRS would otherwise require or permit to be measured at fair value.
  1. Same.
  2. Same.
  3. Not applicable.
10.10 If this IFRS allows a choice of accounting treatment (including the measurement basis) for a specified transaction or other event or condition and an entity changes its previous choice, that is a change in accounting policy. Same.
  Applying changes in accounting policies
10.11 An entity shall account for changes in accounting policy as follows:
  1. an entity shall account for a change in accounting policy resulting from a change in the requirements of this IFRS in accordance with the transitional provisions, if any, specified in that amendment;
  2. when an entity has elected to follow IAS 39 Financial Instruments: Recognition and Measurement instead of following Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues as permitted by paragraph 11.2, and the requirements of IAS 39 change, the entity shall account for that change in accounting policy in accordance with the transitional provisions, if any, specified in the revised IAS 39; and
  3. an entity shall account for all other changes in accounting policy retrospectively (see paragraph 10.12).
  1. Same.
  2. There is no equivalent situation in U.S. GAAP.
  3. Same.
  Retrospective application
10.12 When a change in accounting policy is applied retrospectively in accordance with paragraph 10.11, the entity shall apply the new accounting policy to comparative information for prior periods to the earliest date for which it is practicable, as if the new accounting policy had always been applied. When it is impracticable to determine the individual-period effects of a change in accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. Same.
Changes in accounting estimates
10.15 A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. Same.
10.16 An entity shall recognise the effect of a change in an accounting estimate, other than a change to which paragraph 10.17 applies, prospectively by including it in profit or loss in:
  1. the period of the change, if the change affects that period only, or
  2. the period of the change and future periods, if the change affects both.
 Same.
10.17 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, the entity shall recognise it by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. Same.
Corrections of prior period errors
10.19 Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
  1. was available when financial statements for those periods were authorised for issue, and
  2. could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.
 Same.
10.20 Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Same. Errors also specifically include the use of an accounting principle that is not generally accepted.
10.21 To the extent practicable, an entity shall correct a material prior period error retrospectively in the first financial statements authorised for issue after its discovery by:
  1. restating the comparative amounts for the prior period(s) presented in which the error occurred, or
  2. if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.
 Unlike IFRS SMEs, there is no impracticability exception to restatement of prior period financial statements. Otherwise, same.
10.22 When it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). See 10.21.
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