Ifrs, Us and Prc Gaap Essay Example

fixed assets, intangible assets, and other assets.

Assets can be classified into current and non-current or remain unclassified, similar to IFRS. Liabilities must be classified into current and non-current or can remain unclassified, just like IFRS. Expenses in the income statement can be classified by nature or function, similar to IFRS. Cash flows from operating activities must be presented using both the direct and indirect methods or can use either method, same as IFRS. Interest paid must be classified as a financing activity in the cash flow statement, while the classification of interest received depends on its nature and can be classified as an operating, investing, or financing activity.

Must be classified as operating cash flows. Presentation of extraordinary items in the income statement. "Abnormal" items, such as loss from a natural disaster, etc., are presented as non-operating expenses or income in the income statement. Notes to disclose the nature are required if the amounts are material. These extraordinary items are rare and generally limited to expropriations, natural disasters, and acts of war. Negative goodwill, when it occurs rarely, is presented as an extraordinary item. Non-mandated changes in accounting policy must be restated in prior financial statements unless impracticable. Alternatively, these changes can be included as a cumulative effect in net profit and loss in the current financial statements. The effect of these changes should be included in the current year income statement.

Disclose pro-forma comparatives. | Short-term investments| Measured at the lower of cost and market value, with a write-down recognised in net profit or loss. Measured at fair value. If classified as held for trading, value changes are recognised in net profit or loss. If classified

as available for sale, measured at fair value with value changes recognised either (a) in income statement or (b) in equity until the investment is sold. | Same as IFRS|

What are the main differences between PRC GAAP, IFRS and US GAAP? | Topic| PRC GAAP| IAS/IFRS| US GAAP| Dividends received on short-term investments| Reduce the carrying amount of the investment when received. | Recognised as revenue when received. | Similar to IFRS| Inventory| Use of LIFO permitted.|

Reversal is required for subsequent increase of value of previous write-downs. LIFO is prohibited. Reversal of write down is required. Use of LIFO permitted. Reversal of write-down is prohibited. Long-term investments in equity securities are measured at cost less impairment, with a write-down recognised in the income statement. They can also be measured at fair value, with value changes recognised either in the income statement or in equity until the investment is sold. This is the same as IFRS. Long-term investments in debt securities are measured at amortised cost subject to impairment. If classified as held to maturity, they are measured at amortised cost subject to impairment.

If classified as available for sale, investments are measured at fair value, with changes in value recognized either in the income statement or in equity until the investment is sold. This treatment is the same as IFRS. Amortization of premium or discount on long-term debt investments can be calculated using either the effective interest method or the straight line method. The effective interest method is also used under IFRS. When accounting for investment in convertible bonds, the conversion feature is not accounted for separately, but instead treated as an embedded derivative. This treatment is

the same as IFRS. The basis of property, plant, and equipment is generally required to be recorded at historical cost, with revaluations not permitted. However, under PRC GAAP, companies have the option to use either the re-valued amount or the historical cost, whichever is lower. Property, plant, and equipment received as a capital contribution from owners are measured at an amount agreed upon by all investing parties, which is considered to be the fair value. In the case of exchanges involving dissimilar fixed assets, they are measured at the carrying amount of the asset surrendered.

Assets measured at fair value do not result in any gain or loss recognition, whereas similar principles to IFRS require the recognition of a gain or loss. When fixed assets are disposed of, the profit or loss is categorized as non-operating and included in the operating profit or loss, aligning with IFRS. Goodwill is typically determined by comparing the acquisition cost with the acquirer's share of the net assets acquired (book value). However, if all shares of a company are acquired, goodwill may be assessed based on the "appraised value" of net assets acquired.

The excess cost of acquiring an entity over the fair values of its net assets should be amortized. This amortization should occur over the specified investment period or a maximum of 10 years if no specific period is stated in the contract. However, it must undergo an impairment test, and if there is no impairment, then goodwill does not need to be amortized. On the other hand, goodwill should be amortized over its estimated useful life, which is assumed to be 20 years or less.

The main differences between

PRC GAAP, IFRS, and US GAAP are as follows:

| Topic | PRC GAAP | IAS/IFRS | US GAAP |

Intangible asset received as a capital contribution from an owner:

• In PRC GAAP, it is measured at an amount agreed by all investing parties, except when contributed at the time of an initial issue of shares where it is measured at the investor's carrying amount.
• In IAS/IFRS, it is measured at fair value.
• In US GAAP, it is the same as IFRS.

Intangible assets received in a non-monetary transaction:

• In all three - PRC GAAP, IAS/IFRS, and US GAAP - they are measured at the carrying amount of the asset surrendered.

Measured at fair value. Similar to IFRS, amortisation of intangible assets should be done over the shorter of the estimated useful life and the contractual or legal life. If there is no contractual or legal life, the assets should be amortised over the estimated useful life, but not for more than 10 years. For assets with an estimated useful life presumed to be 20 years or less, they should be amortised over this estimated useful life. Assets that are not subject to regular amortisation should have their carrying amount tested for impairment annually. In the case of land use rights, they should be accounted for as a purchased asset until the construction or development commences. After that, they should be accounted for as either fixed assets under construction or as property development costs.

The total costs upon completion are transferred to property, plant, and equipment or property held for sale. These costs are treated as an operating lease and the cost of land use rights is considered prepaid lease payments. They are also

accounted for as fixed assets and not subject to amortization or depreciation unless there is an impairment. Revenue can be measured based on the contract stipulations or mutually agreed upon by the buyer and seller. Alternatively, it can be determined by the fair value of consideration received or receivable, which aligns with IFRS standards. When payment is deferred, revenue measurement relies on undiscounted amounts to be received in the future or discounted present value of future amounts.

The recognition of cash discounts for prompt payment is considered either an expense or a reduction of revenue, in line with the fair value concept. Under both IFRS and PRC GAAP, research and development costs are generally expensed, with the exception of patent registration and legal costs which are capitalized. However, under IFRS, development costs may be capitalized if specific criteria are met. Pre-operating expenses are deferred until the entity begins operations, at which point they are charged to expense. Companies that are required to present segment information include listed companies and other enterprises.

Listed companies only. | Same as IFRS. | Disclosure items required for both business and geographical segments. | More disclosure needed for primary segments compared to secondary segments. | Similar to IFRS. | Translation is done for foreign operations that are essential to the parent company's operations. | Translation adjustments are deferred in equity and included in income statement. | Similar to IFRS. | Wholly owned subsidiaries must disclose related party information in financial statements, but exemptions may apply. | Similar to IFRS.