Appendix E — Differences Between U.S. GAAP and IFRS Accounting Standards

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Although ASC 805 and IFRS 3 were the result of a joint project between the FASB and the IASB, differences exist between the two standards. Certain differences have been present from the time the joint project was completed, some of which are because of differences in other U.S. GAAP or IFRS Accounting Standards. Other differences have resulted from subsequent standard setting. The table below summarizes the significant differences between ASC 805 and IFRS 3.

Subject	ASC 805	IFRS 3
Definition of control	The ASC master glossary defines a business combination as “[a] transaction or other event in which an acquirer obtains control of one or more businesses,” and acquirer as “[t]he entity that obtains control of the acquiree.” ASC 805 refers to the guidance in ASC 810-10 on determining the existence of a controlling financial interest in the assessment of control.	While IFRS 3 provides the same definitions of business combination and acquirer as ASC 805, IFRS 3 refers to the consolidation guidance in IFRS 10 on determining control. Differences between IFRS 10 and ASC 810-10 could lead to differences in the determination of whether a transaction is a business combination and in the identification of the acquirer.
Identifying the acquirer if the acquiree is a VIE	Under ASC 805-10-25-5, “in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer.”	IFRS 3 does not include similar guidance because there is no VIE model under IFRS Accounting Standards. Therefore, the determination of the accounting acquirer follows the assessment of factors in paragraphs B13 through B18 of IFRS 3.
Definition of a business — screen (i.e., concentration test under IFRS 3)	ASC 805 requires an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets (the “screen”). If the screen is met, the set would not be considered a business. The use of the screen is mandatory.	IFRS 3 includes a concentration test that is similar to the screen in ASC 805; however, its use is optional.
Definition of a business — substantive processes	Under ASC 805, an acquired contract (e.g., outsourcing arrangement) cannot provide a substantive process if the set does not have outputs.	IFRS 3 allows an acquired contract to be considered a substantive process even if the set does not have outputs if it provides access to an assembled workforce that performs a critical process that the entity controls.
Noncontrolling interests and goodwill — initial measurement	ASC 805 requires entities to recognize and measure noncontrolling interests at fair value.	Under IFRS 3, an entity must make an accounting policy election, on an acquisition-by-acquisition basis, to measure a noncontrolling interest either at (1) the noncontrolling interest’s proportionate share of the net fair value of the acquiree’s identifiable net assets (referred to as the “proportionate share method”) or (2) fair value (i.e., the “full goodwill” approach). The latter approach is consistent with that in ASC 805.
Assets and liabilities arising from revenue contracts	In October 2021, the FASB issued ASU 2021-08, which requires entities to measure assets and liabilities arising from revenue contracts in accordance with ASC 606. See Section 4.3.13 for more information about the accounting for contract assets and contract liabilities after an entity adopts ASU 2021-08.	IFRS 3 does not have a similar fair value measurement exception for contract assets and contract liabilities.
Liabilities arising from contingencies (i.e., contingent liabilities under IFRS Accounting Standards) — recognition and initial measurement	Under ASC 805, a liability arising from a contingency is recognized at fair value, if determinable, as of the measurement (acquisition) date. If the fair value cannot be determined, the entity will recognize a liability if both (1) “[i]nformation available before the end of the measurement period indicates that it is probable that . . . a liability had been incurred at the acquisition date” and (2) the “amount of the . . . liability can be reasonably estimated.”	An entity recognizes a liability arising from a contingency at fair value if it (1) is a present obligation that results from a past event and (2) can be measured reliably.
Assets arising from contingencies (i.e., contingent assets under IFRS Accounting Standards) — recognition and initial measurement	Under ASC 805, an asset arising from a contingency is recognized at fair value, if determinable, as of the measurement (acquisition) date. If fair value cannot be determined, the entity will recognize an asset if both (1) “[i]nformation available before the end of the measurement period indicates that it is probable that an asset existed . . . at the acquisition date” and (2) the “amount of the asset . . . can be reasonably estimated.”	An entity is not permitted to recognize a contingent asset in a business combination.
Liabilities arising from contingencies (i.e., contingent liabilities under IFRS Accounting Standards) — subsequent measurement	There is no specific guidance in U.S. GAAP on subsequent measurement. ASC 805-20-35-3 requires entities to subsequently account for liabilities arising from contingencies on a “systematic and rational basis . . . depending on their nature.” See Section 4.3.6.2 for more information.	An entity recognizes a contingent liability at the higher of: The amount calculated as the best estimate of the expenditure needed to settle the present obligation at the end of the reporting period. The acquisition-date fair value less the cumulative amortization recognized in accordance with IFRS 15 (if appropriate).
Assets arising from contingencies (i.e., contingent assets under IFRS Accounting Standards) — subsequent measurement	There is no specific guidance in U.S. GAAP on subsequent measurement. ASC 805-20-35-3 requires entities to subsequently account for assets arising from contingencies on a “systematic and rational basis . . . depending on their nature.”	Because an entity is not permitted to recognize a contingent asset in a business combination under IFRS 3, subsequent measurement is not applicable. After a business combination, recognition is appropriate only when realization of the income is virtually certain and, therefore, the related asset is no longer contingent.
Operating leases (after the adoption of ASC 842)	If the acquiree is the lessor in an operating lease, the acquirer separately recognizes an intangible asset or liability if the terms of the lease are favorable or unfavorable, respectively, relative to current market terms.	As indicated in paragraph B42 of IFRS 3, if the acquiree is the lessor in an operating lease, any favorable or unfavorable terms of the operating lease are recognized as part of the fair value of the leased asset (i.e., no separate asset or liability is recognized), which is consistent with the guidance in IAS 40.
Operating leases (before the adoption of ASC 842)	Regardless of whether the acquiree is the lessee or the lessor in an operating lease, ASC 805 requires entities to separately recognize an intangible asset or liability if the terms of the lease are favorable or unfavorable, respectively, relative to current market terms.	As indicated in paragraph B42 of IFRS 3, if the acquiree is the lessor in an operating lease, any favorable or unfavorable terms of the operating lease are recognized as part of the fair value of the leased asset (i.e., no separate asset or liability is recognized), which is consistent with the guidance in IAS 40.
Deferred taxes and uncertain tax positions	ASC 805 requires entities to recognize and measure deferred taxes and uncertain tax positions in accordance with ASC 740, which is not converged with IAS 12.	As indicated in paragraphs 24 and 25 of IFRS 3, entities must recognize and measure deferred taxes and uncertain tax positions in accordance with IAS 12, which is not converged with ASC 740.
Employee benefits	Under ASC 805, entities must recognize and measure employee benefits in accordance with existing standards (e.g., ASC 715), which are not converged with IFRS Accounting Standards.	Paragraph 26 of IFRS 3 requires entities to recognize and measure employee benefits in accordance with IAS 19, which is not converged with U.S. GAAP.
Contingent consideration — initial classification	Entities must classify contingent consideration as a liability, equity, or an asset in accordance with U.S. GAAP (e.g., ASC 480-10, ASC 815-10, ASC 815-40), which is not converged with IFRS Accounting Standards.	Paragraph 40 of IFRS 3 requires entities to classify contingent consideration as a liability, equity, or an asset in accordance with existing IFRS Accounting Standards, such as IAS 32. Because U.S. GAAP and IFRS Accounting Standards are not converged, differences in the initial classification could lead to differences in the subsequent accounting.
Share-based payment awards — initial measurement	Entities must initially recognize and measure share-based payment awards in accordance with ASC 718, which is not converged with IFRS 2. The two standards’ implementation guidance also differs.	Paragraphs 30 and B56–B62B of IFRS 3 require entities to initially recognize and measure share-based payment awards in accordance with IFRS 2, which is not converged with ASC 718. Differences between ASC 718 and IFRS 2 may lead to differences in the accounting for share-based payment awards. The two standards’ implementation guidance also differs.
Measurement-period adjustments	As a result of the amendments to ASC 805 made by ASU 2015-16, an acquirer must recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined rather than retrospectively.	Paragraph 49 of IFRS 3 requires adjustments to provisional amounts identified during the measurement period to be recognized on a retrospective basis as if the accounting for the business combination had been completed on the acquisition date.
Disclosure of pro forma financial information	Required for public entities only: In accordance with ASC 805-10-50-2(h), if comparative financial statements are presented, the acquirer must disclose “the revenue and earnings of the combined entity . . . as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period.”	Required for all entities: As indicated in paragraph B64(q) of IFRS 3, disclosure of revenue and profit or loss of the combined entity for the comparable prior period is not required even if comparative financial statements are presented.
Disclosure of a gain or loss recognized after the acquisition date related to the identifiable assets acquired	Under ASC 805, there is no disclosure requirement for gains or losses recognized in connection with identifiable assets acquired in a business combination.	In accordance with paragraph B67(e) of IFRS 3, an acquirer must disclose “the amount and an explanation of any gain or loss recognised in the current reporting period that both: i. relates to the identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period; and ii. is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity’s financial statements.”
Pushdown accounting	An acquired entity has the option to apply pushdown accounting in its separate financial statements.	IFRS Accounting Standards provide no authoritative guidance on the application of pushdown accounting. In practice, IFRS preparers do not apply pushdown accounting to the separate financial statements of an acquiree.
Common control	Businesses and net assets transferred between entities under common control are generally recognized at their historical carrying amounts, as reflected in the parent’s financial statements.	IFRS Accounting Standards provide no authoritative guidance on the accounting for transfers of businesses between entities under common control. In practice, entities can elect to apply either the acquisition method or the predecessor’s historical cost. However, the IASB has a research project on its agenda to consider how to fill the gap in IFRS Accounting Standards on the accounting for business combinations under common control. The objective of the IASB’s project is “to explore possible reporting requirements that would reduce the diversity in practice and improve the transparency and comparability of the reporting on such combinations.” Practitioners should monitor this project for any developments that might change the current accounting.

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