8.2 Key Differences
The table below summarizes key differences between U.S. GAAP and
IFRS Accounting Standards related to derivatives.
Topic
|
U.S. GAAP (ASC 815)
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IFRS Accounting Standards (IFRS 9, IAS 32)
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---|---|---|
Derivative — definition
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For an instrument to meet the definition of a derivative, the
following characteristics must be present:
|
For an instrument to meet the definition of a derivative, the
following characteristics must be present:
Though the definition of a derivative under IFRS Accounting
Standards does not include a net settlement characteristic,
contracts to purchase or sell nonfinancial items are within
the scope of IFRS 9 only if they can be settled net.
|
Derivatives — scope
|
The NPNS scope exception for qualifying contracts to purchase
or sell nonfinancial items is elective and requires the
designation to be documented.
|
While both IFRS Accounting Standards and U.S. GAAP provide
scope exceptions for certain contracts to purchase or sell
nonfinancial items that will be purchased, sold, or used in
the normal course of business, under IFRS Accounting
Standards, the own-use scope exception for qualifying
contracts is not elective (unless applying the own-use scope
exception leads to an accounting mismatch) and does not
require an entity to document its designation of a contract
as “own-use.”
|
Embedded derivatives — initial recognition
|
The bifurcation requirements apply to both assets and
liabilities, including financial assets.
In addition, the application guidance under U.S. GAAP is more
detailed than that under IFRS Accounting Standards.
Accordingly, an entity may not necessarily reach the same
conclusion under IFRS Accounting Standards as under U.S.
GAAP about whether the conditions for bifurcation are
met.
|
While the overall criteria for bifurcation are similar to
those under U.S. GAAP, the bifurcation requirements do not
apply to financial assets within the scope of IFRS 9.
Therefore, if a hybrid contract contains a host that is a
financial asset within the scope of IFRS 9, the bifurcation
requirements do not apply.
|
Embedded derivatives — debt with embedded put or call
option
|
A put, call, or prepayment option embedded in a debt contract
is considered not clearly and closely related to a debt host
contract if (1) it is indexed to an underlying other than
interest rates, credit risk, or inflation; (2) the debt
involves a substantial discount or premium and the option is
contingent; or (3) the option is not contingent and the
negative-yield or double-double test is passed.
|
A put, call, or prepayment option embedded in a debt contract
is not considered closely related to a debt host contract
unless (1) the exercise price is approximately equal on each
exercise date to the debt host contract’s amortized cost
(before the separation of any equity component) or (2) the
exercise price results in reimbursement to the lender for an
amount up to the approximate present value of lost interest
for the remaining term.
|
Embedded equity components in a debt contract — initial
recognition
|
Embedded equity-linked features that qualify as equity are
not separated from liabilities (e.g., convertible debt)
except in the specific circumstances listed below:
|
Embedded equity-linked features that qualify as equity are
separated from liabilities and accounted for as equity.
|
Embedded equity components — initial measurement
|
Different methods apply for initial measurement of equity
components depending on the reason an amount is allocated to
equity.
|
The with-and-without method is used for initial measurement
of equity components. The liability component is measured
first.
|
Contracts with payments indexed to revenue
|
ASC 815-10-15-59(d) provides a scope exception for
non-exchange-traded contracts in which the underlying is
based on specified volumes of sales or service revenues of
one of the parties to the contract.
|
Contracts with an underlying based on sales volumes are
subject to IFRS 9 accounting as derivatives or embedded
derivatives, as applicable, unless (1) they are subject to a
scope exception or (2) the only underlying is a variable
that is specific to one party to the contract.
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