Chapter 8 — Differences Between U.S. GAAP and IFRS Accounting Standards

8.1 Background

8.1.1 IFRS Guidance

Under IFRS Accounting Standards, an entity evaluates contracts on its own equity (including equity features embedded in other contracts) in accordance with IAS 32 to determine whether they qualify for equity classification or must be classified as assets or liabilities.

IAS 32 has a broader scope than does ASC 815-40. For example, IAS 32 contains guidance on forward repurchase contracts and written put options on an entity’s shares. Under U.S. GAAP, freestanding forward repurchase contracts and freestanding written put options on an entity’s shares are outside the scope of ASC 815-40. The discussion of key differences below applies only to contracts within the scope of ASC 815-40, not to freestanding forward purchase contracts or written put options on the entity’s shares that are within the scope of ASC 480 (both IAS 32 and ASC 480 require such contracts to be classified as liabilities, but the measurement guidance differs).

8.1.2 Key Differences

The table below summarizes key differences between U.S. GAAP and IFRS Accounting Standards in the accounting for contracts on own equity that are within the scope of ASC 815-40. The table is followed by a detailed explanation of each difference.

	U.S. GAAP	IFRS Accounting Standards
Exercise contingencies	Exercise contingencies must be evaluated to determine whether they preclude equity classification.	Not addressed by IAS 32. In practice, exercise contingencies that would preclude equity classification under U.S. GAAP may not do so under IFRS Accounting Standards.
Settlement amount	To qualify as equity, the contract must be a fixed-for-fixed forward or option on equity shares, or the only variables that can adjust the settlement amount are inputs to a fixed-for-fixed forward or option.	A contract must be fixed for fixed to qualify as equity. Unlike U.S. GAAP, IAS 32 does not provide detailed guidance on contracts with adjustment provisions (e.g., antidilution provisions).
Strike price denominated in foreign currency	Preclude equity classification.	Preclude equity classification with one exception. Certain contracts offered on a pro rata basis to holders of the entity’s shares can qualify as equity even if the strike price is denominated in a foreign currency.
Net cash settlement provisions	Do not preclude equity classification if the entity cannot be forced to net cash settle the contract. Contain detailed guidance on how to assess whether an entity is able to settle in shares (e.g., whether the entity has sufficient authorized and unissued shares available to share settle the contract).	Preclude equity classification. Unlike U.S. GAAP, IFRS Accounting Standards do not contain detailed guidance on how to evaluate whether an entity might be required to net cash settle a contract that specifies share settlement.
Net share settlement provisions	Do not preclude equity classification if the entity cannot be forced to net cash settle the contract.	Preclude equity classification.
Settlement alternatives	Do not preclude equity classification if the entity cannot be forced to net cash settle the contract.	Preclude equity classification (unless all settlement alternatives are consistent with equity classification).
Embedded equity-linked features that do not qualify as equity	Not separated as embedded derivatives if they do not meet the net settlement characteristic in the definition of a derivative.	May be required to be separated as embedded derivatives even if they do not meet the net settlement characteristic.
Embedded equity-linked features that qualify as equity	Not separated from liabilities except in specified circumstances.	Separated from liabilities.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.