B.1 Inception Gains and Losses
The accounting requirements for inception gains and losses under U.S.
GAAP differ from those under IFRS Accounting Standards in the following respects:
- Under U.S. GAAP, inception gains and losses may occur if an asset or liability is measured at initial recognition at fair value in the financial statements and the entity acquired or issued the asset or liability at an amount other than fair value (i.e., if the initial transaction price is different from fair value). ASC 820-10-30-6 states that “if another Topic requires or permits a reporting entity to measure an asset or a liability initially at fair value and the transaction price differs from fair value, the reporting entity shall recognize the resulting gain or loss in earnings unless that Topic specifies otherwise.”
- Under IFRS Accounting Standards, paragraph B5.1.2A of IFRS 9 prohibits recognition of inception gains or losses for a financial asset or financial liability if fair value is demonstrated by a Level 2 or Level 3 input or is based on a valuation technique in which an entity uses unobservable market data. In such cases, the measurement is adjusted to defer the inception gain or loss. The deferred gain or loss is recognized “only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.”
See Section 9.2.1 for further discussion of the
recognition of inception gains and losses under U.S. GAAP.