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

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A.1 Environmental Remediation Liabilities

Under U.S. GAAP, ASC 410-30 provides accounting guidance on environmental remediation liabilities. The guidance in ASC 410-30 is generally based on the framework outlined in ASC 450-20.

Under IFRS® Accounting Standards, there is no standard that specifically addresses accounting for environmental remediation liabilities. Rather, entities applying IFRS Accounting Standards account for environmental remediation liabilities in accordance with IAS 37. Under IFRS Accounting Standards, IAS 37 is the primary source of guidance on contingencies. For detailed interpretive guidance on IAS 37, see A12 of Deloitte’s iGAAP publication.

There are differences between ASC 450-20 and IAS 37, including, but not limited to, those in the table below.

Subject	U.S. GAAP	IFRS Accounting Standards
Scope	ASC 450 applies to asset impairments.	IAS 37 does not apply to asset impairments.
Terminology	Three categories: Estimated loss accrued for a loss contingency (i.e., a contingent loss that is recognized as a liability). Contingent loss that is not recognized as a liability (e.g., when a contingent loss cannot be reasonably estimated). Contingent gain.	Three categories: Provision is an accrued liability or loss contingency recognized in the financial statements. Contingent liability is a loss contingency that does not meet the criteria to be recognized in the financial statements. Contingent asset is a concept similar to contingent gains under U.S. GAAP.
	U.S. GAAP and IFRS Accounting Standards use different terminology to describe contingencies. Under U.S. GAAP, this terminology is related to financial statements’ elements of performance (two key terms are “contingent gain” and “contingent loss”), whereas under IFRS Accounting Standards, the terminology used is related to financial statements’ elements of financial position (the three key terms are “contingent asset,” “contingent liability,” and “provision”). However, the two sets of terms may be applied similarly so that no difference between them arises in practice.
Recognition of contingent losses/provisions	One of the conditions for loss accrual is that it is probable that (1) an asset has been impaired or (2) a liability has been incurred. “Probable” is defined as “likely to occur” (i.e., generally greater than 70 percent), which is a higher threshold than “more likely than not” (i.e., greater than 50 percent).	One of the conditions for recognizing a provision (as a liability) is that it is probable that an outflow of resources will be required to settle the obligation. “Probable” is defined as “more likely than not” (i.e., greater than 50 percent). More contingencies may qualify for recognition as liabilities under IFRS Accounting Standards than under U.S. GAAP.
Measurement of contingent losses/provisions — range of estimates	If no amount in the range is more likely than any other amount in the range, the minimum amount in the range is used to measure the amount to be accrued for a loss contingency.	If no amount in the range is more likely than any other amount in the range, the midpoint of the range is used to measure the liability.
Measurement of contingent losses/provisions — discounting	Discounting is permitted only when the timing of related cash flows is fixed or reliably determinable.	Discounting is required if the effect of discounting is material.
Recoveries of contingent losses (reimbursements)	Expected reimbursements related to the recovery of contingent losses are recognized when recovery is deemed probable.	Expected reimbursement by other parties is recognized only when it is virtually certain that the reimbursement will be received.
Onerous contracts	Losses on firmly committed onerous contracts are usually not recognized.	An entity is required to recognize and measure the present obligation under an onerous contract as a provision (paragraphs 66 through 69 of IAS 37). An onerous contract is one “in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.”
Disclosure of prejudicial information	Exemptions from disclosure of information that may be prejudicial to an entity are not permitted.	In extremely rare cases, if disclosure of certain information could prejudice the position of the entity in a dispute with other parties, that information does not need to be disclosed. However, an entity must disclose the nature of the dispute, along with the reason why the information has not been disclosed.
Gain contingencies (U.S. GAAP) versus contingent assets (IFRS Accounting Standards)	At the earlier of when a gain contingency is realized or becomes realizable, recognition is appropriate.	When realization of a contingent asset is virtually certain, recognition is appropriate. Because the thresholds between U.S. GAAP and IFRS Accounting Standards are very similar, no differences are expected to arise in practice.

A.2 Asset Retirement Obligations

Under U.S. GAAP, ASC 410-20 is the primary source of guidance on accounting for obligations associated with the retirement of tangible long-lived assets.

Under IFRS Accounting Standards, IAS 16 provides guidance on accounting for costs of dismantling and removing an item of property, plant, and equipment and restoring the site on which the item is located when the obligations of dismantlement, removal, and restoration are incurred “either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.” In addition, IAS 37 (see the table above for a summary of certain guidance in IAS 37, including the standard’s initial recognition guidance) addresses the measurement of decommissioning, restoration, and similar liabilities, and IFRIC Interpretation 1 addresses how to account for changes in existing decommissioning, restoration, and similar liabilities. For detailed interpretive guidance on IAS 16, see A7 of Deloitte’s iGAAP publication.

The table below summarizes the key differences between U.S. GAAP and IFRS Accounting Standards in accounting for obligations associated with the retirement of tangible long-lived assets.

Subject	U.S. GAAP	IFRS Accounting Standards
Initial measurement of an ARO	The fair value of an ARO liability is recognized in the period it is incurred if a reasonable estimate of fair value can be made. When a present value technique is used to estimate the liability, the discount rate will be a risk-free interest rate adjusted for the effect of the entity’s credit standing. Probability is factored into the measurement of an ARO but is not factored into the recognition of an ARO.	ARO liability is measured as the best estimate of the expenditure to settle the obligation or to transfer the obligation to a third party as of the balance sheet date. When a present value technique is used to estimate the liability, the discount rate will be a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Asset recognition arising from an ARO	Upon initial recognition of a liability as an ARO, an entity increases the related long-lived asset by the same amount.	Property, plant, and equipment include the initial estimate of the ARO unless it is incurred during a period in which the property was used to produce inventory, in which case the ARO would be added to the carrying amount of the inventory.
Subsequent measurement of an ARO	Period-to-period revisions to either the timing or amount of the original estimate of undiscounted cash flows are treated as separate layers of the obligation. An entity should discount upward revisions by using the current credit-adjusted risk-free rate, and it should discount downward revisions by using the original credit-adjusted risk-free rate.	The ARO should be adjusted for changes in the estimate of expected undiscounted cash flows or discount rate as of each balance sheet date. An entity should remeasure the entire obligation by using an updated discount rate that reflects current market conditions as of the balance sheet date.

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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.