Difference in Income Statement under IFRS and US GAAP

Difference in Income Statement under IFRS and US GAAP

Income Statement: what are the Difference in Income Statement under IFRS and US GAAP

  • Extraordinary Items
  • Income Statement Terminology

Difference in Income Statement under IFRS and US GAAP For Extraordinary Items

How are IFRS and US GAAP different?

Under US GAAP, gains and losses that are both unusual and infrequent are deemed to be extraordinary losses. In addition, certain losses are always considered to be extraordinary. In the US, these rules have sometimes allowed managers to present their income in a more favorable light. To avoid this potential for profit manipulation, IFRS does not recognize the concept of extraordinary items under any circumstances. All gains and losses (except for discontinued operations) are considered to be part of income from continuing operations.

How would it change the financial statements?

Since there is no longer special recognition for ‘extraordinary’ gains and losses, these amounts will be part of income from continuing operations.

What could it mean for businesses?

The new income statement placement of formerly extraordinary items means that they will likely be included in future forecasts of a company’s net income by financial analysts. Since extraordinary items are often losses, this may result in lower income from continuing operations, and lower forecasted net income for many businesses. This may result in lower stock prices and investor confidence until financial statement users get used to these changes.

Difference in Income Statement under IFRS and US GAAP in Terminology

How are IFRS and US GAAP different?

When preparing an IFRS income statement, income is called profit. This results in terms such as operating profit, net profit, and profit from continuing operations.

Under IFRS, interest expense and preferred share dividend payments are referred to as finance costs, while interest and dividend revenue are referred to as finance revenue.

How would it change the financial statements?

Net income will have a different name (net profit), as will interest expense and preferred share dividend payments (finance costs), and interest and dividend revenue (finance revenue).

What could it mean for businesses?

Financial statement users will have to get used to new terminology for income statements, most importantly for net income.

If you have other questions about IFRS and US GAAP, you can always post a comment below.

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The difference in Balance Sheet under IFRS and US GAAP