Download US GAAPvsIFRS Life Sciences 0609 PDF

TitleUS GAAPvsIFRS Life Sciences 0609
TagsInternational Financial Reporting Standards Goodwill (Accounting) Fair Value Generally Accepted Accounting Principles (United States) Intangible Asset
File Size986.2 KB
Total Pages48
Document Text Contents
Page 1

US GAAP vs. IFRS
The basics: Life sciences

June 2009

US GAAP vs. IFRS
The basics: Life sciences

June 2009

Page 2

Contents

Consolidation, joint venture accounting and equity
method investees ..............................................................1

Intangible assets ................................................................4

Inventory ..........................................................................7

Revenue recognition ..........................................................8

Business combinations .....................................................12

Impairment of long-lived assets, goodwill
and intangible assets .......................................................14

Financial instruments .......................................................16

Share-based payments .....................................................20

........22

Financial statement presentation ......................................24

................................................26

Long-lived assets .............................................................27

Foreign currency matters .................................................29

Leases ............................................................................30

Income taxes ...................................................................32

Provisions and contingencies............................................34

Earnings per share ...........................................................35

Segment reporting ..........................................................36

Subsequent events ..........................................................37

Related parties ................................................................38

First-time adoption ..........................................................39

Appendix — The evolution of IFRS .....................................40

This and many of the publications produced by our
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20 US GAAP vs. IFRS The basics: Life sciences

Although not an issue unique to life sciences companies,
share-based payments represent a significant form of
compensation for employees and non-employee consultants
working in the industry. Many companies believe share-based
payment awards are necessary in order to recruit and retain
the best talent. While the accounting for share-based payment
awards under IFRS and US GAAP is largely similar, certain
differences exist. Accordingly, life sciences companies should
be aware of these differences.

Similarities
The guidance for share-based payments, FAS 123 (Revised)
and IFRS 2 (both entitled Share-Based Payment), is largely
convergent. Both GAAPs require a fair value-based approach
in accounting for share-based payment arrangements whereby
an entity (1) acquires goods or services in exchange for
issuing share options or other equity instruments (collectively
referred to as “shares” in this guide) or (2) incurs liabilities that

are based, at least in part, on the price of its shares or that
may require settlement in its shares. Under both GAAPs, this
guidance applies to transactions with both employees and non-
employees, and is applicable to all companies. Both FAS 123
(Revised) and IFRS 2 define the fair value of the transaction
to be the amount at which the asset or liability could be
bought or sold in a current transaction between willing parties.
Further, both GAAPs require, if applicable, the fair value of
the shares to be measured based on market price (if available)
or estimated using an option-pricing model. In the rare cases
where fair value cannot be determined, both standards
allow the use of intrinsic value. Additionally, the treatment
of modifications and settlement of share-based payments
is similar in many respects under both GAAPs. Finally, both
GAAPs require similar disclosures in the financial statements
to provide investors sufficient information to understand the
types and extent to which the entity is entering into share-
based payment transactions.

US GAAP IFRS

Transactions with non-
employees

Either the fair value of (1) the goods or services received,
or (2) the equity instruments is used to value the
transaction, whichever is more reliable.

If using the fair value of the equity instruments, EITF 96-
18 Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services requires measurement
at the earlier of (1) the date at which a “commitment for
performance” by the counterparty is reached or (2) the
date at which the counterparty’s performance is complete.

Fair value of transaction should be based on the value of
the goods or services received, and only on the fair value
of the equity instruments if the fair value of the goods and
services cannot be reliably determined.

Measurement date is the date the entity obtains the
goods or the counterparty renders the services. No
performance commitment concept.

Measurement and recognition
of expense — awards with
graded vesting features

Entities make an accounting policy election to recognize
compensation cost for awards containing only service
conditions either on a straight-line basis or on an
accelerated basis, regardless of whether the fair value of
the award is measured based on the award as a whole or
for each individual tranche.

Must recognize compensation cost on an accelerated
basis — each individual tranche must be separately
measured.

Equity repurchase features at
employee’s election

Does not require liability classification if employee bears
risks and rewards of equity ownership for at least six
months from date equity is issued or vests.

Liability classification is required (no six-month
consideration exists).

Share-based payments

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21US GAAP vs. IFRS The basics: Life sciences

US GAAP IFRS

Deferred taxes Calculated based on the cumulative GAAP expense
recognized and trued up or down upon realization of the

tax asset is charged to shareholder equity to extent of

Calculated based on the estimated tax deduction
determined at each reporting date (for example, intrinsic
value).

If the tax deduction exceeds cumulative compensation
expense, deferred tax based on the excess is credited
to shareholder equity. If the tax deduction is less than
or equal to cumulative compensation expense, deferred
taxes are recorded in income.

terms that are improbable of
achievement

performance condition, which was previously improbable
of achievement, is probable of achievement as a result of

date. Grant date fair value of the original award is not
recognized.

Probability of achieving vesting terms before and after

the grant-date fair value of the award, together with any

Convergence

for share-based payments.

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43US GAAP vs. IFRS The basics: Life sciences

Page 48

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