Introduction Now a days The number of countries that require or allow the use of IFRS for the preparation of financial statements by publicly held companies has continued to increase. In the United States, the Securities and Exchange Commission (SEC) is taking steps to determine whether to incorporate IFRS into the financial reporting system for U.S. issuers. The international standard-setting process began several decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations unable to establish their own accounting standards. But as the business world became more global, regulators, investors, large companies and auditing firms began to realize the importance of having common standards in all areas of the financial reporting chain. In a survey conducted in late 2007 by the International Federation of Accountants (IFAC), A large majority of accounting leaders from around the world agreed that a single set of international standards is important for economic growth.(2011 American Institute of CPAs)

Similarity & Difference between GAAP &IFRS Similarities There are many similarities in US GAAP and IFRS guidance on financial statement presentation. Under both sets of standards, the components of a complete set of financial statements include:  a statement of financial position,  a statement of profit and loss (i.e., income statement) and  a statement of comprehensive income (either a single continuous statement or two consecutive statements),  a statement of cash flows and  accompanying notes to the financial statements. Both standards also require the changes in shareholders’ equity to be presented.

However, US GAAP allows the changes in shareholders’ equity to be presented in the notes to the financial statements while IFRS requires the changes in shareholders’ equity to be presented as a separate statement. Further, both require that the financial statements be prepared on the accrual basis of accounting (with the exception of the cash flow statement) except for rare circumstances. Both sets of standards have similar concepts regarding materiality and consistency that entities have to consider in preparing their financial statements..

Differences Significant differences US GAAPIFRS Financial periods required Generally, comparative financial statements are presented; however, a single year may be presented in certain circumstances. Public companies must follow SEC rules, which typically require balance sheets for the two most recent years, while all other statements must cover the three-year period ended on the balance sheet date. Comparative information must be disclosed with respect to the previous period for all amounts reported in the current period’s financial statements

US GAAPIFRS Layout of balance sheet and income statement No general requirement within US GAAP to prepare the balance sheet and income statement in accordance with a specific layout; however, public companies must follow the detailed requirements in Regulation S-X. IFRS does not prescribe a standard layout, but includes a list of minimum line items. These minimum line items are less prescriptive than the requirements in Regulation S-X. Balance sheet — classification of deferred tax assets and liabilities Current or non-current classification, generally based on the nature of the related asset or liability, is required. All amounts classified as non-current in the balance sheet. Income statement — extraordinary items criteria Restricted to items that are both unusual and infrequent Prohibited.

US GAAPIFRS Income statement — classification of expenses No general requirement within US GAAP to classify income statement items by function or nature. However, SEC registrants are generally required to present expenses based on function (e.g., cost of sales, administrative). Entities may present expenses based on either function or nature (e.g., salaries, depreciation). However, if function is selected, certain disclosures about the nature of expenses must be included in the notes. Income statement — discontinued operations criteria Discontinued operations classification is for components held for sale or disposed of, provided that there will not be significant continuing cash flows or involvement with the disposed component Discontinued operations classification is for components held for sale or disposed of that are either a separate major line of business or geographical area or a subsidiary acquired exclusively with an intention to resell.

US GAAPIFRS Disclosure of performance measures No general requirements within US GAAP that address the presentation of specific performance measures. SEC regulations define certain key measures and require the presentation of certain headings and subtotals. Additionally, public companies are prohibited from disclosing non-GAAP measures in the financial statements and accompanying notes. Certain traditional concepts such as ―operating profit‖ are not defined; therefore, diversity in practice exists regarding line items, headings and subtotals presented on the income statement. IFRS permits the presentation of additional line items, headings and subtotals in the statement of comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance.

US GAAPIFRS Third balance sheet Not required.A third balance sheet is required as of the beginning of the earliest comparative period when there is a retrospective application of a new accounting policy, or a retrospective restatement or reclassifications that have a material effect on the balances of the third balance sheet. Related notes to the third balance sheet are not required Treatment of certain costs in interim periods Each interim period is viewed as an integral part of an annual period. As a result, certain costs that benefit more than one interim period may be allocated among those periods, resulting in deferral or accrual of certain costs. Each interim period is viewed as a discrete reporting period. A cost that does not meet the definition of an asset at the end of an interim period is not deferred, and a liability recognized at an interim reporting date must represent an existing obligation. Income taxes are accounted for based on an annual effective tax rate (similar to US GAAP).

Basis for Conclusions on IFRS 4 Insurance Contracts BC1. This Basis for Conclusions summaries the International Accounting Standards Board’s considerations in reaching the conclusions in IFRS 4 Insurance Contracts. Individual Board members gave greater weight to some factors than to others. Background BC2. The Board decided to develop an International Financial Reporting Standard(IFRS) on insurance contracts because: (a) there was no IFRS on insurance contracts, and insurance contracts were excluded from the scope of existing IFRSs that would otherwise have been relevant (eg IFRSs on provisions, financial instruments and intangible assets). (b) accounting practices for insurance contracts were diverse, and also often differed from practices in other sectors.

BC3 The Board’s predecessor organization, the International Accounting Standards Committee (IASC), set up a Steering Committee in 1997 to carry out the initial work on this project. In December 1999, the Steering Committee published an Issues Paper, which attracted 138 comment letters. The Steering Committee reviewed the comment letters and concluded its work by developing a report to the Board in the form of a Draft Statement of Principles (DSOP). The Board started discussing the DSOP in November The Board did not approve the DSOP or invite formal comments on it, but made it available to the public on the IASB’s Website.

BC4 Few insurers report using IFRSs at present, although many more are expected todo so from Because it was not feasible to complete this project for implementation in 2005, the Board split the project into two phases so that insurers could implement some aspects in The Board published its proposals for phase I in July 2003 as ED 5 Insurance Contracts. The deadline for comments was 31 October 2003 and the Board received 135 responses. After reviewing the responses, the Board issued IFRS 4 in March 2004.

BC5 The Board’s objectives for phase I were: (a) to make limited improvements to accounting practices for insurance contracts, without requiring major changes that may need to be reversed in phase II. (b) to require disclosure that (i) identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and (ii) helps users of those financial statements understand the amount,timing and uncertainty of future cash flows from insurance contracts.

Tentative conclusions for phase II BC6 The Board sees phase I as a stepping stone to phase II and is committed to completing phase II without delay once it has investigated all relevant conceptual and practical questions and completed its due process. In January 2003, the Board reached the following tentative conclusions for phase II: (a) The approach should be an asset-and-liability approach that would require an entity to identify and measure directly the contractual rights and obligations arising from insurance contracts, rather than create deferrals of inflows and outflows

(b) Assets and liabilities arising from insurance contracts should be measured at their fair value (c) As implied by the definition of fair value:1 (i) an undiscounted measure is inconsistent with fair value. (ii) expectations about the performance of assets should not be incorporated into the measurement of an insurance contract, directly or indirectly (unless the amounts payable to a policy holder depend on the performance of specific assets). (iii) the measurement of fair value should include an adjustment for the premium that marketplace participants would demand for risks and mark- up in addition to the expected cash flows. (iv) fair value measurement of an insurance contract should reflect the credit characteristics of that contract, including the effect of policyholder protections and insurance provided by governmental bodies or other guarantors. (d) The measurement of contractual rights and obligations associated with the closed book of insurance contracts should include future premiums specified in the contracts (and claims, benefits, expenses, and other additional cash flows resulting from those premiums) if, and only if: