U.S. GAAP and IFRS Equity Reporting Similarities

GLOBAL VIEW

This section discusses similarities and differences between U.S. GAAP and IFRS in accounting and reporting for equity. Accounting for Common Stock The accounting for and reporting of common stock under U.S. GAAP and IFRS are similar. Specifically, procedures for issuing common stock at par, at a premium, at a discount, and for noncash assets are similar across the two systems. However, we must be aware of legal and cultural differences across the world that can impact the rights and responsibilities of common shareholders. Nokia’s terminology is a bit different as it uses the phrase “share capital” in reference to what U.S. GAAP would title “common shares” (see Appendix A). It also discloses that it has issued (and outstanding) shares of 3,744,956,052. Accounting for Dividends Accounting for and reporting of dividends under U.S. GAAP and IFRS are consistent. This applies to cash dividends, stock dividends, and stock splits. For Nokia, a “dividend of EUR 0.40 per share is to be paid out on the shares of the Company.” Nokia, like many other companies, follows a dividend policy set by management and its board. Accounting for Preferred Stock Accounting and reporting for preferred stock are similar for U.S. GAAP and IFRS, but there are some important differences. First, preferred stock that is redeemable at the option of the preferred stockholders is reported between liabilities and equity in U.S. GAAP balance sheets. However, that same stock is reported as a liability in IFRS balance sheets. Second, the issue price of convertible preferred stock (and bonds) is recorded entirely under preferred stock (or bonds) and none is assigned to the conversion feature under U.S. GAAP. However, IFRS requires that a portion of the issue price be allocated to the conversion feature when it exists. Nokia has no preferred stock. Accounting for Treasury Stock Both U.S. GAAP and IFRS apply the principle that companies do not record gains or losses on transactions involving their own stock. This applies to purchases, reissuances, and retirements of treasury stock. Consequently, the accounting for treasury stock explained in this chapter is consistent with that under IFRS. However, IFRS in this area is less detailed than that of U.S. GAAP. Nokia’s policy regarding treasury stock follows: “[It] recognizes acquired treasury shares as a deduction from equity at their acquisition cost.”