U.S. GAAP vis-à-vis IFRS Explained Fully

GLOBAL VIEW

This section discusses similarities and differences for the accounting and reporting of investments when financial statements are prepared under U.S. GAAP vis-à-vis IFRS. Accounting for Noninfluential Securities The accounting for noninfluential securities is broadly similar between U.S. GAAP and IFRS. Trading securities are accounted for using fair values with unrealized gains and losses reported in net income as fair values change. Available-for-sale securities are accounted for using fair values with unrealized gains and losses reported in other comprehensive income as fair values change (and later in net income when realized). Held-to-maturity securities are accounted for using amortized cost. Similarly, companies have the option under both systems to apply the fair value option for available-for-sale and held-to-maturity securities. Also, both systems review held-to-maturity securities for impairment. There are some differences in terminology under IFRS: (1) trading securities are commonly referred to as financial assets at fair value through profit and loss, and (2) available-for-sale securities are commonly referred to as available-for-sale financial assets. Nokia reports the following categories for noninfluential securities: (1) Financial assets at fair value through profit or loss, consisting of financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss, (2) Available-for-sale financial assets, which are measured at fair value. Accounting for Influential Securities The accounting for influential securities is broadly similar across U.S. GAAP and IFRS. Specifically, under the equity method, the share of investee’s net income is reported in the investor’s income in the same period the investee earns that income; also, the investment account equals the acquisition cost plus the share of investee income less the share of investee dividends (minus amortization of excess on purchase price above fair value of identifiable, limited-life assets). Under the consolidation method, investee and investor revenues and expenses are combined, absent intercompany transactions, and subtracting noncontrolling interests. Also, nonintercompany assets and liabilities are similarly combined (eliminating the need for an investment account), and noncontrolling interests are subtracted from equity. There are some differences in terminology: (1) U.S. GAAP companies commonly refer to earnings from long-term investments as equity in earnings of affiliates whereas IFRS companies commonly use equity in earnings of associated (or associate) companies, (2) U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies commonly use noncontrolling interests.