International Standards Convergence

The equity method is used for business combinations when the investor can significantl influence the investee (between 20% and 50% ownership interest). The consolidation method is used when the investor can control the investee (greater than 50% ownership interest). In the case of joint control, proportionate consolidation is preferred under IFRS, but the equity method is required under U.S. GAAP.

Inventory is reported on the balance sheet at the lower of cost or net relizable value under IFRS and at the lower of cost or market under U.S. GAAP. A recovery of value subsequent to a writtedown can be recognized under IFRS but not under U.S. GAAP.

Under IFRS, the value of property and equipment and identifiable intangible assets can be revalued upward, but under U.S. GAAP, they cannot.

When the firm cannot reliably estimate the outcome of a project, it recognizes costs as revenue to the extent they are likely recoverable, but firms reporting under U.S. GAAP must use the completed contract method.

THe LIFO inventory cost method is permitted by U.S. GAAP but is prohibited under IFRS.

IFRS requires the depreciation method to allocate an asset's cost systematically over its useful life and reflect the pattern of asset consumption.

IFRS does not permit firms to treat items as "extraordinary items" on the income statement as they can under U.S. GAAP.

Under U.S. GAAP, individual paid are financing activities while interest paid or received and dividends received are operating activities. Under IFRS, dividends and interest paid can be reported as either operating activities or financing activities. Interest received and dividends received can be reported as either operating activities or financing activites. Interest received and dividends received can be reported as either operating activities or investing activities.

To compare financila statement ratios of firms reproting under U.S. GAAP and IFRS, an analyst must adjust the data for one of the firms to make the financial statements comparable.