The major difference is that under US GAAP, the entire lifetime expected credit loss on financial instruments measured at amortized cost is recognized at inception, whereas under IFRS 9, generally only a portion of the lifetime expected credit loss is initially recognized. In addition to these classification differences, the interest income recognition models also differ between the frameworks. Further, although the credit impairment accounting guidance under both US GAAP and IFRS is an “expected” loss model, the guidance is not converged. At the same time, a debt instrument that is not in the form of a security (for example, a corporate loan) is accounted for at amortized cost even though both the security and the loan have similar economic characteristics. For example, available-for-sale (AFS) debt instruments that are securities in legal form are typically carried at fair value, even if there is no active market to trade the securities. Under US GAAP, the legal form of a debt instrument primarily drives classification. Under IFRS 9, investments in debt instruments are either measured at: (1) amortized cost, (2) FVOCI (with subsequent reclassification to profit or loss) or (3) FVTPL, depending on the entity’s business model for managing the assets and the cash flows characteristic of the instrument, regardless of legal form. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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