Technical Resources

Technical Accounting Topics

Plain-English guides to the standards we work in every day - US GAAP, IFRS and the specialized areas where the details matter most.

Revenue Recognition

ASC 606, IFRS 15, five-step model, contract modifications, variable consideration

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Lease Accounting

ASC 842, IFRS 16, lease classification, right-of-use assets, lease modifications

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Financial Instruments

ASC 825, ASC 326, IFRS 9, fair value measurement, credit losses, hedge accounting

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Business Combinations

ASC 805, IFRS 3, acquisition method, goodwill, intangible assets, contingent consideration

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Stock-Based Compensation

ASC 718, fair value measurement, grant date, vesting conditions, modifications

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Income Taxes

ASC 740, deferred taxes, valuation allowances, uncertain tax positions, FIN 48

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Consolidations

ASC 810, VIEs, primary beneficiary, equity method, non-controlling interests

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Foreign Currency

ASC 830, IAS 21, functional currency, translation, remeasurement, CTA

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Fair Value Measurement

ASC 820, IFRS 13, fair value hierarchy, valuation techniques, disclosures

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Derivatives & Hedging

ASC 815, IFRS 9, fair-value / cash-flow / net-investment hedges, effectiveness, embedded derivatives

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Pensions & Postretirement

ASC 715, IAS 19, defined benefit obligation, net periodic cost, remeasurements, corridor

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Goodwill & Impairment

ASC 350, ASC 360, IAS 36, reporting units, recoverability, value in use, reversals

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Earnings Per Share

ASC 260, IAS 33, basic vs diluted, treasury-stock & if-converted methods, two-class method

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Segment Reporting

ASC 280, IFRS 8, management approach, CODM, aggregation, 10% & 75% thresholds

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Statement of Cash Flows

ASC 230, IAS 7, operating / investing / financing, classification puzzles, restricted cash

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Going Concern

ASC 205-40, IAS 1, substantial doubt, look-forward period, management's plans, disclosure

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Crypto & Digital Assets

ASC 350-60 (ASU 2023-08), fair-value model, scope criteria, presentation & disclosure

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Revenue Recognition (ASC 606 / IFRS 15)

The revenue recognition standards (ASC 606 in the US and IFRS 15 internationally) establish a comprehensive framework for recognizing revenue from contracts with customers. Both standards follow a five-step model to ensure consistent revenue recognition across industries and jurisdictions.

Five-Step Model

Identify the Contract: Determine whether a contract exists per ASC 606-10-25-1 (contract must have approval, identify rights and obligations, payment terms, commercial substance and collectibility likely)
Identify Performance Obligations: Determine distinct goods or services promised in the contract (per ASC 606-10-25-19, distinct if customer can benefit on its own and separately identifiable)
Determine Transaction Price: Calculate the amount of consideration expected to be received, including variable consideration (estimated using expected value or most likely amount method)
Allocate Transaction Price: Allocate the transaction price to each performance obligation based on standalone selling prices (direct, adjusted market, or residual approach)
Recognize Revenue: Recognize revenue when (or as) each performance obligation is satisfied (point in time vs. over time per ASC 606-10-25-27)

Key Technical Considerations

Contract Modifications: Account for changes as separate contract, termination, or adjustment to existing contract per ASC 606-10-25-13
Variable Consideration: Constrain estimates using the constraint in ASC 606-10-32-11 (only include to extent reversal not probable)
Contract Costs: Capitalize incremental costs to obtain contracts (if recoverable) and costs to fulfill contracts (if meet criteria in ASC 340-40-25-5)
Principal vs. Agent: Determine whether entity is principal (control before transfer) or agent (facilitate) per ASC 606-10-55-36

Lease Accounting (ASC 842 / IFRS 16)

The lease accounting standards fundamentally changed lease accounting by requiring lessees to recognize most leases on the balance sheet. ASC 842 (US GAAP) maintains a dual model distinguishing operating and finance leases, while IFRS 16 uses a single model for all leases (except short-term and low-value leases).

US GAAP (ASC 842)

Operating vs. finance lease classification using quantitative and qualitative criteria
Operating leases: straight-line expense recognition
Finance leases: interest and amortization pattern
Lessor accounting largely unchanged from ASC 840

IFRS 16

Single model: all leases recognized on balance sheet
Right-of-use asset and lease liability at commencement
Interest method for liability, systematic basis for asset
Exemptions: short-term (≤12 months) and low-value leases

Technical Implementation

Lease Term: Include non-cancellable period plus periods covered by options if reasonably certain to exercise per ASC 842-10-30-1
Discount Rate: Lessee's incremental borrowing rate unless implicit rate readily determinable (ASC 842-20-30-3)
Lease Modifications: Account as separate lease, remeasurement, or combination per ASC 842-10-25-8
Embedded Leases: Identify and separate lease components from non-lease components (ASC 842-10-15-28)

Financial Instruments (ASC 825, 326 / IFRS 9)

Fair Value Measurement (ASC 820 / IFRS 13)

Establishes framework for measuring fair value and disclosure requirements:

Fair Value Hierarchy: Level 1 (quoted prices), Level 2 (observable inputs), Level 3 (unobservable inputs)
Valuation Techniques: Market approach, income approach, cost approach
Principal Market: Market with greatest volume and level of activity for asset/liability

Credit Losses (ASC 326)

Current Expected Credit Loss (CECL) model requires:

Lifetime Expected Credit Losses: Recognize lifetime expected losses at origination/acquisition
Forward-Looking Information: Incorporate reasonable and supportable forecasts
Reversion to Historical Loss: After reasonable forecast period, revert to historical loss information

IFRS 9 Classification & Measurement

Financial assets classified based on:

Business Model Test: How entity manages financial assets to generate cash flows
Contractual Cash Flow Characteristics Test: SPPI (Solely Payments of Principal and Interest) test
Measurement Categories: Amortized cost, FVOCI, FVPL

Business Combinations (ASC 805 / IFRS 3)

All business combinations are accounted for using the acquisition method, which requires measurement at fair value of consideration transferred, assets acquired and liabilities assumed at the acquisition date.

Acquisition Method

Identify Acquirer: Entity that obtains control (per ASC 810-10-25)
Determine Acquisition Date: Date acquirer obtains control
Recognize & Measure: Identify and measure assets acquired, liabilities assumed and non-controlling interests at fair value
Recognize & Measure Goodwill or Gain: Calculate goodwill or bargain purchase gain

Key Technical Areas

Contingent Consideration: Fair value of earnouts and other contingent payments recognized at acquisition date (ASC 805-30-25-5)
Intangible Assets: Recognized separately from goodwill if identifiable (contractual, legal, or separable per ASC 805-20-55-2)
Measurement Period: Up to one year to finalize acquisition accounting (ASC 805-10-25-13)
Step Acquisitions: Remeasure previously held equity interest at fair value, recognize gain/loss in earnings

Stock-Based Compensation (ASC 718)

ASC 718 requires entities to measure the cost of share-based payment awards based on the fair value of the equity instruments issued. This standard applies to all share-based payment transactions, including stock options, restricted stock, stock appreciation rights and employee stock purchase plans.

Fair Value Measurement

The fair value of share-based payment awards is measured at the grant date using an option-pricing model that takes into account various factors including exercise price, expected term, volatility, risk-free interest rate and expected dividends.

Black-Scholes Model: Most commonly used for employee stock options (ASC 718-10-55-15)
Binomial Model: Alternative approach that can accommodate more complex terms and conditions
Market Price: For traded options or restricted stock, use observable market prices when available

Key Technical Considerations

Grant Date: Date at which employer and employee reach mutual understanding of key terms and conditions (ASC 718-10-25-5)
Vesting Conditions: Service conditions, performance conditions and market conditions affect expense recognition and measurement
Graded Vesting: Expense recognized ratably over each separately vesting portion (ASC 718-10-35-8)
Modifications: Account for modifications by measuring incremental fair value and recognizing as additional compensation cost (ASC 718-20-35-3)
Forfeitures: Estimate expected forfeitures and adjust compensation cost accordingly (ASC 718-10-35-3)

Income Taxes (ASC 740)

ASC 740 establishes the accounting and disclosure requirements for income taxes, including both current and deferred taxes. The standard requires recognition of deferred tax assets and liabilities for temporary differences between financial statement carrying amounts and tax bases.

Deferred Tax Accounting

Deferred taxes arise from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases.

Identify Temporary Differences: Differences that will result in taxable or deductible amounts in future years when the carrying amount is recovered or settled
Determine Tax Rate: Use enacted tax rates expected to apply in periods when temporary differences reverse (ASC 740-10-30-8)
Recognize Deferred Tax Asset/Liability: Measure at enacted tax rates (ASC 740-10-30-2)
Valuation Allowance: Reduce deferred tax assets by valuation allowance if "more likely than not" that some portion will not be realized (ASC 740-10-30-18)

Key Technical Areas

Uncertain Tax Positions (FIN 48 / ASC 740-10-25): Recognize only if more likely than not to be sustained upon examination; measure as largest amount with >50% likelihood of being realized
Interim Tax Accounting: Estimate annual effective tax rate and apply to year-to-date income; account for discrete items in period incurred (ASC 740-270-30-6)
Intraperiod Tax Allocation: Allocate total income tax expense (or benefit) to continuing operations, discontinued operations and other comprehensive income
Change in Tax Law: Recognize effect of tax law changes in period of enactment, including effects on deferred tax assets and liabilities

Consolidations (ASC 810)

ASC 810 establishes the accounting and reporting requirements for consolidating financial statements when one entity has a controlling financial interest in another. The standard addresses both voting interest entities and variable interest entities (VIEs).

Variable Interest Entities (VIEs)

A VIE is a legal entity in which equity investors lack one or more of the characteristics of a controlling financial interest, typically including insufficient equity at risk, lack of decision-making rights, or lack of obligation to absorb losses or right to receive returns.

Primary Beneficiary Determination: Entity that has power to direct activities that most significantly impact VIE's economic performance and obligation to absorb losses or right to receive benefits (ASC 810-10-25-38A)
Consolidation Requirements: Primary beneficiary must consolidate VIE regardless of voting interest percentage

Equity Method of Accounting

Applied to investments in associates and joint ventures where significant influence exists but control is not obtained:

Initial Measurement: Record investment at cost and adjust for investor's share of investee's net income or loss
Subsequent Measurement: Adjust carrying amount for share of investee's earnings or losses and dividends received
Impairment: Evaluate for impairment when decline in fair value below carrying amount is other than temporary

Consolidation Procedures

Elimination Entries: Eliminate intercompany balances, transactions and profits in consolidation
Non-Controlling Interests: Present separately from parent's equity in consolidated financial statements (ASC 810-10-45-15)
Step Acquisitions: Remeasure previously held equity interest at fair value upon obtaining control, recognize gain or loss in earnings

Foreign Currency (ASC 830 / IAS 21)

ASC 830 (US GAAP) and IAS 21 establish accounting and reporting requirements for foreign currency transactions and translation of foreign currency financial statements. The standards address functional currency determination, translation methods and recognition of foreign currency gains and losses.

Functional Currency

Currency of the primary economic environment in which entity operates (ASC 830-10-45-5):

Currency in which entity generates and expends cash
Currency of country whose competitive forces determine prices
Currency in which financing is obtained and funds are remitted

Translation vs. Remeasurement

Translation (Current Rate Method): Used when functional currency differs from reporting currency; translate all assets/liabilities at current rate, income/expenses at average rate
Remeasurement (Temporal Method): Used when functional currency is reporting currency; remeasure monetary items at current rate, nonmonetary items at historical rates

Key Technical Considerations

Foreign Currency Transactions: Recognize transaction gains and losses in earnings when exchange rates change (ASC 830-20-35-1)
Cumulative Translation Adjustment (CTA): Accumulated in other comprehensive income (OCI) and reclassified to earnings upon disposal of investment (ASC 830-30-45-12)
Hedge Accounting: Designation of hedges for foreign currency exposure, including cash flow hedges and fair value hedges
Hyperinflation: Special accounting for operations in hyperinflationary economies (ASC 830-10-45-11)

Fair Value Measurement (ASC 820 / IFRS 13)

ASC 820 (US GAAP) and IFRS 13 establish a comprehensive framework for measuring fair value and require extensive disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value Hierarchy

Fair value measurements are categorized into a three-level hierarchy based on the inputs used in the valuation:

Level 1 Inputs

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date (ASC 820-10-35-40)

Level 2 Inputs

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (ASC 820-10-35-47)

Level 3 Inputs

Unobservable inputs for the asset or liability, used when observable inputs are not available (ASC 820-10-35-52)

Valuation Techniques

Market Approach: Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
Income Approach: Converts future amounts (cash flows or earnings) to a single present value amount using current market expectations about those amounts
Cost Approach: Reflects the amount that would be required to replace the service capacity of an asset (replacement cost)
Principal Market: Market with greatest volume and level of activity for the asset or liability (ASC 820-10-35-6)
Disclosures: Extensive disclosure requirements including fair value hierarchy classification, valuation techniques and sensitivity analysis for Level 3 measurements (ASC 820-10-50)

Derivatives & Hedge Accounting (ASC 815 / IFRS 9)

Every derivative is recognized on the balance sheet at fair value, with changes in fair value running through earnings unless the instrument is designated in a qualifying hedging relationship. Hedge accounting exists precisely to correct that timing mismatch - aligning the recognition of the hedging instrument with the item it economically offsets.

Identifying a Derivative

An instrument is a derivative when it has all three characteristics in ASC 815-10-15-83:

Underlying & Notional: One or more underlyings and one or more notional amounts (or payment provisions, or both)
Little or No Initial Net Investment: Smaller than would be required for other contracts expected to respond similarly to market factors
Net Settlement: Terms require or permit net settlement, net settlement occurs outside the contract, or the asset delivered is readily convertible to cash

Fair Value Hedge

Hedges exposure to changes in the fair value of a recognized asset, liability, or firm commitment. The gain or loss on both the hedging instrument and the hedged item (attributable to the hedged risk) is recognized currently in earnings.

Cash Flow Hedge

Hedges exposure to variability in expected future cash flows. The gain or loss is reported in OCI and reclassified to earnings in the period the hedged forecasted transaction affects earnings (ASC 815-30-35).

Key Technical Considerations

Net Investment Hedge: Hedges the foreign-currency exposure of a net investment in a foreign operation; effective portion recorded in the cumulative translation adjustment within OCI
Hedge Documentation & Effectiveness: Formal designation and documentation required at inception; ASU 2017-12 eased effectiveness assessment and allows qualitative reassessment after an initial quantitative test
Portfolio Layer Method: Permits hedging a stated layer of a closed or open portfolio of prepayable financial assets (ASU 2022-01)
Embedded Derivatives: Bifurcate and account for separately when economic characteristics are not clearly and closely related to the host and the hybrid is not measured at FVPL (ASC 815-15-25-1)

Pensions & Postretirement Benefits (ASC 715 / IAS 19)

Defined benefit plans are among the most estimate-heavy areas in financial reporting: the obligation depends on actuarial assumptions about discount rates, salary progression, mortality and turnover and small changes in those inputs move the balance sheet materially. The funded status - plan assets at fair value less the benefit obligation - is recognized directly on the balance sheet (ASC 715-30-25-1).

Net Periodic Benefit Cost

Service Cost: Present value of benefits earned by employees during the period (the only component in operating income under ASU 2017-07)
Interest Cost: Increase in the projected benefit obligation (PBO) due to the passage of time
Expected Return on Plan Assets: Reduces cost based on the expected long-term rate of return
Amortization of Prior Service Cost: Cost of retroactive plan amendments recognized over remaining service periods
Gains & Losses: Actuarial gains/losses recognized in OCI and amortized to earnings using the corridor approach (amounts exceeding 10% of the greater of PBO or plan assets)

US GAAP vs IFRS - A Critical Divergence

Remeasurements (IAS 19): Actuarial gains/losses and the difference between actual and discount-rate return on assets are recognized in OCI and never recycled to profit or loss - unlike US GAAP, which amortizes them through earnings
Net Interest (IAS 19): A single net interest figure is computed by applying the discount rate to the net defined benefit liability/asset, replacing the separate interest cost and expected return mechanics of US GAAP
Discount Rate: Both frameworks reference high-quality corporate bond yields matched to the timing of benefit payments

Goodwill & Long-Lived Asset Impairment (ASC 350, 360 / IAS 36)

Impairment models differ sharply by asset type and framework - and the differences are not cosmetic. The recoverability screen for long-lived assets, the reporting-unit lens for goodwill and IFRS's single recoverable-amount test (with reversals) all produce different answers from the same facts.

Goodwill (ASC 350-20)

No Amortization: Goodwill is not amortized but tested for impairment at least annually at the reporting-unit level and between annual tests when a triggering event occurs
Optional Qualitative Screen (Step 0): Assess whether it is more likely than not that fair value is below carrying amount before performing a quantitative test
Quantitative Test: Compare the fair value of the reporting unit to its carrying amount; impairment equals the excess, limited to the goodwill balance (ASU 2017-04 eliminated the old Step 2 hypothetical purchase-price allocation)
Private-Company Alternative: Elect to amortize goodwill over 10 years (or less) and test only on a triggering event

Long-Lived Assets Held and Used (ASC 360-10-35)

Recoverability Test: Compare the asset group's carrying amount to the undiscounted expected future cash flows; no impairment if cash flows exceed carrying amount
Measurement: If the test fails, impairment equals carrying amount less fair value

The IAS 36 Contrast

Single-Step Test: Carrying amount is compared directly to the recoverable amount - the higher of fair value less costs of disposal and value in use (discounted cash flows)
Cash-Generating Units: Goodwill is tested at the CGU (or group of CGUs) level, generally smaller than a US GAAP reporting unit
Reversals: Impairment losses (except those on goodwill) are reversed if the recoverable amount recovers - prohibited under US GAAP

Earnings Per Share (ASC 260 / IAS 33)

EPS looks simple until the capital structure is complex. Dilutive securities, participating instruments and contingently issuable shares each demand a specific mechanic and the order of inclusion matters because a security that is dilutive in isolation can be antidilutive in sequence.

Basic vs Diluted

Basic EPS: Income available to common shareholders (net income less preferred dividends) divided by the weighted-average common shares outstanding
Treasury Stock Method: For options and warrants - assume exercise and that proceeds repurchase shares at the average market price; only the net incremental shares are dilutive
If-Converted Method: For convertible debt and convertible preferred - assume conversion at the start of the period, adding back related after-tax interest or preferred dividends to the numerator
Contingently Issuable Shares: Included in diluted EPS once all necessary conditions are met (ASC 260-10-45-48)

Key Technical Considerations

Antidilution Sequencing: Rank potential common shares from most to least dilutive and test cumulatively; exclude any security that increases EPS or reduces a loss per share
Two-Class Method: Allocate earnings to participating securities (those sharing in dividends) and common stock per their respective rights (ASC 260-10-45-60B)
Presentation: Present basic and diluted EPS for continuing operations and net income on the face of the income statement

Segment Reporting (ASC 280 / IFRS 8)

Segment reporting follows the management approach: segments are defined by how the chief operating decision maker (CODM) actually allocates resources and assesses performance - not by legal structure or product taxonomy. ASU 2023-07 significantly expanded the required disclosures, including significant segment expenses regularly provided to the CODM.

Identifying Reportable Segments

Operating Segments: Components that earn revenue and incur expenses, whose results the CODM reviews and for which discrete financial information is available (ASC 280-10-50-1)
Aggregation: Operating segments may be combined only if they have similar economic characteristics and are similar across products, processes, customers, distribution and regulatory environment
Quantitative Thresholds: A segment is reportable if its revenue, absolute profit or loss, or assets are 10% or more of the combined total
75% Coverage Test: Add segments until external revenue of reportable segments reaches at least 75% of consolidated revenue

Required Disclosures

Segment Measures: Profit or loss, significant expense categories, assets and the basis of measurement, reconciled to consolidated totals
Entity-Wide Disclosures: Revenue by product/service, by geography and reliance on major customers (those representing 10% or more of revenue)
CODM Disclosure (ASU 2023-07): Identify the CODM and explain how reported measures are used to assess performance and allocate resources

Statement of Cash Flows (ASC 230 / IAS 7)

The cash flow statement is conceptually straightforward and operationally treacherous. Most restatements in this area stem not from arithmetic but from classification - whether a given cash movement is operating, investing, or financing - an area ASU 2016-15 was issued specifically to standardize.

The Three Sections

Operating: Cash effects of transactions entering into the determination of net income; presented under the direct or (far more common) indirect method, which reconciles net income to operating cash flow
Investing: Acquisition and disposal of long-term assets and other investments not classified as cash equivalents
Financing: Changes in the size and composition of equity and borrowings, including dividends paid

Classification Puzzles (ASU 2016-15) & Other Issues

Debt Prepayment / Extinguishment Costs: Financing outflows
Contingent Consideration Payments: Split between financing (up to acquisition-date fair value) and operating (excess)
Distributions from Equity-Method Investees: Apply either the cumulative-earnings or nature-of-distribution approach
Restricted Cash (ASU 2016-18): Include restricted cash in the beginning and ending totals reconciled on the statement
Noncash Activities: Disclose significant noncash investing and financing transactions (e.g., assets acquired under leases, debt converted to equity)

Going Concern (ASC 205-40 / IAS 1)

The going concern assumption underlies the entire balance sheet. ASC 205-40 places the evaluation squarely on management, on every reporting period (annual and interim) and sets a specific threshold and look-forward window that drive whether - and how - doubt must be disclosed.

Management's Evaluation

Look-Forward Period: Assess conditions known and reasonably knowable within one year after the date the financial statements are issued (or available to be issued)
Substantial Doubt Threshold: Doubt exists when it is probable the entity will be unable to meet its obligations as they become due within that period
Consider Management's Plans: Plans that are probable of being effectively implemented and of mitigating the conditions may alleviate the substantial doubt

Disclosure Outcomes

Doubt Alleviated by Plans: Disclose the principal conditions, management's evaluation and the plans that mitigate them
Doubt Not Alleviated: Add an explicit statement that there is substantial doubt about the entity's ability to continue as a going concern
IFRS (IAS 1) Contrast: Uses a "material uncertainties" model without the bright-line one-year window or the "probable" threshold of US GAAP

Crypto & Digital Assets (ASC 350-60)

For years, crypto assets were trapped in the indefinite-lived intangible model - measured at cost less impairment, with no ability to mark up recoveries. ASU 2023-08 changed that, introducing a fair-value model that finally reflects the economics of these holdings.

Scope Criteria (ASC 350-60-15)

An asset is in scope only if it meets all of the following - notably excluding wrapped tokens, NFTs and an issuer's own tokens:

Meets the definition of an intangible asset and is not a financial asset
Does not provide the holder with enforceable rights to, or claims on, underlying goods, services, or other assets
Is created or resides on a distributed ledger based on blockchain or similar technology
Is secured through cryptography, is fungible and is not created or issued by the reporting entity or its related parties

Measurement & Presentation

Fair Value Through Net Income: Remeasure each period at fair value with changes recognized in net income - replacing the impairment-only model
Separate Presentation: Present in-scope crypto assets separately from other intangibles on the balance sheet and crypto gains/losses separately in the income statement
Disclosures: Significant holdings, restrictions and a reconciliation of activity during the period
Effective Date: Fiscal years beginning after December 15, 2024, with a cumulative-effect adjustment to opening retained earnings on adoption

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