Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

DIFFERENCES BETWEEN US GAAP AND IFRS

Table 6.3 shows the differences between US GAAP and IFRS in respect of treatment of derivatives.

Table 6.3 Derivatives treatment

Topic	US GAAP	IFRS
Definition	A derivative is a financial instrument:	Same as US GAAP except that there is requirement that the contract should permit net settlement
• whose value changes in response to a specified variable or underlying rate (for example, interest rate);
• that requires no or little net investment;
• that is settled at a future date; and
• that permits net settlement
Initial measurement	Measured at fair value and on acquisition date and presented in balance sheet	Same as US GAAP
Subsequent measurement	Measured at fair value on subsequent valuation date and presented in balance sheet. This is irrespective of whether the derivative instrument is a hedging instrument or not	Same as US GAAP except that a derivative that should be settled by delivery of an equity shares that is unquoted and whose fair value cannot be reliably measured is carried at cost less impairment until settlement
Changes in Fair Value of derivative instrument	Recognized in the income statement. However if the instrument qualifies as a hedge then income recognized as per the hedge accounting norms	Same as US GAAP