Income statements present an ordered list, grouped by broad categories of revenues and expenses. The income statement begins with revenues followed by a list of expenses. U.S. GAAP and IFRS requirements for the presentation of income statements are similar, with some important differences.
*Other than separating revenues from expenses, U.S. GAAP provides little guidance about which items the firm must separately display or their order. IFRS requires, at a minimum, the separate display of revenues, financing costs (for example, interest expense), income tax expense, profit or loss for the period, and certain other items.3 *Both U.S. GAAP and IFRS require the separate display of items whose size, nature, or frequency of occurrence make such separate display necessary for accurately portraying performance.
*Both U.S. GAAP and IFRS require separate display of items related to discontinued operations, a topic discussed in Chapter 14.
*IFRS requires separate display of the portion of profit or loss attributable to the minor- ity (noncontrolling) interest and the portion attributable to the parent entity, a topic dis- cussed in more detail in Chapter 13. U.S. GAAP contains a similar requirement starting in 2009 for most firms.
*IFRS permits firms to present expenses by either nature or function; although U.S. GAAP is silent on this issue, guidance from the Securities and Exchange Commission requires registrants to classify expenses by function.4
Revenue recognition refers to the timing and measurement of revenues. Management applies the revenue recognition criteria of authoritative guidance to decide whether a given transac- tion meets the criteria and so results in recording revenues (and the related expenses). Reve- nue recognition is among the most complex issues in financial reporting. As of the writing of this textbook, U.S. GAAP contains over 200 pieces of authoritative guidance for recognizing revenues....