# Gaap Standards > US GAAP Standards - Skill: `brainbytes-dev/gaap-standards` (Agent Skill) - Install (CLI): `npx skillmds@latest add brainbytes-dev/gaap-standards` - Raw SKILL.md: https://api.skillmd.com/api/skills/brainbytes-dev/gaap-standards/raw - Safety review: pending - Works with: Claude Code, Claude.ai, OpenAI Codex - Category: Finance & Business - Author: brainbytes-dev (https://skillmd.com/u/brainbytes-dev) - Updated: 2026-09-17 - Page: https://skillmd.com/skills/brainbytes-dev/gaap-standards --- # US GAAP Standards name: gaap-standards description: Key US GAAP standards — ASC 606, 842, 350, 805 ## When to Activate - User asks about US GAAP accounting treatment for revenue, leases, goodwill, or business combinations - Applying ASC 606 revenue recognition - Accounting for leases under ASC 842 - Goodwill and intangible asset impairment testing under ASC 350 - Purchase price allocation under ASC 805 - Income tax accounting under ASC 740 - Comparing IFRS vs US GAAP treatment ## Core Concepts ### ASC 606 — Revenue from Contracts with Customers ASC 606 mirrors IFRS 15 with the same five-step model. Key differences from IFRS 15 are narrow but important. **Five-step model (same as IFRS 15):** 1. Identify the contract 2. Identify performance obligations 3. Determine the transaction price 4. Allocate the transaction price to POs 5. Recognize revenue as POs are satisfied **Key US GAAP-specific guidance:** - **Licensing:** ASC 606 provides specific guidance for IP licenses — functional IP (recognized at a point in time) vs symbolic IP (recognized over time) - **Contract costs:** ASC 340-40 requires capitalizing incremental costs of obtaining a contract (e.g., sales commissions) and amortizing over the benefit period - **Disclosure:** Extensive disaggregation requirements (by geography, timing, type) **Practical expedients:** - Portfolio approach: apply to a portfolio of contracts with similar characteristics - Significant financing component: ignore if payment expected within 1 year - Shipping and handling: may treat as fulfillment activity (not separate PO) - Completed contracts: no need to restate contracts completed before adoption ### ASC 842 — Leases Unlike IFRS 16, ASC 842 retains a dual classification model for lessees. **Classification test (any ONE triggers finance lease):** 1. Transfer of ownership at end of lease 2. Purchase option reasonably certain to be exercised 3. Lease term is major part (≥ 75% rule of thumb) of asset's economic life 4. PV of lease payments is substantially all (≥ 90% rule of thumb) of fair value 5. Asset is specialized with no alternative use to lessor **Finance lease (formerly capital lease):** ``` Balance sheet: ROU asset + lease liability (same as IFRS 16) P&L: Amortization of ROU asset (straight-line, in operating expense) + Interest on lease liability (front-loaded, in interest expense) = Total expense is front-loaded Cash flow: Interest in operating; principal in financing ``` **Operating lease:** ``` Balance sheet: ROU asset + lease liability (same recognition as IFRS 16) P&L: Single lease expense, recognized straight-line over lease term (allocated between amortization and interest for BS purposes, but reported as a single operating expense line) = Total expense is straight-line Cash flow: All payments in operating activities ``` **Key difference from IFRS 16:** Operating leases under ASC 842 produce straight-line expense (not front-loaded). This affects EBITDA, operating income, and interest expense comparability. ### ASC 350 — Goodwill and Other Intangible Assets **Goodwill impairment (simplified one-step test since ASU 2017-04):** ``` Step 1 (optional): Qualitative assessment — is it more likely than not (>50%) that fair value of reporting unit < carrying amount? If no, stop — no impairment. Step 2 (quantitative): Compare fair value of reporting unit to its carrying amount (including goodwill). If FV < Carrying Amount → impairment loss = Carrying Amount - FV Impairment loss cannot exceed the goodwill allocated to that reporting unit. ``` **Key differences from IFRS (IAS 36):** - US GAAP tests at the reporting unit level (one level below operating segment) - IFRS tests at the CGU level (often smaller) - US GAAP uses fair value; IFRS uses the higher of fair value less costs of disposal and value in use - Under IFRS, goodwill impairment is never reversed; same under US GAAP - US GAAP allows the qualitative assessment (Step 0); IFRS does not have an explicit qualitative screen **Indefinite-lived intangible assets (e.g., trade names):** - Annual impairment test: compare fair value to carrying amount - If FV < carrying → impairment loss recognized - Same qualitative assessment option available **Finite-lived intangible assets:** - Amortized over useful life - Tested for impairment only when triggering events occur (ASC 360 two-step test) ### ASC 805 — Business Combinations **Acquisition method (same framework as IFRS 3):** ``` Goodwill = Consideration transferred (FV) + NCI (at fair value or proportionate share — policy election per deal) - Net identifiable assets acquired at fair value ``` **Key US GAAP-specific differences from IFRS 3:** - **Contingent consideration:** Both IFRS and US GAAP measure at fair value at acquisition. Subsequent remeasurement through P&L under both, but US GAAP has more detailed guidance on classification (liability vs equity). - **In-process R&D:** Capitalized as an intangible asset (indefinite-lived until project completes or is abandoned); under IFRS 3, same treatment. - **Bargain purchase:** Gain recognized in P&L immediately (IFRS 3: same, but reassess measurements first). - **Measurement period:** Up to 1 year; adjustments are retrospective during the measurement period. **Acquisition-related costs:** Expensed as incurred (not part of consideration). Same under IFRS 3. ### ASC 740 — Income Taxes **Deferred tax framework:** ``` Temporary Difference = Book Basis of Asset/Liability - Tax Basis If Book Basis of Asset > Tax Basis → Deferred Tax Liability (DTL) If Book Basis of Asset < Tax Basis → Deferred Tax Asset (DTA) (Reverse for liabilities) ``` **DTA recognition:** - US GAAP: recognize DTA in full, then assess need for a valuation allowance - Valuation allowance if "more likely than not" (>50%) that some/all DTA will not be realized - Sources of taxable income to support DTA: reversing DTLs, future taxable income, tax planning strategies, carryback availability **Key differences from IFRS (IAS 12):** - IFRS recognizes DTA only to the extent it is "probable" that taxable profit will be available (no valuation allowance concept) - US GAAP recognizes full DTA then assesses valuation allowance (gross-up approach) - US GAAP prohibits discounting deferred taxes; IFRS also prohibits discounting - US GAAP uses enacted tax rates; IFRS uses enacted or substantively enacted rates **Tax rate reconciliation:** ``` Statutory Rate ___% + State taxes (net of federal benefit) ___% + Non-deductible expenses ___% - Tax-exempt income (__%) + Foreign rate differential ___% + Valuation allowance change ___% + Other ___% = Effective Tax Rate ___% ``` ## Methodology ### IFRS vs US GAAP Key Differences Summary | Topic | US GAAP | IFRS | |-------|---------|------| | Revenue (general) | ASC 606 | IFRS 15 — largely converged | | Leases (lessee) | ASC 842: dual model (operating + finance) | IFRS 16: single model (all on BS, front-loaded) | | Goodwill impairment | One-step quantitative (or qualitative screen) | Higher of FVLCOD and VIU at CGU level | | Inventory | LIFO permitted | LIFO prohibited | | Development costs | Expensed (except software under ASC 985/350) | Capitalized if criteria met (IAS 38) | | Extraordinary items | Prohibited (since ASU 2015-01) | Prohibited (IAS 1) | | Deferred tax — DTA | Full recognition + valuation allowance | Recognize only if probable | | Revaluation of PP&E | Not permitted (cost model only) | Permitted (revaluation model, IAS 16) | | Contingencies | ASC 450: probable + estimable → accrue | IAS 37: probable (>50%) + reliable estimate → provision | | Business combinations | ASC 805 | IFRS 3 — largely converged | ### Common US GAAP Pitfalls - Forgetting to capitalize contract costs (ASC 340-40) — commissions on multi-year deals - Misclassifying operating vs finance leases — the 75%/90% bright lines are guidelines, not absolute rules - Not testing goodwill at the correct reporting unit level - Ignoring the requirement for a valuation allowance assessment each period - Inconsistent treatment of SBC in adjusted/non-GAAP metrics (SEC scrutiny) ## Templates ### US GAAP Compliance Checklist ``` === US GAAP COMPLIANCE CHECKLIST === Standard | Area | Status | Notes ASC 606 | Revenue policy documented | [ ] | ASC 606 | PO identification | [ ] | ASC 606 | Contract cost capitalization | [ ] | ASC 842 | Lease classification assessed | [ ] | ASC 842 | ROU assets/liabilities on BS | [ ] | ASC 842 | Discount rate documented | [ ] | ASC 350 | Reporting units defined | [ ] | ASC 350 | Annual goodwill impairment test | [ ] | ASC 350 | Indefinite-lived intangibles | [ ] | ASC 805 | PPA completed within 1 year | [ ] | ASC 805 | Contingent consideration FV | [ ] | ASC 740 | DTA valuation allowance | [ ] | ASC 740 | Rate reconciliation | [ ] | ASC 740 | Uncertain tax positions (FIN 48)| [ ] | ``` ### Lease Classification Decision Tree ``` === ASC 842 LEASE CLASSIFICATION === Does ownership transfer to lessee? → YES → Finance Lease → NO ↓ Is there a bargain purchase option? → YES → Finance Lease → NO ↓ Is lease term ≥ 75% of economic life? → YES → Finance Lease → NO ↓ Is PV of payments ≥ 90% of FV? → YES → Finance Lease → NO ↓ Is asset specialized? → YES → Finance Lease → NO → Operating Lease ``` ## Quality Gate Before finalizing US GAAP accounting, verify: - [ ] ASC 606: performance obligations are identified with documented basis for distinct/not distinct - [ ] ASC 606: SSP estimates are supportable and consistent period-over-period - [ ] ASC 606: contract costs (commissions) are capitalized and amortized per ASC 340-40 - [ ] ASC 842: lease classification (operating vs finance) is documented with quantitative support - [ ] ASC 842: all leases are on balance sheet (ROU asset and lease liability) - [ ] ASC 842: discount rate uses rate implicit in lease or IBR (not generic benchmark) - [ ] ASC 350: goodwill is allocated to reporting units and tested annually - [ ] ASC 350: triggering events are monitored between annual tests - [ ] ASC 805: all identifiable intangibles are separately recognized in PPA - [ ] ASC 805: acquisition costs are expensed, not capitalized - [ ] ASC 740: valuation allowance is assessed each reporting period - [ ] ASC 740: uncertain tax positions are evaluated under the two-step process (FIN 48) - [ ] All non-GAAP measures reconcile to the nearest GAAP measure (SEC compliance)