Difference Between Mexican Gaap and Us Gaap

ACCOUNTING FUNDAMENTALS

DIFFERENCES BETWEEN MEXICAN GAAP VS. U.S. GAAP

Mexico’s generally accepted accounting practices don’t necessarily match the ones from the U.S., even tough in 1997, the National banking and securities commission announce that the Mexican banking system was going to adopt the U.S. accounting practices.

In different situations, we can still encounter several differences between the GAAP’s from Mexico and the ones applied by American companies. The Mexican GAAP’s critical factors that differ from the U.S. GAAP’s are:

• Recognition of inflation effects

In Mexico, there is the habit to record inflation through the restate of figures. For example: if a product generates a cost or sales of $50 pesos and there is a 50% inflation within a year, that cost or sale is refigured at $100 pesos. U.S. accountants are accustomed to record numbers based on the actual costs, without adding the inflation and making those adjustments. Mexico makes this adjustments openly, reporting them as an adjusting entries.

• Deferred income tax and employee’s statutory profit sharing

Mexican GAAP’s deferred income tax is accounted under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax and employees statutory profit sharing is recognized only for timing differences arising from the reconciliation of book income to income...