IFRS Accounting Standards, issued by the IASB, are required or permitted for listed companies in well over a hundred jurisdictions. US GAAP, set by the FASB, is the framework for US domestic issuers. The two have converged on many topics, but meaningful differences remain, and they matter whenever a group reports under one framework and a subsidiary, investor or lender uses the other.
Philosophy: principles versus detail
IFRS is generally described as more principles-based, relying on judgement within broad requirements. US GAAP is generally more detailed and rules-based, with extensive industry-specific guidance and bright-line thresholds in some areas. The difference is one of degree, not absolute: both require significant judgement.
Key differences at a glance
| Topic | IFRS | US GAAP |
|---|---|---|
| Inventory cost formulas | LIFO is prohibited (IAS 2). FIFO or weighted average. | LIFO is permitted, alongside FIFO and weighted average. |
| Inventory write-downs | Write-down to net realisable value can be reversed, up to original cost. | Write-downs create a new cost basis and are not reversed. |
| Development costs | Capitalised once the IAS 38 criteria are met (technical feasibility, intention, ability, future benefits, resources, reliable measurement). | Generally expensed as incurred (with exceptions such as certain software costs). |
| Impairment reversal | Reversal allowed for assets other than goodwill (IAS 36). | Reversal of impairment losses on held-and-used long-lived assets is prohibited. |
| Property, plant and equipment | Cost model or revaluation model, by class (IAS 16). | Cost model only. |
| Leases (lessee) | A single model: nearly all leases on balance sheet, with depreciation and interest expense (IFRS 16). | Finance and operating classification retained. Operating leases give a single straight-line lease cost (ASC 842). |
| Goodwill | Not amortised. Annual impairment test (IAS 36). | Not amortised for public business entities. Private companies may elect to amortise. |
| Extraordinary items | Prohibited. | Prohibited (since 2015). |
This is a selective summary, not an exhaustive reconciliation. Details such as the scope of exceptions, the exact impairment testing mechanics and the treatment of specific industries differ further.
Impairment testing mechanics
IAS 36 compares the carrying amount to the recoverable amount (higher of fair value less costs of disposal and value in use) in a single step. US GAAP for long-lived assets first tests recoverability using undiscounted cash flows, and only if the asset fails measures the loss against fair value. The result: US GAAP impairments can be recognised later and are generally permanent, while IFRS impairments can occur earlier but may later be reversed.
Presentation and disclosure
IFRS does not prescribe a rigid layout for the primary statements, though IFRS 18 will introduce a more structured income statement from 2027. US GAAP, particularly for SEC registrants, follows detailed presentation rules (Regulation S-X). Many disclosures overlap, with different thresholds and format.
Using both frameworks
The SEC accepts IFRS financial statements from foreign private issuers without reconciliation to US GAAP, but US domestic issuers must use US GAAP. Groups with a US parent and IFRS-reporting subsidiaries typically maintain a bridge schedule of GAAP adjustments, and restate on consolidation.
Where this typically goes wrong
- Assuming convergence means the frameworks are interchangeable, particularly on leases, impairment and development costs
- Using LIFO inventory in an IFRS reporting entity
- Capitalising development costs under US GAAP without a specific exception
- Reversing an impairment under US GAAP, or failing to reverse one that is required under IFRS
- Maintaining a GAAP bridge in spreadsheets with no audit trail of each adjustment