🌍standards
GAAP vs IFRS
US GAAP vs IFRS
The two major accounting frameworks used globally. US GAAP (Generally Accepted Accounting Principles) is used primarily in the United States, while IFRS (International Financial Reporting Standards) is used in over 140 countries.
Comparison Table
| Feature | US GAAP | IFRS |
|---|---|---|
| Governing Body | FASB (Financial Accounting Standards Board) | IASB (International Accounting Standards Board) |
| Inventory Methods | LIFO, FIFO, Weighted Average allowed | LIFO NOT allowed; FIFO, Weighted Average only |
| Inventory Write-down | Reversal NOT permitted | Reversal permitted if value recovers |
| Development Costs | Expensed as incurred | Can be capitalized if criteria met |
| Revaluation of Assets | Not permitted (except some securities) | Permitted for PPE and intangibles |
| Extraordinary Items | Prohibited since 2015 | Never allowed separate presentation |
| Framework Approach | Rules-based (detailed guidance) | Principles-based (general framework) |
| Financial Statement Format | Specific formats prescribed | More flexible presentation |
Key Differences
- →GAAP allows LIFO inventory; IFRS does not - major tax and profit implications
- →IFRS permits asset revaluation to fair value; GAAP uses historical cost
- →IFRS allows reversal of inventory and impairment write-downs; GAAP does not
- →GAAP has more specific, detailed rules; IFRS relies on professional judgment
- →Research costs are expensed under both; development costs differ significantly
When to Use US GAAP
- ✓US domestic companies filing with SEC
- ✓Companies listed only on US exchanges
- ✓US subsidiaries of foreign companies
- ✓Tax planning where LIFO benefits exist
When to Use IFRS
- ✓Companies outside the United States
- ✓Multinational companies seeking global comparability
- ✓Foreign private issuers in US markets
- ✓Companies in countries adopting IFRS
Common Confusions
- !Thinking GAAP and IFRS are completely different (they're converging)
- !Assuming all foreign companies use IFRS (some countries have local GAAP)
- !Believing US companies can choose IFRS (SEC requires GAAP for domestic issuers)
- !Not recognizing the impact of inventory method differences on comparative analysis
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Common questions about this comparison
The US has not fully adopted IFRS due to concerns about loss of standards-setting authority, implementation costs, and the view that GAAP is more detailed. However, convergence projects continue to reduce differences.
Foreign private issuers can use IFRS for SEC filings. Domestic US companies must use GAAP. Some advocate for an option to use IFRS, but this hasn't been approved.