IFRS versus US GAAP: key differences

IFRS and US GAAP share a conceptual heritage and many requirements were converged (revenue, leases on balance sheet), but important differences remain. These are the ones employers, auditors and analysts expect you to know. Questions in this lesson say which framework they assume.

Inventory. IAS 2 permits FIFO, weighted average and specific identification — not LIFO. US GAAP (ASC 330) also permits LIFO. Both write inventory down when its value falls below cost (IAS 2: lower of cost and net realisable value). IAS 2 requires a reversal of a write-down when the circumstances that caused it no longer exist (limited to the original write-down); US GAAP prohibits reversing a write-down in a later annual period — the written-down amount becomes the new cost basis.

Development costs. IAS 38 expenses research but requires capitalisation of development costs once the specified criteria are met (technical feasibility, intention and ability to complete and use or sell, probable future benefits, resources available, reliable measurement). US GAAP (ASC 730) generally expenses research and development as incurred, with narrow exceptions such as certain software development costs.

Property, plant and equipment. IAS 16 lets an entity choose, by class of asset, the cost model or the revaluation model (fair value less subsequent depreciation and impairment, with increases going to other comprehensive income and a revaluation surplus). US GAAP (ASC 360) does not permit upward revaluation.

Impairment reversals. IAS 36 requires an impairment loss on assets other than goodwill to be reversed if the recoverable amount increases because estimates changed — capped at the carrying amount the asset would have had without the impairment. US GAAP prohibits reversing impairment losses on assets held and used. Neither framework allows goodwill impairment to be reversed.

Interest and dividends in the cash flow statement. IAS 7 currently allows choices: interest and dividends received as operating or investing; interest and dividends paid as operating or financing. US GAAP (ASC 230) fixes them: interest paid, interest received and dividends received are operating; dividends paid are financing. The amendments to IAS 7 issued with IFRS 18 remove the IFRS choices from 2027 for most entities: interest and dividends received investing, interest and dividends paid financing (entities with specified main business activities, such as banks, follow separate rules).

Leases (lessees). IFRS 16 has a single lessee model: a right-of-use asset and lease liability for all leases except short-term and low-value ones, with depreciation and interest expense. ASC 842 also puts leases on the balance sheet but classifies each lease as finance (depreciation plus interest) or operating (a single straight-line lease cost).

Presentation. IFRS 18 replaces IAS 1 for annual periods beginning on or after 1 January 2027 (earlier application permitted), introducing operating, investing and financing categories in the income statement, required subtotals and disclosure of management-defined performance measures. US GAAP has no equivalent single standard.