IFRS vs US GAAP, topic by topic
This reference compares how the two dominant financial reporting frameworks — IFRS (used across most of the world) and US GAAP (used by United States filers) — treat the accounting topics where they most often diverge. For each topic it gives the IFRS rule, the US GAAP rule, and a plain-English note on why the difference matters.
The philosophical split and why it produces real differences
IFRS is broadly principles-based: it sets out objectives and asks preparers to apply judgement in the interest of economic substance. US GAAP is more rules-based: it provides detailed, prescriptive guidance and bright-line thresholds, which supports consistency across filers at the cost of some flexibility.
That philosophical split produces the concrete differences in the table. The most consequential for financial statement comparison are:
Inventory method. US GAAP permits LIFO (last-in, first-out), which in times of rising prices reduces both inventory on the balance sheet and cost of goods sold — an approach that can lower reported taxable income. IFRS prohibits LIFO entirely. A company switching from US GAAP to IFRS must restate all prior-period inventory and cost of sales figures.
Development costs. Under IFRS, development expenditure must be capitalised once technical and commercial feasibility criteria are met, spreading costs across future periods and raising near-term assets. Under US GAAP, virtually all research and development must be expensed as incurred, reducing near-term profit.
Asset revaluation. IFRS permits companies to revalue property, plant and equipment upward to fair value using the revaluation model. US GAAP requires the cost model — assets stay at historical cost less depreciation, never revalued upward.
Impairment reversal. If circumstances reverse an impairment, IFRS requires the reversal to be recognised, restoring some of the asset’s carrying value. US GAAP prohibits reversal of previously recorded impairments for most asset classes.
Lease classification. Revenue recognition and leases have largely converged between the two frameworks following post-2018 standards updates, though some nuances remain in finance versus operating lease classification.
Why the differences matter for cross-border comparison
Comparing a US-listed and a London-listed company in the same industry requires understanding which framework each reports under. An identical physical business may show materially different inventory values, profit margins, and asset bases depending solely on whether it uses LIFO (US GAAP) or FIFO/weighted average (IFRS), or whether its development pipeline is expensed or capitalised.
Tips and notes
- Search inventory or development to see two of the differences that most often surprise people moving from one framework to the other.
- A single difference can ripple: switching from LIFO to FIFO changes inventory value, cost of sales, gross profit, tax, and the deferred tax balance simultaneously.
- This reference is for orientation only. Real reporting decisions must rest on the current text of the standards and professional advice, because both frameworks are updated regularly.