IFRS versus US GAAP
IFRS versus US GAAP
Comparison date: 1 August 2026. This is a high-level teaching map, not an exhaustive conversion manual.
Do not describe IFRS as “principles” and US GAAP as “rules” and stop. Compare the standard, scope, policy election, transition date and actual accounting consequence.
High-impact differences
| Topic | IFRS baseline | US GAAP baseline | Analytical consequence |
|---|---|---|---|
| Revenue | IFRS 15 five-step model | Topic 606 substantially converged model | Application and disclosure differences remain; inspect contract terms |
| Inventory formulas | FIFO or weighted average for interchangeable items; no LIFO | LIFO is permitted; other methods also used | Inflation can change cost of sales, inventory, tax and ratios |
| Inventory write-down | Lower of cost and NRV; reversals permitted up to original loss | Measurement depends on method; write-down reversals generally prohibited | Recovery can raise IFRS profit but not US GAAP profit |
| Development | Capitalise after IAS 38’s six criteria are demonstrated | R&D generally expensed, with topic-specific software exceptions | IFRS may show higher assets/profit in the development phase |
| PPE revaluation | Cost or class-wide revaluation model | Ordinary PPE generally remains at historical cost | Equity, assets, depreciation and returns differ |
| Long-lived asset impairment | Compare with recoverable amount; reversals possible except goodwill | Held-and-used model uses an undiscounted recoverability screen then fair value; no reversal | Timing and amount of losses can differ |
| Lessee accounting | Broad single model plus short-term/low-value elections | Operating and finance classifications; no broad low-value exemption | Expense pattern and cash-flow classification differ |
| Credit losses | IFRS 9 staging plus simplified trade-receivable approach | Topic 326 CECL lifetime model for assets in scope | Timing and forecast architecture differ |
| Cash-flow classification | Policy choices exist for specified interest/dividend flows | More prescriptive classifications | Operating cash flow may differ without economic cash changing |
| Deferred tax assets | Recognise subject to probability requirements and exceptions | Recognise, then use a valuation allowance under the more-likely-than-not model | Presentation and recognition mechanics differ |
“More conservative” is not a framework-wide conclusion. A treatment may reduce profit in one period and increase it later.
Conversion example 1: LIFO reserve
A US GAAP company reports:
- LIFO inventory £80m;
- closing LIFO reserve £12m;
- opening LIFO reserve £8m;
- LIFO cost of sales £300m.
Approximate FIFO conversion, ignoring tax:
FIFO pre-tax income is £4m higher because the reserve increased by £4m. For a real comparison, also adjust deferred tax and inspect reserve disclosures and acquisitions.
Conversion example 2: development expenditure
Northstar spends £90,000 after meeting IAS 38’s development criteria.
| Current-period effect before amortisation | IFRS fact pattern | Typical US GAAP fact pattern |
|---|---|---|
| Asset recognised | £90,000 | £0 |
| Development expense | £0 | £90,000 |
| Current pre-tax profit difference | +£90,000 | Baseline |
This does not mean IFRS creates £90,000 more lifetime profit. IFRS later records amortisation and possible impairment; timing and carrying amounts differ. US software guidance may change the US conclusion.
Current presentation developments
- IFRS 18 applies from annual periods beginning on or after 1 January 2027 and introduces defined subtotals and management-defined performance measure disclosures.
- FASB ASU 2024-03 adds expense disaggregation for public business entities from specified periods beginning after 15 December 2026.
Both respond to user demand for better performance detail, but they are not the same requirement and their effective-date language differs.
A comparison workflow
- Confirm reporting framework and period.
- Read the policy note; do not infer method from industry.
- Identify the exact recognition or measurement difference.
- Quantify balance-sheet, profit, cash-flow and tax effects.
- Reverse only what the disclosure supports.
- Keep residual uncertainty visible.
Quick check
Does capitalising development under IFRS change project cash flow at the expenditure date?