1️⃣Authority and Framework
One of the fundamental differences is the authority overseeing the standards. US GAAP is governed by the Financial Accounting Standards Board (FASB), which operates under the Financial Accounting Foundation. IFRS, on the other hand, is overseen by the International Accounting Standards Board (IASB). While the FASB is a private-sector body, the IASB is an independent, international organization.
2️⃣Principles vs. Rules
US GAAP is often characterized as a “rules-based” system. It provides detailed, specific guidance for various accounting issues, leaving less room for interpretation. In contrast, IFRS is more “principles-based.” It relies on broad principles and guidelines, allowing for greater judgment and interpretation in applying the standards
3️⃣LIFO vs. FIFO
One of the notable differences in accounting for inventory is the treatment of cost flow assumptions. Under US GAAP, companies can use the Last-In, First-Out (LIFO) method for inventory valuation, which can lead to lower taxable income. IFRS, however, does not allow the use of LIFO, and companies typically use the First-In, First-Out (FIFO) or weighted average methods.
4️⃣Extraordinary Items
US GAAP used to allow for the reporting of extraordinary items, which were unusual and infrequent events or transactions. However, this concept has been eliminated in favor of presenting all items that are not part of a company’s ordinary business activities as “discontinued operations.” Under IFRS, such items are not classified as discontinued operations, but they are presented separately in the statement of comprehensive income.
5️⃣Research and Development Costs
Under US GAAP, research and development costs are expensed as incurred, with limited capitalization options. IFRS, in contrast, provides more flexibility, allowing the capitalization of development costs under specific conditions.
6️⃣Fair Value Measurement
Both US GAAP and IFRS require fair value measurements for certain financial instruments and assets. However, the methods and guidelines for determining fair value may differ between the two standards, leading to variations in reported values.
7️⃣Leases
Both standards have evolved in their treatment of leases, with significant changes in recent years. Under IFRS, all leases are generally recognized on the balance sheet, while US GAAP previously allowed for off-balance-sheet treatment for certain operating leases (though this is changing with the introduction of ASC 842).
8️⃣Revenue Recognition
The standards for recognizing revenue have been harmonized to a large extent with the introduction of ASC 606 under US GAAP and IFRS 15 under IFRS. However, there are still differences in the application and guidance of these standards in specific industries and scenarios.