IFRS vs US GAAP
- Scope:
- IFRS is used in more than 120 countries, while
- US GAAP is used mainly in the United States.
However, many multinational companies use both sets of standards to comply with local regulations.
- Approach:
- IFRS is principle-based, which means it provides guidance on the principles that should be followed, but does not provide specific rules.
- US GAAP is rule-based, which means it provides specific rules that must be followed.
- Inventory:
- IFRS requires companies to use either the first-in, first-out (FIFO) or weighted average cost method to account for inventory, while
- US GAAP allows companies to use several different methods, including FIFO, LIFO (last-in, first-out), and weighted average cost.
- Research and development:
- Under IFRS, research costs are expensed as incurred, while development costs can be capitalized if certain criteria are met.
- Under US GAAP, both research and development costs are expensed as incurred unless they qualify for capitalization.
- Leases:
- IFRS requires lessees to recognize all leases on their balance sheet, while
- US GAAP distinguishes between finance leases and operating leases, with only finance leases being recognized on the balance sheet.
- Impairment of assets:
- IFRS requires companies to test assets for impairment annually or
- US GAAP requires companies to test assets for impairment only when there is an indication of impairment.
- Revenue recognition:
- Under IFRS, revenue is recognized when the seller has transferred the risks and rewards of ownership to the buyer, whereas
- US GAAP provides specific criteria for recognizing revenue based on the type of transaction and industry.
- Goodwill:
- Under IFRS, goodwill is tested annually for impairment and written down if necessary,
- whereas US GAAP requires a two-step impairment test for goodwill.
- Financial statement format:
- US GAAP requires companies to provide a statement of shareholder’s equity, which is not required under IFRS.
