IFRS is the principles-based accounting framework used in the EU, UK and much of the world; US GAAP is the more rules-based US framework. Key differences include inventory (LIFO is allowed under US GAAP but prohibited under IFRS), development costs (capitalised under IFRS when criteria are met, mostly expensed under US GAAP), lease accounting and impairment reversals.
If your business operates in the US and Europe, raises money from international investors or reports to an overseas parent, you'll meet both IFRS and US GAAP. Here's what changes between them.
The big picture
- IFRS (International Financial Reporting Standards): issued by the IASB; principles-based; used across the EU, the UK (as UK-adopted IFRS), Canada (for publicly accountable enterprises) and many other countries
- US GAAP: issued by the FASB; more rules-based, with detailed industry guidance; required for US public companies
Key differences at a glance
| Area | IFRS | US GAAP |
|---|---|---|
| Inventory | LIFO prohibited | LIFO permitted |
| Development costs | Capitalised when criteria are met | Generally expensed (with exceptions, such as some software) |
| Leases (lessee) | Single model, with almost all leases on the balance sheet | Finance and operating lease classification |
| Impairment reversal | Allowed (except goodwill) | Not allowed for assets held and used |
| Revaluation of PP&E | Revaluation model permitted | Cost model only |
| Extraordinary items | Not permitted | Eliminated |
Why it matters for growing companies
- Investors compare like with like. Converting between frameworks can change EBITDA, assets and net income.
- Loan covenants are usually defined under one framework.
- Group consolidation requires every subsidiary's numbers to be converted to the parent's framework.
- Tax is based on local statutory accounts, which may follow yet another framework, such as FRS 102 in the UK or ASPE in Canada.
Practical tips
- Keep a GAAP-to-IFRS reconciliation if you report in both
- Document judgements (IFRS relies on them heavily)
- Align your chart of accounts so conversions are mapping, not rework
How Avore Solutions can help
Our accounting and financial reporting team prepares IFRS and US GAAP financial statements, group consolidations and conversion reconciliations. Talk to an expert.
Frequently asked questions
Which countries use IFRS?
IFRS is required for listed companies in the EU and is used in over 140 jurisdictions. The UK uses UK-adopted IFRS, and Canada requires IFRS for publicly accountable enterprises. US domestic companies use US GAAP.
Can a US subsidiary report under IFRS?
A US subsidiary of a foreign group often keeps local US GAAP or tax books and converts to IFRS for group consolidation. The right approach depends on lenders, investors and regulators.
Is IFRS or US GAAP better?
Neither is universally better. IFRS relies more on judgement and principles, while US GAAP has more detailed industry guidance. The right framework depends on where you're listed, raising capital or reporting.