IFRS vs GAAP

Aspect	IFRS (International Financial Reporting Standards)	GAAP (Generally Accepted Accounting Principles - U.S.)
Origin	Developed by the International Accounting Standards Board (IASB)	Developed by the Financial Accounting Standards Board (FASB)
Application	Used in over 140 countries (e.g., EU countries, Australia, India - via Ind AS)	Primarily used in the United States
Philosophy	Principles-based	Rules-based
Flexibility	More flexible — relies on professional judgment and broad principles	More rigid — detailed rules and bright-line tests
Inventory Accounting	LIFO (Last In, First Out) method is not allowed	LIFO is allowed
Revenue Recognition	Based on a five-step model (similar to GAAP now after ASC 606)	Follows detailed guidance under ASC 606
Development Costs	Must be capitalized if criteria are met	Typically expensed as incurred
Fair Value Measurement	Emphasis on fair value for more assets and liabilities	Fair value used selectively, historical cost still common
Write-down of Assets	Impairment losses can be reversed under certain conditions	Impairment losses cannot be reversed
Presentation of Financial Statements	No prescribed format, but minimum information is required	Detailed formats and minimum line items prescribed
Extraordinary Items	No separate classification for extraordinary items	Extraordinary items are separately classified
Disclosure Requirements	Principles-based disclosures (more conceptual)	Detailed, specific disclosure requirements

Key Points

 IFRS emphasizes the spirit of the accounting treatment (conceptual framework).

 GAAP emphasizes strict compliance with detailed rules.

 Convergence Efforts: Over time, FASB and IASB have worked to narrow their differences (such as leasing standards and revenue recognition). 

Quick Example

 Suppose a company has an asset that has lost value:

 Under IFRS, the write-down can be reversed if the asset's value recovers later. There can be no reversal under GAAP; what is written down, stays written down.