IFRS vs US GAAP: Key Differences Explained With Standard References and Examples

IFRS and US GAAP are the two dominant financial reporting frameworks in the world. IFRS Accounting Standards are issued by the International Accounting Standards Board (IASB) and are principles based. US GAAP is set by the Financial Accounting Standards Board (FASB), codified in the Accounting Standards Codification (ASC), and is more detailed and rules based. Most results converge, but the differences below change real numbers: inventory cost, asset values, profit timing and the shape of the cash flow statement.

#IFRS vs US GAAP at a glance

The IFRS Foundation's 2017 pocket guide counted 126 of 150 profiled jurisdictions (84%) requiring IFRS for all or most domestic listed companies and financial institutions. It is the most recent published total we could verify (checked 6 November 2026); the Foundation's live jurisdiction profiles are the place to check a specific country.

#Who uses IFRS and who uses US GAAP?

IFRS is required or permitted for listed companies in the European Union, the United Kingdom, Australia, Canada, Brazil, South Africa, every Gulf Cooperation Council country and most of Asia. Many private companies in those regions use full IFRS or the lighter IFRS for SMEs standard.

US GAAP is required for US domestic companies registered with the SEC and is the default for US private companies that need audited statements for lenders or investors. Since 2008 the SEC has accepted IFRS as issued by the IASB from foreign private issuers without a reconciliation to US GAAP.

For a group with a US subsidiary and a Dubai parent, the practical answer is often both: the US company keeps US GAAP books for local reporting, and the parent converts its numbers to IFRS for the group. Ledgeriano lets each business in one account pick its own standard and chart, as described on the standards page.

#The key differences between IFRS and US GAAP

The sections below explain the ones that most often change an SME's numbers.

#Inventory: why is LIFO banned under IFRS?

IAS 2 allows only FIFO, weighted average cost and specific identification, because LIFO can leave very old costs on the balance sheet and does not reflect the actual flow of goods. US GAAP still permits LIFO, mainly because US tax rules let companies use LIFO for tax only if they also use it in their financial statements (the LIFO conformity rule).

A worked example. A distributor buys 1,000 units at 10.00 in January and 1,000 at 12.00 in June, then sells 1,200 units:

In a period of rising prices LIFO gives the highest cost of sales and the lowest profit. The FIFO vs weighted average guide goes deeper, and Ledgeriano's inventory module offers FIFO, moving weighted average, standard cost and specific identification, but not LIFO.

The second inventory difference is write-down reversals. If stock written down from 50,000 to 42,000 recovers to 47,000 next quarter, IFRS requires a reversal of 5,000 (never above original cost). Under US GAAP the 42,000 becomes the new cost basis.

#Can you revalue assets under US GAAP?

No. US GAAP keeps property, plant and equipment at historical cost less depreciation and impairment. IAS 16 lets an entity choose the revaluation model for a whole class of assets, such as land and buildings. Increases go to a revaluation surplus in other comprehensive income, and decreases go to profit or loss once the surplus for that asset is used up. IAS 40 also allows investment property at fair value through profit or loss, which US GAAP does not offer to most companies.

That is why the IFRS chart in Ledgeriano includes a Revaluation surplus equity account (3122) and the US GAAP chart does not.

#Development costs: capitalise or expense?

Under IAS 38, research is always expensed, but development costs must be capitalised once the entity can show technical feasibility, intention and ability to complete and use or sell the asset, probable future economic benefits, adequate resources and reliable measurement. ASC 730 expenses research and development as incurred. The main US exceptions are internal-use software (ASC 350-40) and software to be sold (ASC 985-20).

Example: a company spends 300,000 on a new product, 120,000 of it after the criteria were met. Under IFRS 120,000 becomes an intangible asset amortised over its useful life; under US GAAP all 300,000 hits the income statement this year. The IFRS template carries a Capitalised development costs account (1234); the US GAAP template has a Research and development expense account (6610).

#How does impairment testing differ?

IAS 36 compares the carrying amount of an asset or cash-generating unit with its recoverable amount, the higher of fair value less costs of disposal and value in use (discounted cash flows). If the carrying amount is higher, the difference is the loss.

ASC 360 first asks whether the carrying amount is recoverable from undiscounted cash flows. Only if it fails is the asset written down to fair value. Because undiscounted flows are larger, an asset can pass the US test and still be impaired under IFRS.

IFRS also requires reversing an impairment (other than goodwill) when the recoverable amount increases; US GAAP prohibits it for assets held and used.

#IFRS 16 vs ASC 842: how are leases different?

Both standards bring leases onto the balance sheet as a right-of-use asset and a lease liability. The difference is in the income statement. IFRS 16 treats almost every lease like a financed purchase: depreciation of the asset plus interest on the liability, so expense is higher in early years. ASC 842 keeps two classes. Finance leases look like IFRS 16, but operating leases report one straight-line lease cost in operating expenses.

The chart reflects it. Ledgeriano's US GAAP template has separate operating and finance lease right-of-use assets and liabilities (1800, 1810, 2440, 2450, 2740, 2750); the IFRS template has one right-of-use asset group (124) and an Interest on lease liabilities account (7302).

#Cash flow statement classification

IAS 7 currently lets entities choose where to show interest and dividends, as long as the choice is applied consistently:

Both frameworks allow the direct or indirect method. The financial statements guide shows the indirect method with a full example.

#IFRS 18: what changes in 2027?

IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 for annual reporting periods beginning on or after 1 January 2027, with comparatives restated (source: IFRS Foundation, checked 6 November 2026). The main changes:

• Income and expenses are classified into operating, investing and financing categories, plus income taxes and discontinued operations.
• Two new required subtotals: operating profit and profit before financing and income taxes.
• Management-defined performance measures (such as adjusted EBITDA used in public communication) must be reconciled to IFRS subtotals in a note.
• Stronger rules on aggregation and disaggregation, including disclosure of certain expenses by nature when the income statement is presented by function.

US GAAP has no equivalent to IFRS 18, although ASU 2024-03 requires public business entities to disaggregate certain income statement expenses in the notes for annual periods beginning after 15 December 2026.

#Provisions and contingencies

IAS 37 recognises a provision when an outflow is probable, defined as more likely than not, and measures it at the best estimate (the expected value for a large population, the most likely outcome for a single obligation). ASC 450 recognises a loss contingency when it is probable, meaning likely to occur, a higher threshold in practice. When a range has no best estimate, US GAAP accrues the low end while IFRS uses the midpoint.

Example: a lawsuit with a 60% chance of losing and a range of 200,000 to 400,000 with all outcomes equally likely. IFRS: provision of 300,000. US GAAP: possibly no accrual at all if the loss is not judged likely, otherwise 200,000, with disclosure either way.

#What a chart of accounts needs under each framework

Because the frameworks recognise different items, the chart of accounts should match the standard from the first day. Ledgeriano's two templates differ in ways you can see:

The chart of accounts guide explains numbering, categories and how to adapt a template.

#Converting from US GAAP to IFRS: a short checklist

1. Replace LIFO with FIFO or weighted average and restate opening inventory.
2. Review inventory write-downs that would have been reversed.
3. Decide on cost or revaluation for each class of property, plant and equipment.
4. Identify development projects that met the IAS 38 criteria when the costs were incurred and capitalise them; IFRS 1 has no shortcut here, so the evidence has to exist.
5. Re-run impairment tests on the IAS 36 one-step basis.
6. Reclassify operating leases into right-of-use depreciation and interest.
7. Choose and document cash flow classification policies (or apply IFRS 18 rules from 2027).
8. Remeasure provisions using the more likely than not threshold and midpoint rule.
9. Map accounts to an IFRS chart and prepare an IFRS 1 opening statement of financial position.

#Which is better, IFRS or US GAAP?

Neither is better in general. IFRS is the right choice when you report outside the US, raise money from international investors or belong to a group that already uses it. US GAAP is the right choice for US companies, US lenders and US listings. What matters most for a growing business is to pick one per entity, set up the chart to match, and keep the books clean enough that a conversion, if it ever comes, is a set of adjustments rather than a rebuild.