US GAAP vs. IFRS
Also known as: gaap vs ifrs, us gaap versus ifrs
US GAAP is the rules-based accounting framework used for financial reporting in the United States, while IFRS is the principles-based framework used in most other major economies. They differ in areas such as inventory costing, asset revaluation, and impairment reversals.
US GAAP (Generally Accepted Accounting Principles) is issued by the Financial Accounting Standards Board and governs financial statements filed in the United States. IFRS (International Financial Reporting Standards) is issued by the International Accounting Standards Board and is required or permitted in well over a hundred countries. Both aim to produce comparable, decision-useful statements, but they take different routes: US GAAP is generally described as rules-based, with detailed prescriptive guidance, while IFRS is principles-based, leaving more room for professional judgment.
Several concrete differences show up repeatedly. LIFO inventory costing is permitted under US GAAP but prohibited under IFRS. IFRS allows property, plant, and equipment and intangible assets to be carried at revalued amounts, while US GAAP requires historical cost less accumulated depreciation. Inventory written down to net realizable value may be written back up under IFRS if the value recovers, but write-downs are permanent under US GAAP. IFRS requires component depreciation of significant asset parts; US GAAP permits it but rarely applies it.
Impairment testing differs in both trigger and measurement. US GAAP uses a two-step approach for long-lived assets held for use — comparing undiscounted future cash flows to carrying amount first, then measuring the loss against fair value — whereas IFRS applies a single step comparing carrying amount to recoverable amount, defined as the higher of fair value less costs of disposal and value in use. IFRS also permits reversal of impairment losses on most assets other than goodwill, which US GAAP does not allow.
These differences matter because they change reported earnings and asset values for otherwise identical businesses, which is why analysts adjust before comparing companies across frameworks. The CMA Part 1 exam tests the comparison directly in its external financial reporting section, focusing on inventory, long-lived assets, and impairment — the areas where the two frameworks diverge most visibly.
Key takeaways
- US GAAP is rules-based and used in the United States; IFRS is principles-based and used across most other major markets.
- LIFO inventory costing is allowed under US GAAP but banned under IFRS.
- IFRS permits revaluation of property, plant, and equipment; US GAAP requires historical cost.
- IFRS allows reversal of impairment losses (except on goodwill), while US GAAP prohibits reversals.
- CMA Part 1 tests these differences in inventory, long-lived assets, and impairment.