IFRS vs US GAAP: the differences that matter

IFRS vs US GAAP in one paragraph

IFRS Accounting Standards and US GAAP are the two main financial reporting frameworks in the world: IFRS is issued by the IASB and used in the EU, Canada, the UK and most other countries, while US GAAP is set by the FASB for US entities. The difference matters because the same transactions can produce different profit, equity and ratios under each.

Revenue recognition was largely converged in 2014 (IFRS 15 and ASC 606), so the gaps that still move numbers sit in inventory, intangible assets, property measurement, impairment, leases, provisions, credit losses and presentation. This guide works through those gaps with numbers, from the point of view of a Canadian group with a US subsidiary, or a US parent with a Canadian or European subsidiary, which has to keep both frameworks straight every month. For who sets IFRS and how the standards are organised, see our guide on what IFRS is.

Who reports under which framework

In Canada, publicly accountable enterprises have reported under IFRS, contained in Part I of the CPA Canada Handbook, for fiscal years beginning on or after 1 January 2011. Canadian securities rules (National Instrument 52-107) let an issuer that is also registered with the US SEC use US GAAP instead, which is why some large Canadian companies with a US listing publish US GAAP statements. Private enterprises in Canada usually use ASPE, covered in our guide on IFRS vs ASPE.

In the United States, domestic registrants must use US GAAP. The SEC accepts IFRS as issued by the IASB from foreign private issuers without a reconciliation to US GAAP, so a Canadian or European parent listed in New York can keep filing IFRS. In the EU, listed groups prepare consolidated statements under EU-endorsed IFRS; in the UK, under UK-adopted international accounting standards.

The practical consequence for a cross-border group is that one side of the border usually keeps its books in a different framework from the one the group reports in. The subsidiary ledger stays in local GAAP for tax and statutory purposes, and a set of conversion adjustments turns its trial balance into the group framework every reporting period. The rest of this guide is, in effect, the list of those adjustments.

Inventory: LIFO and write-down reversals

US GAAP (ASC 330) permits the last-in, first-out cost formula, and many US companies use it because LIFO lowers taxable income when prices rise and US tax rules require LIFO for book purposes if it is used for tax. IAS 2 prohibits LIFO: an IFRS reporter must use FIFO or weighted average cost, or specific identification for items that are not interchangeable. A US subsidiary on LIFO therefore needs a conversion adjustment before its numbers enter IFRS group accounts.

Worked example in CAD: a subsidiary buys 1,000 units at 10 and then 1,000 units at 12, and sells 1,200 units. Under FIFO, cost of sales is 1,000 x 10 plus 200 x 12 = 12,400 and closing inventory is 800 x 12 = 9,600. Under LIFO, cost of sales is 1,000 x 12 plus 200 x 10 = 14,000 and closing inventory is 800 x 10 = 8,000. Total cost of 22,000 is the same both ways; only the split moves. The IFRS conversion is Dr Inventory 1,600 / Cr Cost of sales 1,600, and the LIFO reserve disclosed in the US statements is the figure to track year on year.

The second inventory difference is reversal of write-downs. Under IAS 2 para 33, when net realisable value recovers on inventory still held, the earlier write-down is reversed, up to the original amount. US GAAP prohibits reversing a write-down in a later annual period. Suppose inventory cost 200,000 and was written down to its net realisable value of 170,000 at year one. At year two the same goods are still on hand and net realisable value is 190,000. IFRS reverses 20,000 (carrying amount becomes 190,000, still below cost); US GAAP keeps 170,000. Our guide on inventory costing covers FIFO, weighted average and net realisable value in detail.

Development costs and other intangible assets

IAS 38 requires development costs to be capitalised once an entity can demonstrate all six criteria in paragraph 57: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, adequate resources, and reliable measurement of the spend. Research costs are always expensed. US GAAP (ASC 730) expenses research and development as incurred, with narrow exceptions for software developed for sale after technological feasibility and for internal-use software.

Worked example: a Canadian manufacturer spends CAD 500,000 developing a new product line during the year, of which 300,000 is incurred after the point at which all six IAS 38 criteria are met. Under IFRS the entity expenses 200,000 and capitalises 300,000 as an intangible asset, amortised once the product is available for use. Under US GAAP all 500,000 hits profit or loss this year. First-year profit before tax is 300,000 higher under IFRS, and later years carry the amortisation instead.

IAS 38 also allows a revaluation model for intangible assets with an active market, which is rare in practice. US GAAP has no revaluation model for intangibles. Both frameworks prohibit capitalising internally generated brands, customer lists and similar items.

Property, plant and equipment: revaluation and components

IAS 16 lets an entity choose, class by class, between the cost model and the revaluation model, under which assets are carried at fair value less subsequent depreciation, with gains taken to other comprehensive income and a revaluation surplus in equity. US GAAP requires historical cost for property, plant and equipment, so revaluation surpluses must be removed when converting IFRS figures to US GAAP. The same applies to investment property: IAS 40 offers a fair value model with changes in profit or loss, while US GAAP generally holds such property at depreciated cost.

IAS 16 also requires each significant part of an asset with a different useful life to be depreciated separately. US GAAP permits component depreciation but does not require it, so a US ledger often holds one line per building where an IFRS register would hold roof, structure, lifts and fit-out separately. The componentisation discussion in our guide on maintenance and the balance sheet applies directly here.

• Revaluation surplus under IFRS: remove on conversion to US GAAP, together with the extra depreciation it created
• Investment property at fair value under IFRS: restate to cost less depreciation for US GAAP
• Component lives under IFRS: acceptable under US GAAP, so usually no adjustment is needed in that direction
• Borrowing costs: both frameworks capitalise on qualifying assets, but the rules for which borrowings and which income qualify differ in detail

Impairment: one step versus two, and reversals

IAS 36 uses a one-step test: when there is an indication of impairment, the carrying amount of an asset or cash-generating unit is compared with its recoverable amount, the higher of fair value less costs of disposal and value in use (a discounted cash flow figure). US GAAP (ASC 360) uses two steps for long-lived assets held and used: first a recoverability test against undiscounted cash flows, and only if that fails, a loss measured as carrying amount minus fair value.

Worked example in CAD: a production line has a carrying amount of 1,000,000. Undiscounted future cash flows are 1,050,000, value in use is 850,000 and fair value less costs of disposal is 810,000. Under IFRS the recoverable amount is 850,000, so the entity recognises an impairment loss of 150,000. Under US GAAP the undiscounted cash flows exceed the carrying amount, so the asset passes step one and no loss is recognised at all. The two frameworks can disagree even on whether an impairment exists.

Reversals differ too. IFRS requires an impairment loss on assets other than goodwill to be reversed when the recoverable amount recovers, capped at the carrying amount the asset would have had without the impairment. US GAAP prohibits reversals for assets held and used. Goodwill impairment is never reversed under either framework, but it is tested at different levels: cash-generating units under IFRS and reporting units under US GAAP, where private companies may also elect to amortise goodwill over up to ten years. Our guide on goodwill and intangible assets works through the IFRS side in detail.

Leases: IFRS 16 against ASC 842

Both frameworks put most leases on the lessee's balance sheet as a right-of-use asset and a lease liability. The difference is in the income statement. IFRS 16 has a single lessee model: every recognised lease produces depreciation and interest, so expense is front-loaded. ASC 842 keeps two classes. Finance leases look like IFRS 16, but operating leases produce one straight-line lease cost within operating expenses. IFRS 16 also exempts leases of low-value assets; US GAAP has a short-term exemption but no low-value one.

Worked example in CAD: a five-year equipment lease with annual payments of 100,000 in arrears and a discount rate of 5 percent. The present value factor is 4.3295, so the lease liability and right-of-use asset start at 432,948. Under IFRS 16, year one shows depreciation of 86,590 (432,948 over five years) and interest of 21,647 (5 percent of 432,948): 108,237 in total, of which only the depreciation sits in operating expenses. Under ASC 842, if the lease is classified as operating, year one shows a single lease cost of 100,000 in operating expenses.

The balance sheet totals start the same, but EBITDA does not: under IFRS the 100,000 rent disappears from EBITDA altogether, while under US GAAP it stays in. Lenders' covenants and management bonuses written on EBITDA therefore need to say which framework they use. Our guide on IFRS 16 builds a full amortisation schedule.

Provisions, credit losses and presentation

Provisions: IAS 37 recognises a provision when an outflow is probable, meaning more likely than not. Under ASC 450 a loss contingency is accrued when it is probable in the sense of likely to occur, a higher threshold in practice. When a range of outcomes is equally likely, IFRS uses the midpoint while US GAAP accrues the low end of the range. IFRS also discounts provisions where the effect is material. Our guide on provisions and contingent liabilities covers IAS 37 in depth.

Credit losses: IFRS 9 uses a three-stage expected credit loss model, with 12-month losses on performing loans and lifetime losses after a significant increase in credit risk. US GAAP's CECL model (ASC 326) recognises lifetime expected losses from day one. For trade receivables the gap is small, because IFRS 9's simplified approach is also lifetime; for lenders it is significant. Our guide on IFRS 9 expected credit losses builds a provision matrix.

Presentation is where the frameworks are moving. IFRS 18, issued in April 2024 and effective for annual periods beginning on or after 1 January 2027, replaces IAS 1 and requires operating, investing and financing categories in the income statement, defined subtotals and disclosure of management-defined performance measures. On the US side, ASU 2024-03 requires public business entities to disaggregate certain expense captions in the notes for annual periods beginning after 15 December 2026. Neither makes the two statements look alike, and IFRS remains more prescriptive about the face of the income statement; our guide on IFRS 18 explains the new categories.

A conversion checklist for Canada and US groups

The differences above become a standing list of reconciling items. Treat it as a controlled schedule: each item has an owner, a calculation that rolls forward and an audit trail back to the subsidiary ledger. Items that affect deferred tax need a matching deferred tax adjustment in the group accounts. Our guides on consolidation accounting and on IAS 21 foreign currency accounting show how the adjusted figures then flow into the group statements.

• Inventory: LIFO reserve and any reversed write-downs
• Development costs: capitalised amounts, amortisation and impairment under IAS 38
• Property: revaluation surpluses, investment property at fair value, component depreciation
• Impairment: IAS 36 recoverable amount results and permitted reversals
• Leases: operating leases under ASC 842 restated to the IFRS 16 depreciation and interest pattern
• Provisions: recognition threshold, measurement within a range and discounting
• Credit losses: stage allocation under IFRS 9 compared with CECL
• Deferred tax on every adjustment above, and the currency translation of the adjustments under IAS 21

How Skyline Nexus ERP supports cross-framework reporting

Skyline Nexus ERP keeps one double-entry general ledger per business, where every account type carries a classification, a normal balance and reporting classifications for the P&L, current or non-current position and cash flow activity. Its Stock Accounting Method setting offers FIFO or LIFO. FIFO is the IFRS-compatible choice, so an entity reporting under IFRS should select FIFO; LIFO is acceptable only in a ledger kept under US GAAP.

The Asset Management module offers straight-line, declining balance, sum-of-years-digits and units-of-production depreciation, and revaluation, impairment and impairment reversal are posted to the ledger from the asset register, so the IAS 16 and IAS 36 treatments that US GAAP does not allow are recorded where they arise. For groups, Skyline Nexus provides a Consolidation area for separate businesses on the platform, with ownership percentages, intercompany account mapping and trial balances translated to the group currency. Framework conversion adjustments themselves are posted as manual journals, which must balance and can be routed through the approval workflow.