FASB GAAP vs IFRS: Major Accounting Differences
Quick answer: FASB GAAP (US) and IFRS (international) differ in key areas: inventory methods (LIFO allowed under GAAP, prohibited under IFRS), lease accounting (ASC 842 vs IFRS 16), revenue recognition (ASC 606 vs IFRS 15), and development costs (expensed under GAAP, capitalized under IFRS).
Overview of the Two Frameworks
US GAAP (Generally Accepted Accounting Principles) is issued by the Financial Accounting Standards Board (FASB) and is required for US publicly listed companies. It is rules-based in orientation with detailed guidance.
IFRS (International Financial Reporting Standards) is issued by the International Accounting Standards Board (IASB) and is used in over 140 countries. It is principles-based and allows more professional judgment.
Revenue Recognition
Both ASC 606 (GAAP) and IFRS 15 (IFRS) use a five-step model for revenue recognition, and the frameworks are substantially converged. Key differences remain in:
- Variable consideration — IFRS has a more restrictive policy on backlog
- Licensing accounting — minor differences in timing of recognition
- Principal vs agent判断 — subtle differences in the indicators
Inventory Methods
Critical difference: GAAP allows LIFO (Last-In, First-Out); IFRS prohibits LIFO entirely.
Under GAAP, companies may use FIFO, LIFO, or weighted average cost. Under IFRS, only FIFO and weighted average are permitted.
Additionally, IFRS requires inventories to be measured at lower of cost and net realizable value; GAAP uses lower of cost or market (with different definitions of "market").
Lease Accounting
GAAP (ASC 842): All leases longer than 12 months are capitalized for lessees. Short-term leases (under 12 months) can be expensed as rent. Operating and finance leases are both on-balance sheet.
IFRS 16: Almost all leases are capitalized (no operating/finance distinction for lessees). Only short-term leases (under 12 months) and low-value assets can be exempted.
Development Costs
GAAP (ASC 730): Research and development costs are expensed as incurred — no capitalization of R&D.
IFRS (IAS 38): Development costs can be capitalized when specific criteria are met (technical feasibility, intention to complete, ability to use or sell, expected future benefits).
Key Differences Summary
| Topic | GAAP | IFRS |
|---|---|---|
| Inventory methods | FIFO, LIFO, Weighted Avg | FIFO, Weighted Avg only |
| Lease lessee accounting | Operating + Finance (both on BS) | Most leases (single model) |
| R&D costs | Expensed as incurred | Can capitalize development phase |
| Reversals | Inventory write-downs not reversed | Reversals required if conditions improve |
| Framework style | Rules-based, detailed guidance | Principles-based, more judgment |
