1. Local vs. Global
The International Financial Reporting Standards (IFRS) are utilized in more than 110 nations throughout the world, including the European Union and several Asian and South American countries. GAAP, on the other hand, is a US-only accounting standard. Accounting for companies that operate both in the United States and abroad may be more complicated.
GAAP is rule-based and focuses on research, whereas IFRS is principle-based and looks at general trends. IFRS includes principles that need judgement and interpretation to determine how they should be used in a given circumstance, whereas GAAP has industry-specific regulations and recommendations to follow.
3. Developed by
The International Accounting Standard Board (IASB) provides IFRS principles, whereas the Financial Accounting Standard Board (FASB) issues GAAP principles (FASB)
4. Inventory method
For valuing inventory, both GAAP and IFRS allow for First In, First Out (FIFO), weighted-average cost, and specific identification techniques. However, GAAP permits the use of the Last In, First Out (LIFO) technique, which is prohibited by IFRS. The LIFO technique may provide artificially low net profits and may not accurately reflect the real movement of inventory items through a business.
5. Inventory Write-Down Reversals
Inventory can be written down to market value using either approach. Only IFRS enables the previous write-down to be reversed if the market value later rises. Reversal of prior write-downs is not permitted under GAAP. Under IFRS, inventory value may be more variable.
6. Fair Value Revaluations
If fair value can be assessed reliably, IFRS permits revaluation of the following assets to fair value: inventories, property, plant & equipment, intangible assets, and investments in marketable securities. The asset’s value may be increased or decreased as a result of this reassessment. Except for marketable securities, revaluation is forbidden under GAAP.
7. Impairment Losses
When the market value of a long-lived asset decreases, both standards allow for the recording of impairment losses. When circumstances change, IFRS allows all types of assets, except goodwill, to have their impairment losses reversed. For all types of assets, GAAP takes a more cautious approach and bans reversals of impairment losses.
8. Intangible Assets
When specific requirements are satisfied, internal costs to produce intangible assets, such as development costs, are recognised under IFRS. Consideration of future economic advantages is one of these factors.
With the exception of internally produced software, development expenditures are expensed as incurred under GAAP. Costs are capitalised for software that will be utilised externally after technological viability has been established. GAAP only mandates capitalization during the development stage if the programme will only be utilised internally. There is no explicit guideline for software in the IFRS.
9. Fixed Assets
Long-lived assets, such as buildings, furniture, and equipment, must be assessed at historic cost and depreciated correctly, according to GAAP. These identical assets are originally evaluated at cost under IFRS, but they can be revalued up or down to market value subsequently. Under IFRS, any independent components of an asset with varying useful lifetimes must be depreciated individually. Component depreciation is permitted by GAAP, although it is not necessary.
10. Investment Property
The International Financial Reporting Standards (IFRS) recognise the separate category of investment property, which is defined as property kept for the purpose of generating rental income or capital appreciation. The cost of an investment property is first determined, and it can later be revalued to market value. There is no such category in GAAP.