Difference between GAAP and IFRS

There are different types of accounting standards that are followed around the globe. The most commonly used accounting standards are International Financial Reporting Standards or IFRS and Generally Accepted Accounting Principles or GAAP.

IFRS refers to the international financial reporting standards that are followed globally and includes instructions on how certain transactions should be reported in financial statements. IFRS is issued by the International Accounting Standards Board (IASB).

GAAP refers to a common set of accounting standards and procedures that a company must follow at the time of preparation of financial statements.

Let us look at some of the differences between IFRS and GAAP

IFRS

GAAP

Stands for

International Financial Reporting Standard

Generally Accepted Accounting Principles

Developed by

International Accounting Standard Board (IASB)

Financial Accounting Standard Board (FASB)

Adopted by

Globally adopted in around 144 countries

Only adopted in the US

Based on

Principles

Rules

Inventory Methods allowed

IFRS allows only FIFO (First In First Out) inventory method for valuation of inventories

GAAP uses both FIFO (First In First Out) and LIFO (Last In First Out) method of inventory valuation

Inventory Reversal

IFRS allows inventory write down reversal

GAAP does not allow inventory write down reversal

Income Statements

In IFRS, extraordinary items are not segregated and are included in the income statement

In GAAP, the extraordinary items are segregated and are shown below net income in the income statement

Valuation of Fixed Assets

IFRS uses a revaluation model for valuation of fixed assets

GAAP uses a cost model for fixed asset valuation

Cost of Development

Development costs under IFRS can be capitalised, provided certain conditions are met

Development costs cannot be capitalised in GAAP, it is always treated as an expense

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