{"id":61,"date":"2026-05-20T01:03:13","date_gmt":"2026-05-19T16:03:13","guid":{"rendered":"https:\/\/gaap-bridge.com\/?p=61"},"modified":"2026-05-20T14:47:49","modified_gmt":"2026-05-20T05:47:49","slug":"uscpa-special-edition-ifrs-vs-us-gaap","status":"publish","type":"post","link":"https:\/\/gaap-bridge.com\/?p=61","title":{"rendered":"USCPA Special Edition \u2013 IFRS vs US GAAP"},"content":{"rendered":"\n

<\/p>\n\n\n\n

As I mentioned in the previous post, the USCPA exam is divided into four sections, and FAR (Financial Accounting and Reporting) mainly covers U.S. GAAP, nonprofit accounting, and governmental accounting.<\/p>\n\n\n\n

For people who already have accounting experience under IFRS, one of the first questions that naturally comes up is:<\/p>\n\n\n\n

\u201cHow different is US GAAP from IFRS?\u201d<\/p>\n\n\n\n

That was exactly my question when I first started studying as well.<\/p>\n\n\n\n

Up until around 2020, the USCPA exam occasionally tested direct comparisons between IFRS and US GAAP. However, as the convergence project between the two standards gradually lost momentum, those comparison-style questions mostly disappeared after 2021.<\/p>\n\n\n\n

Ironically, that also meant candidates familiar with IFRS lost an easy scoring opportunity.<\/p>\n\n\n\n

Still, studying US GAAP by building on existing IFRS knowledge is far more efficient than learning everything completely from scratch.<\/p>\n\n\n\n

So in this post, I wanted to summarize some of the major differences between IFRS and US GAAP \u2014 especially the topics that frequently appear in FAR.<\/p>\n\n\n\n

Honestly, if you already work in accounting and refresh your understanding of these differences, most of FAR (excluding nonprofit and governmental accounting) becomes much more manageable.<\/p>\n\n\n\n

(And as I\u2019ll mention in USCPA 02, solving Becker questions repeatedly afterwards becomes far more effective once this foundation is clear.)<\/p>\n\n\n\n

\n\n\n\n

The Overall Philosophy: IFRS vs US GAAP<\/h1>\n\n\n\n
IFRS<\/th>US GAAP<\/th><\/tr>
Principle-based accounting<\/td>Rule-based accounting<\/td><\/tr>
Broader use of fair value accounting<\/td>More limited fair value application<\/td><\/tr>
More extensive disclosure requirements<\/td>Relatively fewer disclosure requirements<\/td><\/tr>
Standards developed through international collaboration<\/td>Independently developed standards<\/td><\/tr>
Functional or nature-based expense classification allowed<\/td>Functional classification generally required<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

The most important difference is philosophical.<\/p>\n\n\n\n

IFRS is an international accounting standard used across many countries, which makes it difficult to establish extremely detailed rules that fit every jurisdiction perfectly.<\/p>\n\n\n\n

Business culture, legal systems, and market practices differ significantly from country to country.<\/p>\n\n\n\n

US GAAP, on the other hand, was developed primarily within one country \u2014 the United States \u2014 allowing it to adopt more detailed and rule-oriented guidance.<\/p>\n\n\n\n

This difference in philosophy also explains why IFRS tends to allow broader fair value measurement and more flexibility, while US GAAP often prefers clearer, more conservative rules.<\/p>\n\n\n\n

Once you understand this underlying philosophy, many individual accounting differences become much easier to understand conceptually rather than memorizing them mechanically.<\/p>\n\n\n\n

\n\n\n\n

1. Inventory<\/h1>\n\n\n\n
Inventory<\/th>IFRS<\/strong><\/th>US GAAP<\/strong><\/th><\/tr><\/thead>
1. LIFO<\/strong><\/td>Not permitted<\/td>Permitted<\/td><\/tr>
2. Lower of Cost Rule<\/strong><\/td><\/td><\/td><\/tr>
Market Value<\/td>NRV (Net Realizable Value)<\/td>Current replacement cost(not exceeding NRV)<\/td><\/tr>
Recovery of Write-Down<\/td>Permitted<\/td>Not permitted<\/td><\/tr>
Application<\/td>Applied item-by-item(grouping allowed for similar items)<\/td>Item-by-item, group-by-group, or total inventory basis allowed<\/td><\/tr>
3. Long-Term Contract Revenue Recognition<\/strong><\/td>1) Principle: Completed-contract method
2) Percentage-of-completion allowed if conditions are met<\/td>		1) Principle: Cost recovery method
2) Percentage-of-completion allowed if conditions are met<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

One of the most famous differences is that US GAAP still permits LIFO.<\/p>\n\n\n\n

I once heard an explanation that American consumers generally prefer buying the newest products available rather than older inventory, which supposedly contributed historically to LIFO\u2019s acceptance in the U.S.<\/p>\n\n\n\n

Honestly, aside from earnings management concerns, LIFO sometimes feels closer to actual business reality in many industries ?<\/p>\n\n\n\n

Most other inventory differences also reflect the broader IFRS vs US GAAP philosophy regarding fair value and estimation.<\/p>\n\n\n\n

\n\n\n\n

2. Property, Plant and Equipment (PPE)<\/h1>\n\n\n\n
PPE<\/th>IFRS<\/th>US GAAP<\/th><\/tr><\/thead>
1. Revaluation<\/strong><\/td>Permitted<\/td>Not permitted<\/td><\/tr>
2. Capitalization of Borrowing Costs<\/strong><\/td>Interest income generated from specific borrowings is deducted from interest expense (net presentation)<\/td>Interest income generated from specific borrowings is not deducted from interest expense (recognized separately)<\/td><\/tr>
3. Rental Property<\/strong><\/td>Classified as investment property<\/td>Classified as PPE<\/td><\/tr>
4. Impairment Loss<\/strong><\/td>(1) Recoverable amount \u2013 carrying amount
(2) Reversal of impairment permitted<\/td>		(1) Two-step approach

1) Recovery test:
Book value > Total future cash flows (undiscounted)

2) Impairment loss = Fair value \u2013 book value

(2) Reversal of impairment not permitted<\/td><\/tr>
5. Useful Life, Residual Value, and Depreciation Method<\/strong><\/td>Reviewed annually
(higher possibility of revision)<\/td>		Changes allowed only in exceptional cases<\/td><\/tr>
6. Depreciation of Asset Components<\/strong><\/td>Required if components of an asset have different patterns of benefit<\/td>Permitted but uncommon<\/td><\/tr>
7. ARO (Asset Retirement Obligation)<\/strong><\/td>Reassessed annually
(timing of cash flows, discount rate, and amount can all change)<\/td>		Discount rate does not change<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

<\/p>\n\n\n\n

One interesting point under US GAAP is that rental property is typically treated as PPE rather than as a separate investment property category.<\/p>\n\n\n\n

Perhaps this reflects how deeply rental culture is integrated into the U.S. economy.<\/p>\n\n\n\n

Another major difference is impairment testing.<\/p>\n\n\n\n

Under IFRS:<\/p>\n\n\n\n

    \n
  • impairment is generally based on recoverable amount<\/li>\n<\/ul>\n\n\n\n

    Under US GAAP:<\/p>\n\n\n\n

      \n
    • a two-step recovery test is applied<\/li>\n\n\n\n
    • undiscounted future cash flows are used first<\/li>\n<\/ul>\n\n\n\n

      Personally, I felt slightly jealous of U.S. accountants here because impairment calculations sometimes seemed simpler under US GAAP ?<\/p>\n\n\n\n

      \n\n\n\n

      3. Intangible Assets<\/h1>\n\n\n\n
      Intangible assets<\/th>IFRS<\/th>US GAAP<\/th><\/tr><\/thead>
      1. Revaluation<\/strong><\/td>Permitted<\/td>Not permitted<\/td><\/tr>
      2. Development Costs<\/strong><\/td>Can be recognized as an intangible asset if specific conditions are met<\/td>Expensed as incurred<\/td><\/tr>
      3. Amortization of Computer Software<\/strong><\/td>Amortized over estimated useful life<\/td>Useful life = Max of:
      ? Estimated useful life
      ? Actual revenue \/ Estimated total revenue<\/td><\/tr>
      4. Impairment Loss<\/strong><\/td>(1) Recoverable amount \u2013 carrying amount
      (2) Reversal of impairment permitted (except goodwill)
      (3) Indefinite-life intangible assets:
      tested annually and whenever impairment indicators exist<\/td>      		(1) Two-step approach

      1) Recovery test:
      Book value > Total future cash flows (undiscounted)

      2) Impairment loss = Fair value \u2013 book value

      (2) Reversal of impairment not permitted
      (3) Impairment test only when indicators exist<\/td><\/tr>
      5. Useful Life, Residual Value, and Amortization Method<\/strong><\/td>Reviewed annually
      (higher possibility of revision)<\/td>      		Changes allowed only in exceptional cases<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

      <\/p>\n\n\n\n

      From the perspective of US GAAP\u2019s rule-based philosophy, capitalizing development costs involves too much estimation and uncertainty.<\/p>\n\n\n\n

      So US GAAP generally takes the more conservative approach of expensing development costs immediately.<\/p>\n\n\n\n

      \n\n\n\n

      4. Cash and Cash Equivalents<\/h1>\n\n\n\n
      Cash<\/th>IFRS<\/th>US GAAP<\/th><\/tr><\/thead>
      Bank Overdrafts<\/strong><\/td>Classified as cash and cash equivalents<\/td>Offset against cash only when held at the same bank
      If the balance is negative, classified as a current liability<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

      <\/p>\n\n\n\n

      This difference also felt very practical.<\/p>\n\n\n\n

      The U.S. banking system is enormous and highly fragmented, so offsetting overdrafts across different banks would naturally become more difficult.<\/p>\n\n\n\n

      And yes\u2026 USCPA questions still love bank reconciliations involving checks sent by mail ?<\/p>\n\n\n\n

      \n\n\n\n

      5. Financial Instruments<\/h1>\n\n\n\n
      <\/th>Held-to-Maturity Securities<\/th>Available-for-Sale Securities<\/th>Trading Securities<\/th><\/tr><\/thead>
      1. Initial Measurement<\/strong><\/td>Purchase price + directly attributable costs<\/td>Purchase price + directly attributable costs<\/td>Purchase price + directly attributable costs<\/td><\/tr>
      2. Classification<\/strong><\/td>Current or non-current<\/td>Current or non-current<\/td>Current or non-current<\/td><\/tr>
      3. Subsequent Measurement<\/strong><\/td>Amortized cost<\/td>Fair value<\/td>Fair value<\/td><\/tr>
      4. Unrealized Gain\/Loss<\/strong><\/td>N\/A<\/td>Other comprehensive income (OCI)<\/td>Net income<\/td><\/tr>
      5. Income Statement Impact<\/strong><\/td>Interest income, impairment loss<\/td>Interest income, impairment loss<\/td>Interest income, impairment loss<\/td><\/tr>
      6. Cash Flow Classification<\/strong><\/td>Investing activities<\/td>Operating or investing activities<\/td>Investing activities<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

      Interestingly, US GAAP still uses the older classification system that many accountants may remember before IFRS 9:<\/p>\n\n\n\n

        \n
      • Held-to-Maturity<\/li>\n\n\n\n
      • Available-for-Sale<\/li>\n\n\n\n
      • Trading Securities<\/li>\n<\/ul>\n\n\n\n

        For accountants with longer practical experience, these concepts may actually feel more familiar than the current IFRS 9 framework.<\/p>\n\n\n\n

        \n\n\n\n

        6. Compound Financial Instruments<\/h1>\n\n\n\n
        Compound FI<\/th>IFRS<\/th>US GAAP<\/th><\/tr><\/thead>
        1. Convertible Bonds<\/strong><\/td>Separated into liability and equity components<\/td>Entirely recognized as a liability<\/td><\/tr>
        2. Bonds with Warrants<\/strong><\/td>Separated into liability and equity components<\/td>Entirely recognized as a liability<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

        <\/p>\n\n\n\n

        \n\n\n\n

        7. Statement of Cash Flows<\/h1>\n\n\n\n
        Cash flows<\/th>IFRS<\/th>US GAAP<\/th><\/tr><\/thead>
        1. Interest Received<\/strong><\/td>CFO or CFI
        (Operating or Investing Activities)<\/td>        		CFO (Operating Activities)<\/td><\/tr>
        2. Interest Paid<\/strong><\/td>CFO or CFF
        (Operating or Financing Activities)<\/td>        		CFO (Operating Activities)<\/td><\/tr>
        3. Dividends Received<\/strong><\/td>CFO or CFI
        (Operating or Investing Activities)<\/td>        		CFO (Operating Activities)<\/td><\/tr>
        4. Dividends Paid<\/strong><\/td>CFO or CFF
        (Operating or Financing Activities)<\/td>        		CFF (Financing Activities)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

        <\/p>\n\n\n\n

        Interestingly, I never found a fully satisfying conceptual explanation for some of these cash flow classification differences ?<\/p>\n\n\n\n

        If anyone has a particularly elegant interpretation, feel free to share it with me.<\/p>\n\n\n\n

        \n\n\n\n

        Overall, once you compare the two frameworks directly, the differences between IFRS and US GAAP are honestly smaller than many people initially expect.<\/p>\n\n\n\n

        And in my opinion, understanding financial accounting deeply is one of the most important foundations not only for FAR, but also for:<\/p>\n\n\n\n

          \n
        • AUD<\/li>\n\n\n\n
        • business ratios<\/li>\n\n\n\n
        • cash flow analysis<\/li>\n\n\n\n
        • and even audit procedures later on.<\/li>\n<\/ul>\n\n\n\n

          That\u2019s exactly why I personally recommend starting the USCPA journey with FAR first.<\/p>\n\n\n\n

          I\u2019ll return with USCPA 02 in the next post ?<\/p>\n\n\n\n

          Thanks for reading such a long article!<\/p>\n\n\n\n

          <\/p>\n\n\n\n

          \"\"<\/figure>\n\n\n\n

          <\/p>\n","protected":false},"excerpt":{"rendered":"

          As I mentioned in the previous post, the USCPA exam is divided into four sections, and FAR (Financial Accounting and 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