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Introduction to US GAAP and IFRS

The US GAAP is, basically, a set of accounting rules used for preparing, presenting, and reporting financial statements for wide ranging entities, counting privately-held and publicly-treated companies, governments, and non-profit organizations. This term is by and large confined to US and is thus commonly abbreviated as USGAAP. Yet, in theoretical sense, GAAP encompasses the whole industry of accounting, rather than only the US.

IFRS, short for International Financial Reporting Standards, on the other hand, are principles-based standards, interpretations, and the framework adopted by the International Accounting Standards Board (IASB).


The main points of comparison between US GAAP and IFRS include:

  • Consolidation

US GAAP adopts a bipolar consolidation model, which makes a distinction between a variable interest model and voting interest model. Under IFRS, on the contrary, consolidation is based on control, which is presumed to exist when a parent company holds more than half of a business’ voting power, or holds legal rights.

  • Derivatives

To facilitate meeting the definition of a derivative as per GAAP, a contract would need net settlement unlike IFRS which does not require any net settlement.

  • Equity instruments

As per GAAP, investments in unlisted equity instruments are evaluated at cost, less any “other than temporary impairment,” unless the fair value option is being utilized. IFRS, on the other hand, involves evaluation of equity instrument being done at fair value, if reliably assessable. If not, they would be quantified at cost.

  • Debt instruments

Debt securities must be classified as trading, held-to-maturity, or available-for-sale, even if not quoted. IFRS, on the contrary, requires debt securities, though not quoted in an active market, being classified as “loans and receivables.” This group is not quantified at fair value and also does not require the intent for holding a loan to maturity.

  • Inventory valuation

Under IFRS, the inventory cannot be evaluated through LIFO method. This is, however, allowed under GAAP.

  • Inventory write-downs

As per GAAP, reversal of any write-down is not allowed. IFRS, on the contrary, requires any write-downs which have been accepted in past years to be reversed through the income statement in the period of occurrence of a reversal. 

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