Where US GAAP and IFRS diverge
| Topic | U.S. GAAP | IFRS |
|---|---|---|
| Inventory (LIFO) | Allowed | Prohibited |
| R&D Costs | Nearly all expensed immediately | Development costs capitalized once 6 criteria met |
| Impairment Reversals | Prohibited (one-way door) | Allowed for long-lived assets (not goodwill) |
| Leases | Operating vs finance distinction | Virtually all finance leases (IFRS 16) |
| Credit Losses | CECL — lifetime expected at origination | IFRS 9 — 3-stage model, less front-loaded |
| Revenue | ASC 606 (5-step) | IFRS 15 (5-step, substantially converged) |
The three highest-impact GAAP-IFRS differences
The three highest-impact differences: LIFO prohibition (inflates IFRS inventory/income), R&D capitalization (deflates IFRS expenses), and impairment reversal rules (IFRS can write values back up).
Using the LIFO reserve to convert to FIFO
In inflationary environments, a U.S. manufacturer using LIFO reports lower inventory, higher COGS, and lower net income than an identical IFRS competitor using FIFO. Use the LIFO reserve to convert.
FIFO Inventory = LIFO Inventory + LIFO Reserve
Under IFRS, development costs are capitalized once feasibility is demonstrated. An IFRS pharma company shows lower expenses, higher net income, and an intangible asset — for the same R&D that a GAAP company expenses entirely.
| Impact | GAAP Company | IFRS Peer (Same R&D) |
|---|---|---|
| R&D on P&L | $200M expense | $120M expense (dev costs capitalized) |
| Intangible Asset | $0 | $80M capitalized development |
| Reported Net Income | Lower | Higher by $80M pre-tax |
| True Economics | Identical | Identical |
Compare R&D intensity across a GAAP-IFRS pair
Why a GAAP peer shows less inventory
Adjust for LIFO and capitalized R&D before comparing
Why the same company reports two revenue figures
Sit with the ideas.
You are comparing a U.S. semiconductor company (GAAP, uses LIFO) to a Taiwanese competitor (IFRS). The U.S. company has lower reported inventory, higher COGS, and lower net income. Both companies have nearly identical operations and pricing. What adjustments should you make for a fair comparison?