Key differences between International Financial Reporting Standards and US GAAP across revenue recognition, leases, and inventory valuation.
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- What is the primary difference in how IFRS and GAAP approach financial reporting standards?
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IFRS uses principles-based standards; GAAP uses rules-based standards with more detailed prescriptions.- Which organization sets IFRS standards?
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The International Accounting Standards Board (IASB).- Which organization sets GAAP standards in the United States?
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The Financial Accounting Standards Board (FASB).- Under IFRS, how are leases classified?
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All leases are accounted for using the right-of-use asset model; the terms 'operating' and 'finance' leases are not used.- Under IFRS, does a lessee recognize an operating lease on the balance sheet?
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Yes, all leases are recognized on the balance sheet as a right-of-use asset and lease liability.- What is the key principle behind IFRS revenue recognition?
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Revenue is recognized when control of goods or services transfers to the customer, using the five-step model.- Under IFRS, what is the lower of cost or market for inventory?
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Inventory is valued at the lower of cost or net realizable value (NRV).- Under GAAP, what is the lower of cost or market for inventory?
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Inventory is valued at the lower of cost or market (replacement cost), with market bounded by net realizable value and floor.- Does IFRS permit LIFO inventory valuation?
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No, IFRS prohibits LIFO; only FIFO and weighted-average cost are permitted.- Does GAAP permit LIFO inventory valuation?
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Yes, GAAP permits LIFO, FIFO, and weighted-average cost methods.- Under IFRS, how are development costs treated?
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Development costs are capitalized as an intangible asset if specific criteria are met (technical feasibility, intention to complete, probable future benefits).- Under GAAP, how are research and development costs treated?
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R&D costs are expensed as incurred; they are not capitalized.- What is the key difference in how IFRS and GAAP handle property revaluation?
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IFRS permits revaluation of property, plant, and equipment to fair value; GAAP requires historical cost (with limited exceptions).- Under IFRS, can goodwill be amortized?
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No, goodwill is not amortized; it is tested for impairment annually.- Under GAAP, can goodwill be amortized?
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No, goodwill is not amortized; it is tested for impairment annually (same as IFRS).
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