US GAAP vs IFRS: Key Differences for CPA Exam Candidates
By SimplyCPA · 11 October 2026
On this page (5)
- Who sets them: US GAAP is set by the FASB; IFRS by the International Accounting Standards Board (IASB). India's Ind AS is converged with IFRS.
- Rules vs principles: US GAAP has more detailed, industry-specific guidance; IFRS relies more on broad principles and judgement.
- Biggest differences: LIFO (US only), revaluation of PP&E (IFRS only), impairment reversals (IFRS only), development costs (capitalised under IFRS) and the lessee model.
- Contingencies: "Probable" means likely to occur under US GAAP, but more likely than not under IFRS.
- On the exam: FAR is a US GAAP exam, but IFRS differences can be tested in specific areas — learn the headline differences, not IFRS in depth.
Why IFRS appears on a US exam
US companies report under US GAAP, issued by the Financial Accounting Standards Board (FASB). More than 140 jurisdictions require or permit International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Indian Accounting Standards (Ind AS) are converged with IFRS. The CPA Exam focuses on US GAAP, but the blueprints allow selected IFRS differences to be tested — so knowing where the two diverge is worth a few marks, and saves Indian candidates from applying Ind AS instincts to US GAAP questions.
The key differences
| Area | US GAAP | IFRS |
|---|---|---|
| Inventory cost formula | FIFO, weighted average and LIFO allowed | LIFO prohibited (IAS 2) |
| Inventory write-down reversal | Prohibited | Required if net realisable value recovers |
| Property, plant and equipment | Cost model only | Cost or revaluation model (IAS 16) |
| Investment property | No separate category; cost model | Cost or fair value model (IAS 40) |
| Component depreciation | Permitted | Required for significant parts |
| Impairment of long-lived assets | Two steps: recoverability test with undiscounted cash flows, then loss = carrying amount − fair value | One step: loss = carrying amount − recoverable amount (higher of fair value less costs of disposal and value in use) |
| Impairment reversal | Prohibited for assets held and used | Required (except goodwill) |
| Goodwill impairment | Tested at the reporting unit level; one-step test | Tested at the cash-generating unit level |
| Development costs | Generally expensed (software has specific rules) | Capitalised when the IAS 38 criteria are met |
| Lessee accounting | Dual model: finance and operating leases (ASC 842) | Single model (IFRS 16) |
| Contingent liabilities | Accrue if probable (likely) and estimable; minimum of a range if no best estimate | Provide if probable (more likely than not); midpoint of an equally likely range |
| Consolidation model | Variable interest entity model plus voting interest model | Single control model (IFRS 10) |
| Interest paid (cash flow statement) | Operating | Currently a policy choice; IFRS 18 requires non-financial companies to classify it as financing from 2027 |
| Extraordinary items | Not permitted | Not permitted |
Example — impairment: An asset has a carrying amount of $500,000, undiscounted future cash flows of $520,000, fair value of $430,000 and value in use of $450,000. Under US GAAP, the undiscounted cash flows exceed the carrying amount, so the asset passes the recoverability test — no impairment. Under IFRS, recoverable amount is $450,000 (the higher of fair value less costs of disposal and value in use), so an impairment of $50,000 is recognised.
IFRS 18 is coming
IFRS 18, Presentation and Disclosure in Financial Statements, replaces IAS 1 for annual periods beginning on or after January 1, 2027. It introduces defined subtotals in the income statement (operating profit and profit before financing and income taxes), disclosure of management-defined performance measures, and more consistent classification of interest and dividends. US GAAP has no equivalent.
How to study it
- Learn US GAAP first. IFRS questions usually ask "how would this differ under IFRS?", so you need the US answer before the difference makes sense.
- Memorise the table above. Most IFRS questions come from these headline areas.
- If you're an Indian CA, read our US GAAP vs Ind AS comparison — the differences are almost identical.