Compliance with multiple sets of accounting and reporting standards is one of the many challenges facing multi-national corporations.

The varying standards create a lack of comparability, and decision makers can reach the wrong conclusion when reading a set of IFRS financial statements through US GAAP eyes. The FASB (US Financial Accounting Standard Board) and IASB (International Accounting Standard Board) acknowledge the problems created by two sets of standards and they are working together to converge the standards. However, until the world sees uniform accounting standards (which is highly unlikely), multinationals need to understand the accounting differences impacting their company so they don’t reach erroneous conclusions. Two of the largest differences that pertain to many companies are inventory and asset impairment.


The most obvious difference when accounting for inventory under IFRS instead of US GAAP is IFRS does not permit the use of the LIFO method. This is often an easy adjustment to make as the impact is equal to the balance in a company’s LIFO reserve account. Additionally, there are various nuances in how the lower-of-cost-or-market (LCM) analysis is performed under each standard. Primarily, GAAP allows companies to compare their inventory value to either the market price, or the net realizable value. IFRS specifies net realizable value should be used. Lastly, IFRS permits companies to reverse LCM write-downs if inventory later increases in value. This is not permitted under US GAAP.

Long-Lived Asset Impairment

Testing long-lived assets for impairment can differ significantly when performed according to IFRS standards versus US GAAP. Primarily, GAAP first assesses whether the asset’s carrying value will be recovered by its future undiscounted cash flows. The analysis is more complicated under IFRS, where the carrying value is compared to the fair value of the asset at its highest and best use (i.e. either the in-use value, or the sales price less cost to sell). In most circumstances, the in-use value will be higher. In order to determine this value, companies have to perform a full discounted cash flow analysis of the asset. This can be significantly more complicated than compiling the undiscounted cash flows themselves. Also, IFRS allows companies to reverse impairment charges if the asset’s value increases, which is not permitted under US GAAP.

Other Differences

There are many differences between the standards, and it is easy to get lost in the nuances. Multi-nationals trying to navigate the complexities of multiple reporting standards should discuss their reporting objectives with their CPA so they can correctly interpret their financial results. At Saville, we have experience with these standards, and we will be happy to help you navigate the complexities so you can make well informed decisions about your business.

Written By: Billy Bob Messer, CPA


No comments yet.

Leave a Reply