IFRS vs. GAAP: What’s the Difference?
If you’re learning accounting or just getting started in the finance world, you’ve probably come across the terms IFRS and GAAP. They sound technical — and they are — but don’t worry. Once you understand the basics, it’s much simpler than it seems.
This guide breaks down what IFRS and GAAP mean, how they differ, and why it matters (especially in the UK).
What Is IFRS?
IFRS stands for International Financial Reporting Standards.
These are global accounting rules created by the International Accounting Standards Board (IASB). They tell companies how to record, report, and present their financial information so that it’s clear and comparable across countries.
In simple terms:
👉 IFRS is the world’s standard language for accounting.
Where Is IFRS Used?
Over 140 countries use IFRS, including the UK, EU nations, and many others around the world.
In the UK, all publicly listed companies must prepare their financial statements using IFRS. Many private companies also choose to follow IFRS for consistency and transparency.
What Is GAAP?
GAAP stands for Generally Accepted Accounting Principles.
It’s a set of accounting rules used mainly in the United States. GAAP is created and maintained by the Financial Accounting Standards Board (FASB).
So, while IFRS is international, GAAP is country-specific — tailored to how accounting works in the US.
The Key Difference: IFRS vs. GAAP
While both aim to make financial statements reliable and consistent, they differ in how they achieve that goal.
Here’s a simple comparison:
| Aspect | IFRS (Used in UK & Most Countries) | GAAP (Used in the US) |
| Full Form | International Financial Reporting Standards | Generally Accepted Accounting Principles |
| Main Focus | Principles-based (broad guidelines) | Rules-based (detailed rules) |
| Flexibility | More flexible – allows professional judgement | More strict – specific rules for most situations |
| Inventory Valuation | LIFO (Last In, First Out) not allowed | LIFO is allowed |
| Development Costs | Can be capitalised if criteria are met | Usually expensed immediately |
| Revaluation of Assets | Allowed under certain conditions | Not generally allowed |
| Regulatory Body | IASB (International Accounting Standards Board) | FASB (Financial Accounting Standards Board) |
Why Does It Matter?
- Understanding IFRS and GAAP matters because it affects how companies report profits, assets, and financial performance.Here’s why it’s important for you:
- If you work in accounting or finance: You’ll need to know IFRS, since that’s what’s used across the UK and Europe.
- If you work with international companies: You might need to understand GAAP too, especially if your clients or partners are based in the US.
If you’re studying accounting: Knowing the difference helps you understand global reporting and how financial statements can vary between countries.
Which One Does the UK Use?
In the UK, companies use:
- IFRS – for publicly listed companies and large international businesses.
- UK GAAP – for smaller, private companies (this is the UK’s version of GAAP, not the American one).
So, if you’re studying or working in the UK, you’ll mainly deal with IFRS and UK GAAP — not US GAAP.
In Simple Terms
Think of IFRS as a global standard and GAAP as a national one.
- IFRS = International → Used by the UK and most countries
- GAAP = American → Used mainly in the US
Both aim for the same goal — to make financial reporting clear, consistent, and trustworthy — but they take slightly different routes to get there.
Final Thoughts
You don’t need to be a financial expert to understand IFRS and GAAP — just remember this:
- IFRS is the global accounting language, used in the UK.
- GAAP is the American system.
- The main difference lies in flexibility vs. detailed rules.
If you’re planning a career in UK accounting, start by learning IFRS and UK GAAP, as these are what you’ll encounter in most workplaces.
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