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GAAP is rules-based and IFRS is principles-based. This disconnect manifests itself in specific details and interpretations; IFRS guidelines provide much less overall detail than GAAP. Consequently, the theoretical framework and principles of the IFRS leave more room for interpretation and may often require lengthy disclosures on financial statements. On the other hand, the consistent and intuitive principles of IFRS are more logically sound and may possibly better represent the economics of business transactions.
Perhaps the most notable specific difference between GAAP and IFRS involves their inventory treatments. IFRS rules ban the use of last-in, first-out, or LIFO, inventory accounting methods. GAAP rules allow for LIFO. Both systems allow for the first-in, first-out method, or FIFO, and the weighted average cost method. GAAP does not allow for inventory reversals, while IFRS permits them under certain conditions.
Another key reporting difference is that GAAP requires financial statements to include a statement of comprehensive income. IFRS does not consider comprehensive income to be a major element of performance and therefore does not include it. This leaves some room for mixing owner and nonowner activity within the financial statements.
