IFRS vs US GAAP: The Differences That Matter for UK Businesses with Global Links
IFRS and US GAAP agree on most things, but the gaps that remain can move reported profit, equity and covenant ratios. If your UK company reports to a US parent, raises money from US investors or is acquired by a US buyer, those gaps become your problem.
Who uses which framework in the UK?
That last group runs two sets of rules at once. Each difference below is a reconciling item someone must track.
- UK listed groups prepare consolidated accounts under UK-adopted IFRS.
- Subsidiaries of IFRS groups often use FRS 101, which applies IFRS measurement with reduced disclosures.
- Most private UK companies use FRS 102 or, if very small, FRS 105.
- UK subsidiaries of US groups usually file FRS 102 accounts at Companies House while sending US GAAP numbers to their parent every month or quarter.
Principles vs rules
IFRS is principles-based: it sets objectives and expects judgement. US GAAP is more rules-based, with detailed, industry-specific guidance in the FASB Codification. In practice, IFRS asks "what is the substance?" while US GAAP more often asks "which rule applies?"
Key differences at a glance
| Area | IFRS | US GAAP |
|---|---|---|
| Inventory costing | LIFO prohibited | LIFO permitted |
| Inventory write-down reversals | Required when value recovers | Prohibited |
| Development costs | Capitalised once strict criteria are met (IAS 38) | Generally expensed (software has specific rules) |
| Property, plant and equipment | Cost or revaluation model | Cost model only |
| Component depreciation | Required for significant parts | Permitted, rarely used |
| Asset impairment | One-step test; reversals allowed (except goodwill) | Two-step test for long-lived assets; reversals prohibited |
| Lessee accounting | Single on-balance-sheet model (IFRS 16) | Finance vs operating leases; operating leases show a straight-line expense (ASC 842) |
| Provisions | Recognised if "probable" (more likely than not); midpoint of a range | "Probable" is a higher threshold; low end of a range |
| Interest paid (cash flow) | Policy choice today; financing under IFRS 18 | Operating activities |
| Revenue | IFRS 15 | ASC 606 (largely converged) |
Why these differences hit the numbers
- Development spend. A UK tech company capitalising development costs under IFRS or FRS 102 can show higher profit than the same company under US GAAP, which generally expenses them. Your US parent may see a loss where your UK accounts show a profit.
- Leases. Under IFRS 16, all lessee leases produce depreciation plus interest, so EBITDA rises. Under US GAAP, operating leases produce a single straight-line cost within operating expenses. Covenants based on EBITDA can tell different stories.
- Impairments. IFRS lets you reverse an impairment when an asset's value recovers. US GAAP does not. A one-off write-down under US GAAP is permanent.
- Inventory. US businesses using LIFO must convert to FIFO or weighted average for IFRS, which can change both stock values and margins.
What's changing: IFRS 18
IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 for periods beginning on or after 1 January 2027, and the UK Endorsement Board adopted it for UK use in December 2025. It introduces defined subtotals in the income statement (operating, investing and financing categories) and requires disclosure of management-defined performance measures. Comparatives must be restated, so 2026 figures need representing too. US GAAP has no equivalent, so presentation gaps between the two frameworks will widen for UK IFRS reporters.
Practical steps for US-linked UK businesses
- 1.Map every account in your chart of accounts to both frameworks before year-end, not after.
- 2.Keep a running GAAP reconciliation for known differences: development costs, leases, impairments and share-based payments.
- 3.Agree group accounting policies in writing with your parent's finance team.
- 4.Check that your FRS 102 accounts still meet Companies House requirements after group adjustments.
- 5.Review covenant definitions to see which framework they reference.
How Step 1 Advisors helps
Our GAAP advisory team prepares FRS 102 statutory accounts alongside US GAAP or IFRS reporting packs, maintains GAAP reconciliations and supports group audits. You get one team that speaks both languages, so your UK accounts and your group reporting always tie up.
Reporting to a US parent or investor? [Talk to Step 1 Advisors about GAAP conversion and reporting.]→