DIfferences in expense recognition, intangible assets, inventories and leases

International financial reporting standards (IFRS) accounting standards (issued by the IASB) are global standards used in 160+ countries (EU, Australia, Canada). They guide recognition, measurement, presentation, and disclosure of financial statement elements.

US GAAP (issued by the FASB) applies only in the U.S. While both frameworks share core principles, key differences appear across IMA-identified learning outcomes like revenue, leases, impairment, and long-lived assets.

This reviewer highlights IMA-tested differences to help you analyze comparative financial statements efficiently.

Exam pitfall: The CMA exam tests US GAAP as the default framework. When a question doesn’t specify IFRS, assume US GAAP rules apply - for example, LIFO is allowed, inventory write-down reversals are prohibited, and development costs are generally expensed. Apply the IFRS-specific rule only when the question explicitly says “under IFRS.”

Expense recognition

US GAAP and IFRS differ in several areas of expense recognition, including share-based payments and employee benefits, covered below.

Share-based payments

For the CMA exams, this topic appears only in US GAAP vs IFRS comparisons, no prior chapter coverage. The relevant differences between US GAAP and IFRS related to share-based payments are as follows:

Subtopic	US GAAP	IFRS
Equity-settled awards to non-employees	Public companies measure these awards based on the fair value of the equity instruments on the grant date. Non-public companies use practical expedients for measurement.	These awards are measured at the fair value of the goods or services received on the date they are received.
Remeasurement of liability in liability-classified share-based payment rewards	Changes in the liability’s fair value are recognized as compensation cost each period; if that cost is attributable to producing another asset (e.g., inventory or PP&E), it can be capitalized under the applicable asset guidance rather than expensed immediately.	Changes in the liability’s fair value are recognized in profit or loss and cannot be capitalized.
Choice of settlement by employee	Awards where the employee can choose between equity or cash settlement are generally classified as liabilities.	These awards are treated as compound instruments with separate accounting for the equity and liability components.

The most exam-relevant difference is measurement: US GAAP measures equity-settled non-employee awards at the grant-date fair value of the equity instruments (with practical expedients available to nonpublic companies), while IFRS measures them at the fair value of the goods or services received.

Employee benefits

For the CMA exams, this topic appears only in US GAAP vs IFRS comparisons, no prior chapter coverage. The relevant differences between US GAAP and IFRS related to employee benefits are as follows:

Subtopic	US GAAP	IFRS
Short-term employee benefits	There are no specific rules for short-term employee benefits other than compensated absences. However, companies generally use accrual accounting for these benefits.	These benefits are defined by IFRS and must be accounted for using accrual accounting.
Post-employment benefits	Post-employment benefits are divided into “post-retirement benefits” and “other post-employment benefits,” each with its own accounting treatment.	There is no difference in the accounting treatment for post-employment benefits provided before or during retirement.
Types of post-employment benefits	Post-retirement benefits are classified the same as IFRS but there are no subclassifications for other post-employment benefits.	Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans.
Asset ceiling	The recognition of an asset in respect of a defined benefit plan is not restricted.	If the defined benefit plan is in surplus, then the amount of any net asset recognized is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan (the ‘asset ceiling’)
Curtailments and other plan amendments	Gains from curtailments are recognized when they occur, while losses are recognized when they are probable.	Gains and losses are recognized at the same time as any related restructuring or termination benefits, if these occur before the curtailment or plan amendment.

The most exam-relevant difference is the asset ceiling: IFRS caps the net asset recognized for an overfunded defined benefit plan at the present value of the future economic benefits available to the employer, while US GAAP places no such restriction on the recognized asset.

Intangible assets

The relevant differences between US GAAP and IFRS related to intangible assets are as follows:

Subtopic	US GAAP	IFRS
Research costs	Expensed as incurred.	Expensed as incurred.
Development costs	Generally expensed as incurred, with the exception of certain computer software development costs.	Capitalized if specific criteria are met (e.g., technical feasibility, intention to complete, ability to use or sell the asset).
Revaluation	Revaluation is prohibited. Intangible assets are generally reported at cost less amortization and impairment.	Allowed only for certain intangible assets if there is an active market for the asset. Revalued assets are reported at fair value.

The most exam-relevant difference is development costs: IFRS allows capitalization once specific criteria are met, while US GAAP generally requires expensing them as incurred and, unlike IFRS, prohibits revaluation of intangible assets.

Inventories

The relevant differences between US GAAP and IFRS related to inventories are as follows:

Subtopic	US GAAP	IFRS
Costing methods	Allows LIFO (Last-In, First-Out), FIFO (First-In, First-Out), weighted-average, and specific identification.	Prohibits LIFO. Allows FIFO, weighted-average, and specific identification.
Valuation	Lower of cost or market (LCM) method for LIFO. Lower of cost or net realizable value (LCNRV) for FIFO, weighted-average, and specific identification.	Values inventory at the lower of cost or net realizable value (NRV). NRV is the estimated selling price less estimated costs to complete and sell.
Write-down	Write-downs are recognized when the market value falls below cost. Reversals of write-downs are prohibited.	Write-downs are recognized when NRV falls below cost. Reversals of the original write-downs are allowed if the reasons for the write-down no longer exist.

The most exam-relevant difference is that IFRS prohibits LIFO (US GAAP allows it), and IFRS permits reversing inventory write-downs when the reasons for the write-down no longer exist, while US GAAP prohibits reversals.

Leases

The relevant differences between US GAAP and IFRS related to leases (lessee accounting) are as follows:

Subtopic	US GAAP	IFRS
Lease classification	Lessee accounting uses a dual model of classifying leases as either operating leases and finance leases. The classification depends on whether the lease transfers substantially all the risks and rewards of ownership to the lessee.	Uses a single model for lessees. All leases are treated similarly to finance leases under US GAAP, with a right-of-use (ROU) asset and a lease liability recognized on the balance sheet.
Operating leases	ROU asset and lease liability are recognized on the balance sheet. Lease expense is recognized on a uniform basis over the lease term (called the uniform lease cost).	N/A - No operating lease classification for lessees.
Finance leases	ROU asset and lease liability are recognized on the balance sheet. Interest expense and amortization expense are recognized separately.	Similar to finance leases under US GAAP, with ROU asset and lease liability recognized. Interest expense and amortization expense are recognized separately.
Short-term leases	Lessees can elect not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less.	Lessees can elect not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less.
Leases of low-value assets	No specific exemption for low-value assets.	Lessees can elect not to recognize ROU assets and lease liabilities for leases of low-value assets (e.g., tablets, personal computers, small items of office furniture).

The most exam-relevant difference is the classification model: US GAAP uses a dual model (operating and finance leases) for lessees, while IFRS uses a single model that treats all leases like finance leases, so more leases end up on the balance sheet under IFRS. IFRS also offers a low-value asset exemption that US GAAP doesn’t provide.