How GAAP and IFRS differ, who must use each and what changes between the UK and the US

Two companies can run near-identical businesses and still report different profits, because the rulebook behind the accounts is not the same. That gap matters to a finance team preparing group accounts, to an investor comparing a London-listed firm with a New York one and to anyone starting out in financial reporting. Which framework applies depends on where a company is listed, how large it is and who will read its accounts.

What is GAAP?

GAAP, short for generally accepted accounting principles, is the rulebook a jurisdiction recognizes for preparing financial statements, and the US and the UK each have their own.

The Financial Accounting Standards Board (FASB), the US standard setter, describes its Accounting Standards Codification as “the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP).”

In plain English, GAAP tells a company how to record its transactions and present its results so readers can compare them. A manufacturer follows it to decide how to value unsold inventory. A software company follows it to decide when a subscription counts as revenue. An auditor uses it as the yardstick for judging whether the accounts are fairly presented.

The FASB owns US GAAP, and the Securities and Exchange Commission (SEC) recognized FASB standards as generally accepted for the federal securities laws in a policy statement issued April 25, 2003. The Codification has been the authoritative source for nongovernmental entities for periods ending after September 15, 2009. It does not replace SEC rules, which stay authoritative for companies that file with the SEC, and the Accounting Standards Updates the FASB issues are not authoritative in their own right.

UK GAAP is a separate rulebook from US GAAP

In the UK, the term covers the financial reporting standards (FRS) issued by the Financial Reporting Council (FRC). FRS 102 is the main standard. It applies to entities that are not applying adopted IFRS, FRS 101 or FRS 105, and it is based on the IASB's IFRS for SMEs Accounting Standard with some significant amendments for UK and Republic of Ireland use. FRS 101 offers reduced disclosures for the individual accounts of subsidiaries and ultimate parents that otherwise apply adopted IFRS, and FRS 105 is for companies that qualify for the micro-entities regime.

The FRC's Periodic Review 2024 amendments take effect January 1, 2026 and made headline changes to the FRS 102 sections on leases and revenue.

What is IFRS?

IFRS, short for International Financial Reporting Standards, is the set of accounting standards developed by the International Accounting Standards Board (IASB) and now called IFRS Accounting Standards.

The IFRS Foundation Constitution (2021) states that the IASB “is responsible for developing a set of accounting standards (referred to as ‘IFRS Accounting Standards’).”

In plain English, IFRS is a common set of accounting rules meant to make the accounts of companies in different countries easier to compare. A group with subsidiaries in several countries can use one framework for its consolidated accounts. An investor comparing two listed companies in different countries can read both on the same basis where both apply IFRS.

The IFRS Foundation, an independent not-for-profit organization created in 2001, owns the standards, and the IASB develops and issues them. The Foundation's 2025 annual report says more than 140 jurisdictions require companies to apply them. Jurisdictions adopt the standards through their own processes, so the version a company applies can carry local modifications, as UK-adopted international accounting standards do.

UK-adopted international accounting standards apply to UK listed groups

UK law requires UK-adopted international accounting standards in the consolidated financial statements of UK companies whose securities are admitted to trading on a UK regulated market. They are IFRS Accounting Standards as issued by the IASB with some limited modifications, and other UK companies except charities may apply them voluntarily. The UK Endorsement Board (UKEB) adopts new and amended standards for UK use, a power delegated to it in May 2021, and the requirement has applied since December 31, 2020.

Who sets each framework, what it is for and when it took effect

Feature	US GAAP	IFRS Accounting Standards	UK GAAP
Purpose	Rules for preparing the financial statements of nongovernmental US entities	One set of accounting standards for general purpose financial reporting	Rules for UK and Republic of Ireland entities that do not apply adopted IFRS
Owner	FASB	IASB, part of the IFRS Foundation. In the UK the UKEB adopts them	FRC
Authoritative source	FASB Accounting Standards Codification	IFRS Accounting Standards as issued by the IASB	FRS 101, FRS 102 and FRS 105, with FRS 100 setting the application
Who applies it	Recognized by the SEC for US federal securities law. A foreign private issuer may file IFRS instead	More than 140 jurisdictions require it (IFRS Foundation, 2025)	FRS 102 applies where adopted IFRS, FRS 101 or FRS 105 is not used. FRS 105 is optional for micro-entities
Timing	Codification effective for periods ending after September 15, 2009	Foundation created in 2001. UK-adopted version required in the UK from December 31, 2020	FRS 102 Periodic Review 2024 amendments effective January 1, 2026

Example of GAAP vs IFRS in practice: valuing inventory when purchase prices rise

This is an illustrative scenario. A distributor buys 100 units at $10, later buys 100 units at $12 and then sells 100 units. IAS 2 allows the first-in, first-out (FIFO) or weighted average cost formula and excludes the last-in, first-out (LIFO) formula. US GAAP still permits LIFO, which the FASB treats separately in Topic 330.

Cost formula	Cost of goods sold	Closing inventory	Allowed under IFRS	Allowed under US GAAP
FIFO	$1,000	$1,200	Yes	Yes
Weighted average	$1,100	$1,100	Yes	Yes
LIFO	$1,200	$1,000	No	Yes

A US company on LIFO and an IFRS company on FIFO, with identical trading, would report cost of goods sold $200 apart. Because prices rose, LIFO shows the highest cost of goods sold and the lowest profit.

UK and US requirements differ by regulator, rule and who must comply

UK requirements: FRC standards, UK-adopted IFRS and the Companies Act 2006

The Department for Business and Trade leads on company law, and the Companies Act 2006 requires the consolidated accounts of parent companies with securities admitted to trading on a UK regulated market to use UK-adopted international accounting standards. The FRC issues the FRS standards and the UKEB adopts IFRS for UK use. Other companies may use UK-adopted international accounting standards or an FRS standard that fits their size and structure, and charities cannot apply UK-adopted international accounting standards.

US requirements: the FASB, the SEC and foreign private issuers

In the US, the FASB sets the standards and the SEC recognizes them for the federal securities laws. A foreign private issuer filing with the SEC can use IFRS as issued by the IASB without reconciling to US GAAP, under a rule effective March 4, 2008. The issuer must state explicitly and unreservedly in the notes that the statements comply with IFRS as issued by the IASB and provide an unqualified auditor's report on that compliance. That text can differ from UK-adopted international accounting standards because the UK version carries limited modifications.

Limits of both frameworks and four checks that confirm the right one applies

• The FASB Codification covers US GAAP only, so cash basis and income tax basis accounts fall outside it.
• IFRS Accounting Standards are adopted jurisdiction by jurisdiction, so a statement of compliance has to name the exact version applied.
• FRS 102 changed from January 1, 2026, so checklists built on older versions can be out of date.

To confirm the right framework applies, work through these checks:

• Confirm whether the entity's securities are admitted to trading on a UK regulated market or filed with the SEC.
• Match each set of statements, consolidated or individual, to its framework.
• Confirm which version of each standard is in effect for the reporting period.
• Check that every required disclosure is covered, where disclosure management checklists matched to each standard can support the review.

Matching each set of accounts to its rulebook keeps UK and US comparisons honest

The frameworks answer the same question, how a company should record and report its results, through different owners, different texts and different adoption rules. A UK-listed group reports consolidated accounts under UK-adopted international accounting standards, a UK company outside that requirement may report under an FRS standard and a US company reports under the FASB Codification, so the label on the accounts matters as much as the figures in them. The inventory example shows how a choice permitted under one rulebook can move profit by a visible amount while the trading stays the same. For anyone reading or preparing accounts, the practical step is to identify the framework first, then confirm the standard version in force for that year before comparing a single number.