IFRS, US GAAP, and Indian GAAP: A Comparative Study

US GAAP is the accounting standard used by companies registered with the US Securities and Exchange Commission. Indian GAAP (and, more precisely today, Ind AS) governs Indian companies. IFRS, issued by the IFRS Foundation and the International Accounting Standards Board, exists to bring these — and dozens of other national frameworks — closer to a single global standard.

A full comparison of these three frameworks would take a textbook, not a blog post. What follows are three areas — property, plant and equipment; provisions; and inventory valuation — where the practical differences are concrete enough to actually matter in day-to-day accounting work.

Under IFRS, componentisation is a requirement: an asset must be broken into significant components, each depreciated over its own useful life. US GAAP does not generally require this. Indian GAAP/Ind AS, aligned with IFRS on this point, gives special emphasis to periodic review of useful lives.

Componentisation sounds simple in principle — depreciate the parts of an asset according to how long each part actually lasts — but it’s often difficult in practice, because getting reliable component-level cost data can be hard. Where that detail isn’t available, replacement cost or value is used as a proxy.

Here’s a simplified worked example. Suppose Mr. X buys a building for Rs 1,00,00,000 with an estimated overall useful life of 40 years and no salvage value.

Under US GAAP, since componentisation isn’t mandatory, depreciation is simply Rs 1,00,00,000 ÷ 40 years = Rs 2,50,000 per year, applied uniformly.

Under IFRS, the building must be broken into its significant components, each depreciated over its own useful life:

Notice the componentised total (Rs 4,50,000/year for the first 10 years) is meaningfully higher than the flat US GAAP figure (Rs 2,50,000/year), because shorter-lived components like electrical systems get depreciated faster. Once the electrical and plumbing component is fully depreciated after year 10, the annual charge drops, since only the roof and structure continue depreciating. This is exactly the kind of divergence that trips up analysts comparing depreciation charges across companies reporting under different standards.

The core definitions of a provision are broadly similar across IFRS, US GAAP, and Indian GAAP/Ind AS. Where they diverge is in the probability threshold applied before a liability gets recognised — IFRS and Ind AS are more likely to require recognition of a contingent liability than US GAAP’s stricter probability guidance.

Ind AS also introduces the concept of a constructive obligation — an obligation that arises from a company’s own established pattern of past practice or public commitments, rather than from a contract. A common example: a company has decided, and signalled, that it will provide certain social or employee benefits, even though no contract yet obliges it to. Under IFRS, this constructive obligation can trigger provision recognition even without a formal contractual basis; the same logic applies under Ind AS.

IFRS and US GAAP diverge more visibly here. Take an item with:

• Historical cost: Rs 5,000
• Market cost: Rs 2,000
• Estimated selling price: Rs 4,000
• Estimated cost to complete the sale: Rs 1,000

Net Realisable Value (NRV) = Rs 4,000 − Rs 1,000 = Rs 3,000

• Under IFRS, inventory is valued at the lower of historical cost and NRV → Rs 3,000
• Under US GAAP, inventory is valued at the lower of historical cost and market value → Rs 2,000

The two standards also treat write-down reversals differently. If NRV later recovers — say it rises from Rs 3,000 back toward Rs 4,000, and market value also recovers from Rs 2,000 to Rs 3,000 — IFRS permits reversing a previous write-down, but only up to the extent of the original write-down amount. US GAAP historically has not permitted this kind of reversal once a write-down is recorded. This is a small-sounding rule with a real earnings impact in industries with volatile inventory values, like commodities or electronics.

One more point worth stating plainly, since it’s often described inaccurately: India’s move toward IFRS is not an ongoing or recent development. Ind AS — India’s IFRS-converged accounting standards — was notified in 2015 and became mandatory in phases starting with FY 2016-17. It is now an established, functioning framework that Indian companies have operated under for close to a decade, not a “step closer to convergence” still in progress. For anyone studying comparative standards professionally, the more useful framing is: Ind AS already largely is IFRS, with a limited, well-documented set of India-specific carve-outs — not a country still making up its mind.

Comparative fluency across IFRS, US GAAP, and Ind AS — exactly the kind of thing this article walks through — is precisely what ACCA’s Financial Reporting (FR) and Strategic Business Reporting (SBR) papers train you to do, since ACCA candidates are regularly expected to reason through recognition and measurement differences like the ones above. IMS Proschool teaches ACCA in full, which makes it a natural next step if this kind of standards comparison is the part of accounting you actually enjoy.

Proschool doesn’t currently run a standalone IFRS-only course, so for someone who wants this depth of knowledge built into a complete, globally recognised qualification rather than picked up piecemeal, ACCA is the more direct route available today. Depending on your specific direction, CFA, US CPA, or Financial Modeling may also be relevant complements once you’ve got the reporting-standards fundamentals down.