Lesson 3 of 6
IFRS against US GAAP
The differences an investor meets, including one worth 45 billion yen of profit at a single company and one that removes a ratio from this product.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- IFRS requires development costs to be capitalised once stated criteria are met, where US GAAP expenses research and development as incurred.
- Capitalising is not automatically flattering: at one company the amortisation of past capitalised costs exceeded the new capitalisation by 45.0 billion yen.
- The differences also reach the data: no company reporting under IFRS in this product carries a published price to earnings ratio.
Most IFRS and US GAAP differences do not change an investment case. Three of them do, and one of them changes what you can read on this site.
Toyota's research and development, fiscal 2026
- Expenditure incurred in the year¥1,522,881m
- Capitalised, not charged this year−¥106,751m
- Amortisation of earlier capitalised costs+¥151,780m
- Charged against profit= ¥1,567,910m
Development costs
Toyota's policy, in its own words, is that development expenditure is capitalised only when there is technical and commercial feasibility of completing the development, the company has the intention, ability and resources to use the outcome, a future economic benefit is probable, and the cost can be measured reliably. Capitalised cost is then amortised straight-line over the expected product life.
A US GAAP filer expenses research and development as incurred, so the same spending would have gone through the income statement in full.
The interesting part is the direction. In fiscal 2026 this company capitalised 106,751 million yen and amortised 151,780 million from earlier years, so the charge against profit was 45,029 million yen higher than expensing everything would have produced. A mature capitalisation policy eventually charges more than it defers, and the flattering years are the early ones.
Inventory costing
A US filer may cost inventory on a last-in-first-out basis and then disclose a reserve so a reader can restate it. An IFRS filer cannot, and you will not find that note: Toyota states that inventory cost is determined principally by the weighted-average method.
For a comparison between two companies this matters in one direction. In a period of rising costs the LIFO filer reports lower profit and lower inventory than the IFRS filer doing the same business, and the LIFO reserve is the bridge between them. Without that note there is nothing to restate.
The difference that reaches the data
None of the 486 carries a P/E, and the reason is mechanical rather than economic. The earnings per share concepts read from the filings here are the US GAAP ones, and an IFRS filer tags that line under a different taxonomy: 358 of 358 IFRS annual income statements on record for fiscal 2025 or later carry no earnings per share line at all.
So every per-share figure for those companies reads as unavailable, while the ratios that need no per-share line, return on equity, margins, debt to equity, are published normally. It is an absence rather than a zero, which is the right behaviour, and it is a gap in coverage rather than a property of IFRS.
What to do with it
Check the cover page for the standard before comparing any company with a domestic filer. Where the standard is IFRS and the comparison involves a capitalised cost, a lease, or a revalued asset, read the accounting policy note rather than assuming the two are the same. And where a per-share figure is missing here for one of these companies, it is in the filing: the statements carry it even when the data does not.
Check yourself
What does IFRS require for development costs that US GAAP does not?
- That they be disclosed separately
- That they be capitalised once stated feasibility and benefit criteria are met, rather than expensed as incurred
- That they be amortised over twenty years
Show the answer
Answer: B.
The criteria are in the company's own policy note, and the capitalised cost is then amortised over the expected product life.At Toyota in fiscal 2026, what did capitalising development cost do to reported profit?
- Raised it, by deferring spending
- Lowered it by 45,029 million yen, because amortisation of earlier capitalised costs exceeded what was newly capitalised
- Left it unchanged
Show the answer
Answer: B.
Capitalisation flatters the early years. Once the policy matures the amortisation of past capitalised costs can exceed the new deferral.Why does no IFRS-reporting company here carry a published P/E?
- IFRS companies do not report earnings per share
- The per-share concepts read from the filings are the US GAAP ones, so the line is absent from the data and the ratio is not computed
- Their earnings are negative
Show the answer
Answer: B.
It is a coverage gap in the ingest rather than anything about IFRS. The figure is in the filing; it does not reach the data, so the product shows an absence rather than a guess.Sources
- Toyota Motor Corporation, Form 20-F for the fiscal year ended 31 March 2026, filed 2026-06-10: Note 28 on research and development, the intangible assets policy on capitalised development cost, and the inventory costing policy.
- The product's own store, read 2026-09-16: companies grouped by the accounting standard on their latest filed annual income statement, and the count of IFRS annual statements carrying no earnings per share line.
What this leaves out
- Three differences out of many. Leases, impairment reversal, revaluation and pension presentation all differ too, and none is covered here.
- The counts by standard describe companies with a filed annual income statement on record on one date and change as filings arrive.
- The absent per-share figures are a limitation of this product's ingest, not a statement about the filings, which carry the line.
- Nothing here is advice about any security.