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Inventory Valuation Methods Reference: IFRS vs US GAAP

The valuation method you pick decides how fast cost reaches the income statement and how a write-down is treated. This reference lines up the mainstream methods and rules under IFRS and US GAAP so planners and controllers can speak from the same sheet.

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Topic	Rule or description	IFRS (IAS 2)	US GAAP (ASC 330)	ERP note
FIFO	Oldest costs are assumed to be consumed first	Allowed	Allowed	Layered valuation or batch specific costing
LIFO	Newest costs are assumed to be consumed first	Prohibited	Allowed	Needs special LIFO functions or manual layers
Weighted average	Cost per unit recomputed after each receipt	Allowed	Allowed	SAP price control V moving average price
Standard cost	Fixed cost per unit with variances posted separately	Allowed if close to actual cost	Allowed if close to actual cost	SAP price control S standard price
Specific identification	Actual cost tracked per unique unit	Required for items not ordinarily interchangeable	Allowed	Serial number or project stock costing
Retail method	Cost estimated from selling price less margin	Allowed when close to cost	Allowed	Mostly retail systems
Measurement basis	Carrying amount compared with a recoverable amount	Lower of cost and net realisable value	Lower of cost and net realizable value for FIFO and average	Reserve or write-down posting
Measurement for LIFO and retail	Older US GAAP test remains for these methods	Not applicable	Lower of cost or market	Check with your auditor
Net realisable value	Estimated selling price less costs to complete and sell	Defined in IAS 2	Defined in ASC 330	Input to E and O reserve
Reversal of write-down	When value recovers after a write-down	Required, up to original cost	Not allowed, new cost basis	Different reserve behavior by GAAP
Inclusion of overhead	Production overhead is allocated on normal capacity	Required, normal capacity	Required, normal capacity	Costing sheet and overhead keys
Abnormal waste	Excess scrap and idle capacity cost	Expensed as incurred	Expensed as incurred	Variance accounts, not inventory
Storage costs	Storage after production is generally not capitalised	Expensed unless needed in the process	Generally expensed	Exclude from standard cost
Same method for similar items	Consistent formula across items with similar nature and use	Required	Consistency expected	Set price control by material type

General summary for planning discussions, not accounting advice. Local rules and auditor guidance apply, and standards change, so confirm with your finance team.

Valuation setup check

Optional: a read-only review of price control and valuation settings against your policy.

Optional. The tool and every export work without this. No spam.

How to use the table

Filter by method name to compare one method across both frameworks, or by a keyword such as reversal to find the rules around it. Share the exported sheet with planners who set material type and price control, since master data choices determine which method the ERP actually applies.

Search LIFO to see the largest difference between the two frameworks
Search reversal to see write-down treatment
Use the ERP note column to link policy to configuration

What the standards actually say

IAS 2 requires inventories to be measured at the lower of cost and net realisable value, and allows FIFO, weighted average and, for non-interchangeable items, specific identification. LIFO is not allowed. US GAAP under ASC 330 allows LIFO, and since the simplification in ASU 2015-11 measures FIFO and average cost inventory at lower of cost and net realizable value, while LIFO and the retail method still use lower of cost or market.

ERP implications

In SAP the price control indicator on the accounting view decides the basis: S for standard price, V for moving average price. Choosing S pushes differences into price and usage variances, which suits stable repetitive manufacturing. V moves the average with each receipt, which suits purchased items with volatile prices but can distort margins when receipts are posted late.

Common mistakes

Teams often assume a write-down can be reversed in all cases; under US GAAP it cannot. Others leave standard costs untouched for years so variances swallow the signal. Finally, mixing price control types for similar materials makes reports hard to read, so review them with finance annually.

Frequently Asked Questions

Is LIFO allowed under IFRS?

No. IAS 2 prohibits the last in, first out formula. Companies reporting under IFRS must use FIFO or weighted average, or specific identification for items that are not interchangeable.

Can I use standard cost for external reporting?

Yes, provided the standard approximates actual cost and is reviewed regularly. Large unexplained variances are a signal that the standard no longer meets that test and should be updated.

Which framework allows write-down reversals?

IFRS requires reversal when the net realisable value recovers, limited to the original write-down. US GAAP treats the written-down value as the new cost basis and does not allow reversal.

Does the ERP pick the method for me?

No. The method is set through master data and configuration such as price control and valuation class. Finance defines the policy and the ERP applies what was configured.

Netray can build read-only checks that list items whose price control or valuation class does not match your policy.

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