What inventory method is prohibited under IFRS but allowed under US GAAP? LIFO is prohibited under IFRS but permitted under US GAAP.
LIFO means “last in, first out”: the newest inventory costs are treated as sold first. During inflation, newer units usually cost more, so LIFO reports higher cost of goods sold and lower taxable income. That tax effect is one reason some U.S. companies use it.
International Financial Reporting Standards prohibit LIFO because it can leave the balance sheet carrying older costs that may not reflect the current economic flow of inventory. IAS 2 permits FIFO and weighted-average cost formulas instead. U.S. GAAP, by contrast, permits LIFO under ASC 330, although companies must generally use the same method for financial reporting and taxation under the conformity rule.
A common mix-up is assuming FIFO is banned under IFRS: it is actually allowed. Retail inventory methods and weighted average are also not the answer because neither is the distinctive method singled out by the question. LIFO is less common globally, but it remains available to eligible U.S. GAAP reporters.