Ukrainian GAAP and IFRS: Diverging Standards in Accounting Practice

Executive Summary

Ukraine operates two parallel accounting systems: her own National Accounting Standards (Ukrainian GAAP) and International Financial Reporting Standards (IFRS). Large, listed companies, banks, and insurers are already required to use IFRS, while small and medium-sized enterprises (SMEs) generally rely upon Ukrainian GAAP. This duality reflects the tension between domestic fiscal oversight and international transparency. As Ukraine deepens integration with European markets and pursues EU membership, the balance is shifting in favour of IFRS.

This briefing summarises the principal differences between the two frameworks, illustrates their practical consequences, outlines the challenges for auditors, and assesses the prospects for eventual full IFRS adoption, with comparative lessons from other post-Soviet and Central European states.

Background

• Ukrainian GAAP: Established in 1999, built to support domestic tax and regulatory needs. Prescriptive, rule-based, and closely tied to fiscal reporting.

  
  

• IFRS: Developed by the International Accounting Standards Board, principles-based, designed to provide investors with a transparent and globally comparable picture of financial health.

  
  

• Current framework: Since 2012, Ukrainian law mandates IFRS for listed companies, banks, and insurers. Most SMEs continue to use Ukrainian GAAP.

Key Differences in Practice

Orientation

• GAAP: Tax-driven, compliance-focused.

  
  

• IFRS: Investor-driven, substance over form.

Asset and Liability Measurement

• GAAP records assets largely at historical cost. IFRS permits fair-value revaluation, particularly for property, financial instruments, and biological assets.

  
  

• GAAP recognises liabilities once legally incurred; IFRS requires provisioning for probable future obligations.

Illustrative example: A manufacturing firm records machinery bought for ₴5 million. GAAP maintains this figure (less depreciation), even if its value rises. IFRS allows revaluation, potentially showing ₴8 million, strengthening the firm’s balance sheet. Similarly, a likely lawsuit cost of ₴2 million might not appear under GAAP until judgment, but under IFRS it must be provisioned immediately.

Revenue Recognition

• GAAP links revenue to invoicing or tax reporting.

  
  

• IFRS applies a five-step model based on when control passes.

Example: A ₴120 million construction contract might be booked only upon completion under GAAP, but spread over the contract’s life under IFRS, providing smoother, more realistic earnings.

Financial Instruments

• GAAP: simplistic, often carried at cost.

  
  

• IFRS: complex classifications and fair-value adjustments, with expected credit loss models for banks.

Example: Bonds bought for ₴5 million but now worth ₴4 million remain at ₴5 million under GAAP; IFRS requires recognition of the ₴1 million loss.

Consolidation

• GAAP allows stand-alone reporting by parent companies.

  
  

• IFRS requires consolidation of subsidiaries, associates, and joint ventures.

Disclosure

• GAAP disclosures are minimal.

  
  

• IFRS demands detailed notes on risks, assumptions, and related-party transactions.

Case Study: LvivTech Construction LLC

In 2025, this hypothetical firm signs a ₴120 million project, buys ₴10 million in machinery, faces a ₴3 million lawsuit, holds ₴5 million in bonds now worth ₴4 million, and owns a subsidiary that lost ₴8 million.

• Under GAAP: The contract is largely booked at completion; the machinery remains at ₴10 million; the lawsuit is invisible until judgment; bonds stay at ₴5 million; subsidiary losses may not be consolidated. Accounts show a strong profit.

  
  

• Under IFRS: Contract revenue is spread across the year; machinery can be revalued; the lawsuit is provisioned; bonds marked down to ₴4 million; subsidiary losses included. Profit shrinks or disappears, but risks are visible.

This illustrates how GAAP can conceal economic reality while IFRS reveals vulnerabilities.

Auditing Challenges

Auditors face the burden of reconciling two frameworks. They may issue one audit opinion on GAAP accounts for statutory purposes and another on IFRS accounts for investors or stock exchange filings. For example, the same firm might show ₴20 million profit under GAAP but only ₴5 million under IFRS once provisions and fair-value adjustments are included.

Large audit firms employ IFRS specialists to handle this duality. Smaller firms often lack the capacity, creating uneven quality of reporting. The coexistence of GAAP and IFRS thus creates risks for investors relying upon smaller audit practices.

Prospects for Reform

Ukraine has three potential paths:

1. Maintain the dual system: GAAP for SMEs, IFRS for listed and financial firms. This preserves flexibility but perpetuates confusion.

   
   

2. Harmonise GAAP with IFRS: Simplify national standards until differences are negligible, as Lithuania has done.

   
   

3. Adopt full IFRS: Abolish GAAP and mandate IFRS (or IFRS for SMEs) for all enterprises, as Georgia has attempted.

The most likely trajectory is a gradual convergence: retaining GAAP for micro-enterprises while extending IFRS to most others, eventually reducing GAAP to a marginal role.

Comparative Lessons

• Poland: Retained GAAP alongside IFRS but aligned national standards with EU law. Listed firms use IFRS; SMEs may use simplified GAAP. The system works because the two frameworks are now closely harmonised.

  
  

• Lithuania: Revised GAAP to mirror IFRS almost entirely. For smaller firms, Lithuanian GAAP is effectively a simplified IFRS, minimising distortions.

  
  

• Georgia: Adopted IFRS wholesale for most companies in 2018, leaving only micro-enterprises under simplified rules. This bold step increased transparency but imposed steep compliance costs.

Ukraine’s larger economy and more complex fiscal system make Georgia’s radical approach unlikely in the short term. The Polish and Lithuanian models suggest a more practical path: gradual alignment of GAAP with IFRS, with eventual adoption of simplified IFRS for SMEs.

Policy Implications

• For government: Reform of tax administration is critical. As long as GAAP remains tied to tax reporting, its abolition will be politically and practically difficult. Investment in accounting education and training is essential.

  
  

• For investors: Due diligence must distinguish between GAAP-based and IFRS-based accounts. Companies reporting only under GAAP may understate risks.

  
  

• For SMEs: The cost of IFRS adoption is a legitimate concern. Transitional frameworks, subsidies for training, and adoption of simplified IFRS could mitigate the burden.

Conclusion

Ukrainian GAAP and IFRS represent competing visions of financial reporting: one domestically focused on taxation and compliance, the other internationally oriented towards transparency and comparability. For now, the dual system reflects Ukraine’s transitional position. But the direction of travel is clear: deeper integration into Europe and the global economy requires greater reliance upon IFRS.

The question for policymakers is not whether IFRS will eventually dominate, but how to design the transition so that smaller enterprises are not crushed by compliance costs and the state retains effective fiscal oversight. Drawing lessons from Poland, Lithuania, and Georgia, Ukraine’s most realistic path lies in harmonisation and gradual expansion of IFRS until national GAAP fades into history.