IFRS allows certain of these costs to be capitalized and amortized over multiple periods. GAAP requires that all development costs be charged to expense as incurred. The GAAP position is excessively conservative, since it does not reflect positive changes in market value. Under IFRS, the write-down can be reversed. GAAP requires that the value of an inventory asset or fixed asset be written down to its market value GAAP also specifies that the amount of the write-down cannot be reversed if the market value of the asset subsequently increases. The IFRS approach is more theoretically correct, but also requires substantially more accounting effort. IFRS allows fixed assets to be revalued, so their reported values on the balance sheet could increase. GAAP requires that fixed assets be stated at their cost, net of any accumulated depreciation. Both accounting frameworks allow for the use of first in, first out valuations, as well as weighted-average valuations. LIFO tends to result in unusually low levels of reported income, and does not reflect the actual flow of inventory in most cases, so the IFRS position is more theoretically correct. GAAP allows a company to use the last in, first out method of inventory valuation, while it is prohibited under IFRS. This conceptual difference breaks down in some areas, such as financial instruments, where IFRS is essentially rules-based. IFRS is principles based, so that general guidelines are set forth, and users are expected to use their best judgment in following the principles. The rules basis also results in very large standards, so that the text of GAAP is much larger than the text of IFRS. This results in some gaming of the system, as users create transactions that are intended to manipulate the rules in order to achieve better financial results. GAAP is rules based, which means that it is full of very specific rules for how to treat a large number of transactions. These differences include the items noted below. Though the organizations responsible for these two frameworks have engaged in talks to minimize the differences between the frameworks, there are still several significant differences. GAAP is primarily used in the United States, while IFRS has been adopted in most other countries. There are two major accounting frameworks in use in the world today, which are Generally Accepted Accounting Principles ( GAAP) and International Financial Reporting Standards ( IFRS).
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