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The SEC's Global Accounting Vision: A Realistic Appraisal of a Quixotic Quest


Lawrence A. Cunningham


George Washington University Law School


North Carolina Law Review, Vol. 87, 2008
GWU Legal Studies Research Paper No. 401
GWU Law School Public Law Research Paper No. 401

Abstract:     
In the most revolutionary securities law development since the New Deal, the SEC is poised to jettison rules requiring companies to apply recognized US accounting standards by inviting use of a new set of international ones created by a private London-based organization. This radical shift follows decades of gradual movement towards international standards that has gained momentum since 2005 when all listed companies in the European Union were required to use them. For the US, the SEC could give companies the option to use either or establish a medium-term plan to move US companies to international standards within a decade.

Analysis of the SEC's vision for this quest reveals that it contains contradictions, paradoxes and ironies that suggest quixotic thinking. A contradiction: the SEC touts its vision as promoting comparability, yet proposes injecting choice and competition into accounting standards that would reduce it. A paradox: the SEC celebrates a single set of global standards while advocating changes that would create a double set within the US and overlooks factors that justify skepticism about the possibility of a single set of written standards translating into uniform application. An irony: the SEC acknowledges that pursuing global standards is very complex while its Chairman says the SEC has declared a war on complexity in accounting.

A more realistic vision of the quest appreciates that, under either an optional or mandatory route, the shift amounts to a leap of faith posing both large costs for the US and potentially large gains for it and the world. This realistic appraisal lowers expectations about actual comparability; highlights serious risks that competing standards would impair comparability; recognizes needs the SEC has scantly examined to render elaborate infrastructural changes; and, above all, faces the realization that the abrupt shift is less about the SEC's historical mandate to protect investors than about a newly undertaken mission to expand global capitalism.

Number of Pages in PDF File: 61

Keywords: IFRS, SEC, IASB, FASB, principles-based, rules-based, regulatory competition, comparative corporate governance, corporate finance, international financial regulation

JEL Classification: M41, M44, M47, G38

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Date posted: April 10, 2008  

Suggested Citation

Cunningham, Lawrence A., The SEC's Global Accounting Vision: A Realistic Appraisal of a Quixotic Quest. North Carolina Law Review, Vol. 87, 2008; GWU Legal Studies Research Paper No. 401; GWU Law School Public Law Research Paper No. 401. Available at SSRN: http://ssrn.com/abstract=1118377

Contact Information

Lawrence A. Cunningham (Contact Author)
George Washington University Law School ( email )
2000 H Street, N.W.
Washington, DC 20052
United States
202-994-0732 (Phone)
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