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Treatment Differences and Political Realities in the GAAP-IFRS Debate


William W. Bratton


Institute for Law and Economics, University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)

Lawrence A. Cunningham


George Washington University Law School


Virginia Law Review, Vol. 95, p. 989, 2009
GWU Legal Studies Research Paper No. 461
GWU Law School Public Law Research Paper No. 461
Georgetown Law and Economics Research Paper No. 1375617

Abstract:     
The Securities Exchange Commission has introduced a Roadmap that describes a process leading to mandatory use of IFRS by domestic issuers by 2014. The SEC justifies this initiative on the grounds that global standardization yields cost savings and an ultimate gain in comparability, facilitating the search for global opportunities by U.S. investors and making U.S. capital markets more attractive to foreign issuers.

This paper enters an objection, noting that the stakes include more than the choice of the framework for standard setting. The accounting treatments themselves are at issue, treatments that for the most part concern domestic reporting firms and domestic users of financial statements.

We present a treatment by treatment comparison of GAAP and IFRS and go on to discuss the differences' implications. FASB maintained its independence during its 35 year history in the teeth of opposition from corporate management, which experienced a steady diminution of its zone of financial reporting discretion.

A switch to IFRS would allow management to reclaim some of the lost territory. Meanwhile, the interest group alignment that protected FASB, comprised of auditing firms, actors in the financial markets, and the SEC, has disintegrated as U.S. capital market power has waned in the face of international competition. Management is the shift's incidental beneficiary, with possible negative effects for reporting quality in domestic markets.

Number of Pages in PDF File: 35

Keywords: GAAP, IFRS, FASB, Securities Exchange Commission

JEL Classification: M41, M44, M47, G34, G38

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Date posted: April 10, 2009 ; Last revised: August 13, 2010

Suggested Citation

Bratton, William W. and Cunningham, Lawrence A., Treatment Differences and Political Realities in the GAAP-IFRS Debate. Virginia Law Review, Vol. 95, p. 989, 2009; GWU Legal Studies Research Paper No. 461; GWU Law School Public Law Research Paper No. 461; Georgetown Law and Economics Research Paper No. 1375617. Available at SSRN: http://ssrn.com/abstract=1375617

Contact Information

William Wilson Bratton
Institute for Law and Economics, University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050
Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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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