Implications for GAAP from an Analysis of Positive Research in Accounting
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Harvard University - Harvard Business School
Douglas J. Skinner
The University of Chicago - Booth School of Business
September 13, 2010
Journal of Accounting & Economics (JAE), Forthcoming
MIT Sloan Research Paper No. 4740-09
Harvard Business School Accounting & Management Unit Working Paper No. 09-137
University of Chicago - Booth School of Business Working Paper No. 09-22
Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP’s principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.
Number of Pages in PDF File: 126
JEL Classification: M41, M44, M47
Date posted: June 3, 2009 ; Last revised: September 17, 2010
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