Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic Analysis
University of Pennsylvania - The Wharton School
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network
Peter D. Wysocki
University of Miami - School of Business Administration
September 9, 2010
Accounting Horizons, Vol. 24, No. 3, pp. 355-394, 2010
This article is Part I of a two-part series analyzing the economic and policy factors related to the potential adoption of IFRS by the United States. In this part, we develop the conceptual framework for our analysis of potential costs and benefits from IFRS adoption in the United States. Drawing on the academic literature in accounting, finance and economics, we assess the potential impact of IFRS adoption on the quality and comparability of U.S. reporting practices, the ensuing capital market effects, and the potential costs of switching from U.S. GAAP to IFRS. We also discuss the compatibility of IFRS with the current U.S. regulatory and legal environment as well as the possible macroeconomic effects of IFRS adoption. Our analysis shows that the decision to adopt IFRS mainly involves a cost-benefit tradeoff between (1) recurring, albeit modest, comparability benefits for investors, (2) recurring future cost savings that will largely accrue to multinational companies, and (3) one-time transition costs borne by all firms and the U.S. economy as a whole, including those from adjustments to U.S. institutions. In Part II of the series (see Hail et al. 2010), we provide an analysis of the policy factors related to the decision and present several scenarios for the future evolution of U.S. accounting standards in light of the current global movement toward IFRS.
Keywords: Accounting, Regulation, IFRS, U.S. GAAP, SEC, Standard setting, U.S. equity markets, Mandatory disclosure
JEL Classification: F50, G15, G38, K22, M41, M48, O51
Date posted: September 10, 2010
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