Implications for GAAP from an Analysis of Positive Research in Accounting
126 Pages Posted: 3 Jun 2009 Last revised: 17 Sep 2010
Date Written: September 13, 2010
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.
JEL Classification: M41, M44, M47
Suggested Citation: Suggested Citation