Implications for GAAP from an Analysis of Positive Research in Accounting

126 Pages Posted: 3 Jun 2009 Last revised: 17 Sep 2010

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Karthik Ramanna

Harvard University - Harvard Business School; University of Oxford - Blavatnik School of Government

Douglas J. Skinner

The University of Chicago - Booth School of Business

Date Written: September 13, 2010

Abstract

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

Kothari, S.P. and Ramanna, Karthik and Skinner, Douglas J., Implications for GAAP from an Analysis of Positive Research in Accounting (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. Available at SSRN: https://ssrn.com/abstract=1413775

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Karthik Ramanna

Harvard University - Harvard Business School ( email )

Boston, MA 02163
United States

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

Douglas J. Skinner

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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