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The Securities Exchange Commission (SEC) has introduced a "Roadmap" that describes a process leading to mandatory use of International Financial Reporting Standards (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 Article shows that the offered justification is inadequate. The SEC frames the matter as a choice between two institutional frameworks for standard setting, holding out high quality sets of standards, asking which choice reduces Fictions in global securities markets. Global market frictions are not the only stakes on the table. The two systems, Generally Accepted Accounting Principles (GAAP) and IFRS, hold out materially different accounting treatment and the differences matter to domestic reporting companies and domestic users of financial statements. GAAP tends to constrain, where IFRS is flexible. GAAP's constraints reflect normative choices, in particular preferences for conservatism, verifiability and transparent disclosure of current period results. It follows that the Roadmap poses a normative choice. What the SEC presents as an investor-driven initiative in fact abandons an investor-protective institutional arrangement of more than three decades' duration and holds out costs for investors and incidental benefits for corporate managers and auditing .firms. This Article concludes the Roadmap should be withdrawn and the SEC should return to the point of departure-the ongoing Financial Accounting Standards Board-International Accounting Standards Board convergence project.


Securities Law, Accounting, Business and Law

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University of Cincinnati Law Review

Publication Citation

79 U. Cin. L. Rev. 471 (2010).