Should U.S. standards line up with the rest of the world?

Executive Summary

In matters of accounting and auditing, the United States increasingly is going it alone as the rest of the world settles on a different set of standards. U.S. companies must conform to the detailed rules known as Generally Accepted Accounting Principles (GAAP). Elsewhere, companies largely follow what are known as the International Financial Reporting Standards (IFRS), which rely on broad guidelines rather than the rules-oriented GAAP approach. In recent years, U.S. and international oversight bodies have discussed convergence of these different systems, but they remain far apart on almost all matters. Advocates for standards that will make financial statements as clear as possible for investors acknowledge that the United States may have the right answers in some areas, even as it resists investor-friendly rules elsewhere. But that raises questions about whether investors will best be served if the United States eventually has the only distinct set of accounting rules in the developed world, especially as business grows increasingly global. Among the questions under debate: Is U.S. GAAP, with its rules and regulations, better than IFRS? If the U.S. doesn't use IFRS, will its public companies have trouble attracting foreign investors? Will investors be better served if the United States adopts more rigorous auditors' reports used elsewhere?

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Brewster, Mike, “Unaccountable: How the Accounting Profession Forfeited a Public Trust,” John Wiley & Sons, 2003. A journalist and former communications director at international accounting firm KPMG traces the history of the accounting profession and how the scandals of 2001–02 “tarnished the reputation of a once-respected profession.”

Conover, Teresa, and Frederick Niswander, “U.S. & International Accounting: Understanding the Differences,” American Institute of Certified Public Accountants, 2013. The authors, both CPAs, provide a brief yet comprehensive history of U.S.-international convergence and illustrate how the United States' Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) differ in various areas of financial statements.

Herz, Robert H., “Accounting Changes: Chronicles of Convergence, Crisis, and Complexity in Financial Reporting,” American Institute of Certified Public Accountants, 2013. The former head of the Financial Accounting Standards Board details his career in the profession, including his eight years as the chairman of the primary setter of U.S. accounting standards.

King, Thomas A., “More Than a Numbers Game: A Brief History of Accounting,” John Wiley & Sons, 2006. The treasurer of Progressive Insurance provides a history of the profession interlaced with examples of how financial statements have evolved over time.


“Comparability in International Accounting Standards — A Brief History,” Financial Accounting Standards Board, undated, accessed Oct. 12, 2015, The U.S. accounting standards-setter provides a lengthy timeline of attempts to create a set of international accounting standards.

“Progress report: International convergence of accounting standards,” Insights, Baker Tilly, Oct. 31, 2014, An accounting firm website provides a brief yet comprehensive summary of convergence efforts and where they stalled.

Norris, Floyd, “Holding Auditors Accountable on Reports,” The New York Times, May 8, 2014, A veteran chronicler of accounting and financial reporting describes the challenges of getting auditing firms to accept the idea of expanded auditors' reports.

Rapoport, Michael, “SEC: Accounting Board Is Dragging Feet,” The Wall Street Journal, Dec. 14, 2014,, and “SEC Presses Audit Regulator PCAOB on Priorities,” The Wall Street Journal, Feb. 4, 2015, The Securities and Exchange Commission and the Public Company Accounting Oversight Board it supervises squabble over where to focus the board's attention.

Smetanka, Rick, “GAAP or Non-GAAP?” Financial Executive, November 2012, A partner at an accounting firm argues that non-GAAP financial measures are essential tools for dynamic companies to describe their businesses.

Stocker, James, “Securities and Exchange Commission Historical Society Oral History Project: Interview with James Leisenring,” SEC Historical Society, April 12, 2011, An interview with a retired member of the International Accounting Standards Board describes the mid-1990s discord over accounting rules.

Reports, Studies and Original Documents

“Analysis of the IFRS jurisdiction profiles,” IFRS Foundation, May 1, 2015, The organization that created IFRS tracks the adoption of the standards across the globe.

“Extended auditor's reports: A review of experience in the first year,” Financial Reporting Council, March 2015, The U.K. regulator reviews its experience of requiring expanded auditors' reports.

“Final Rule: Conditions for Use of Non-GAAP Financial Measures,” Securities and Exchange Commission, Jan. 24, 2002, The regulator sets out the rules for how a company may use non-GAAP measures, as well as the background surrounding them.

“IFRS and US GAAP: similarities and differences,” PricewaterhouseCoopers, October 2014, The Big Four accounting firm provides a guide for comparing U.S. and international accounting rules.

The Next Step

Auditors' Reports

Ciesielski, Jack T., “What auditors ought to let U.S. investors know,” Fortune, April 14, 2015, An international accounting standards board developed a report template in which auditors are to identify companies' most significant issues, a proposed change the United States has resisted.

Deener, Will, “Audits of little help to investors,” The Dallas Morning News, Oct. 25, 2015, U.S. auditors do a poor job of informing investors about who is auditing their companies in annual reports and disparately charge clients for their services, according to an accounting standards expert.

Freifeld, Karen, “Ernst & Young settles with N.Y. for $10 million over Lehman auditing,” Reuters, April 15, 2015, An accounting firm agreed to a settlement with the New York Attorney General's Office after it was accused of hiding information in annual reports from 2001 to 2008 that were compiled for Lehman Brothers, the investment bank that failed in the 2008 financial crisis.

International Standards

Crump, Richard, “IASB moves to help management understand materiality,” AccountancyAge, Oct. 29, 2015, The International Accounting Standards Board, which creates accounting rules for companies in most nations, published new guidance that helps company managers better determine which information is “material,” or necessary to disclose on financial statements.

Rapoport, Michael, “IASB Staff Recommends One-Year Delay in New Global Revenue-Booking Rule,” The Wall Street Journal, April 21, 2015, The IASB plans to delay implementation of new revenue reporting standards until 2018.

Thomas Jr., Landon, “Greek Debt Vastly Overstated, Investor Tells the World,” The New York Times, Feb. 20, 2015, A millionaire investor controlling a large share of Greek government bonds struggled to persuade investors and policymakers that Greece's highly publicized government debt crisis was less severe than depicted under IASB standards.


Alpeyev, Pavel, and Takashi Amano, “Toshiba Executives Resign Over $1.2 Billion Accounting Scandal,” Bloomberg Business, July 21, 2015, The president of Toshiba and two other executives resigned shortly after a report revealed that management pressured employees to delay reporting losses so that the Japanese electronics company could meet profit targets.

Armstrong, Ashley, “Sainsbury's questioned by accounting watchdog over income disclosures,” The Telegraph, Oct. 3, 2015, The United Kingdom's independent accounting regulator will review Sainsbury's accounting for income from suppliers after the U.K.-based supermarket chain failed to follow an advisory to disclose such information to investors in 2014.

Morgenson, Gretchen, “Earnings Misstatements Come in Bunches, Study Says,” The New York Times, Oct. 23, 2015, Companies are more likely to misstate or manipulate their reported earnings if larger companies in their industries do so, according to a study to be published in the journal The Accounting Review.

U.S. Standards

Chasan, Emily, “FASB Proposes Changes to ‘Materiality,’” The Wall Street Journal, Sept. 24, 2015, The Financial Accounting Standards Board is considering altering its general definition of “materiality,” or the importance of companies' information to investment decisions, to match the legal definition set by the U.S. Supreme Court in a 1976 decision.

Katz, David M., “FASB Rids Income Statements of ‘Extraordinary Items,’” CFO, Jan. 13, 2015, The FASB eliminated the requirement that companies must report on their income statements how seldom-listed “extraordinary events,” such as natural disasters or terrorist attacks, affected their finances.

McKenna, Francine, “Investor advocates protest proposals limiting disclosure,” MarketWatch, Oct. 19, 2015, Members of a Securities and Exchange Commission committee objected to two changes proposed by the FASB because they could reduce companies' disclosures in annual reports.


American Accounting Association
5717 Bessie Drive, Sarasota, FL 34233-2399
Twitter: @aaahq
Largest community of accountants in academia.

American Institute of CPAs
1211 Avenue of the Americas, New York, NY 10036-8775
Twitter: @CPALetter_Daily
World's largest member association representing the accounting profession, with more than 412,000 members in 144 countries.

Financial Accounting Standards Board (FASB)
PO Box 5116, Norwalk, CT 06856-5116
Twitter: @FAFNorwalk
Private-sector accounting standards-setter for U.S. for-profit companies.

Financial Executives International
1250 Headquarters Plaza, West Tower, 7th Floor, Morristown, NJ 07960
Twitter: @FEInews
Trade group for chief financial officers and other high-level financial executives.

International Accounting Standards Board (IASB)
30 Cannon St., London, EC4M 6XH, United Kingdom
+44 (0)20 7246 6410
Twitter: @IFRSFoundation
Global group that develops International Financial Reporting Standards (IFRS) and is backed by the IFRS Foundation.

International Federation of Accountants
529 5th Ave., New York, NY 10017
Twitter: @IFAC_Update
Global trade group for accounting firms and their partners.

Public Company Accounting Oversight Board (PCAOB)
1666 K St., N.W., Washington, DC 20006-2803
Twitter: @PCAOB_News
Private nonprofit corporation established by Congress to oversee the audits of public companies and investment dealers.

U.S. Securities and Exchange Commission
100 F St., N.E., Washington, DC 20549
Twitter: @SEC_News
Federal regulator of financial markets and the final arbiter on accounting rules.

DOI: 10.1177/2374556815618954