- Which group is the primary beneficiary of financial reporting? Investors or companies
- How complex is financial reporting for either investors or companies? Too complex or not too complex
- Should there be one set of global accounting standards? Yes or no
- What about the U.S. and GAAP? Retain its GAAP or switch to IFRS
I’ll write more about each in following days. But for now …
Should the primary beneficial of financial reporting be investors or companies? In the grand scheme of things, there is no correct answer. The United States believes that the investor should be primary. Consequently, companies do not comply with the accounting rules. Plain and simple. The European Union believes that financial statements should help companies raise capital. Consequently there are no accounting scandals.
In the U.S., accounting rules are complex. There is a cycle, where accounting rules are devised, then companies–using armies of lawyers–circumvent the rules, then stricter accounting rules are devised, then companies circumvent these rules, then even stricter rules are devised. Good pitching beats good hitting, except when good hitting. There are complex rules that I don’t understand, but I like it that way.
Should there be one set of global accounting standards? This one is easy. NO. NO. NO. NO. There is compelling theory to explain why one set of global accounting standards is not good. There is no theory, not even a single plausible reason, why there should be. But why ask professors and theorists who delve deeper into issues? However, if you stand to make billions or trillions then you’d want one set of global accounting standards, too. Can you spell self-interest?
Should the U.S. retain its GAAP? Probably. There is no down side to retaining it. All major capital markets in the world accept financial statement prepared according to U.S. GAAP. Moreover, analysts and investors around the world are fluent in U.S. GAAP. There is considerable downside to the U.S. adopting IFRS.
In succeeding days, I’ll discuss each of these controversies.
Debit and credit – - David Albrecht