Treatment Differences in US / International Accounting

global and local accounting.jpgAmid continuing enthusiasm for the US to abandon its traditional accounting standards in favor of those set by an international body in London, insufficient attention is paid to differences in how the two treat particular questions and what those different treatments reflect about political realities.

In late August 2008 on this blog, I asked whether readers were aware of lists or charts illustrating treatment differences between US and international accounting standards. Comments and other research yielded modest results. The relevant literature tends to focus on differences in bottom lines between the two systems, not treatment differences.

This gap led Bill Bratton (Georgetown) and I to believe that a list or chart of treatment differences, with contextual analysis, would be useful to the literature (in both accounting and in law). As a result, Prof. Bratton and I prepared a contribution for the Virginia Law Review, commenting on a related paper by Jim Cox (Duke).

Our piece is now available here. The chart of treatment differences appears as the Appendix, at pp. 17-26. The preceding pages synthesize how these differences reflect deeply divergent philosophical and political realities, despite widespread talk of how the two standards are convergent.

The paper’s abstract reads as follows:

William Bratton & Lawrence Cunningham, Treatment Differences and Political Realities in the GAAP-IFRS Debate, vol. 95 Virginia Law Review (June 2009):

The Securities Exchange Commission has introduced a “Roadmap” that describes a process leading to mandatory use of [International Financial Reporting Standards] 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 Comment enters an objection, noting that the stakes include more than the choice of the framework for standard setting. The accounting treatments themselves are at issue, treatments that for the most part concern domestic reporting firms and domestic users of financial statements. We present a treatment by treatment comparison of [US Generally Accepted Accounting Principles] and IFRS and . . . discuss the differences’ implications.

[The US standard setter, the Financial Accounting Standards Board,] maintained its independence during its 35 year history in the teeth of opposition from corporate management, which experienced a steady diminution of its zone of financial reporting discretion. A switch to IFRS would allow management to reclaim some of the lost territory.

Meanwhile, the interest group alignment that protected FASB, comprised of auditing firms, actors in the financial markets, and the SEC, has disintegrated as U.S. capital market power has waned in the face of international competition. Management is the shift’s incidental beneficiary, with possible negative effects for reporting quality in domestic markets.

Hat Tips: For this piece, I thank Bill Bratton and Jim Cox for the idea and opportunity; my research assistants Dan Martin and Chris Davis, for their excellent help; and the editors of Virginia Law Review for their careful attention and interest.

To Readers: We welcome specific suggestions concerning the assembled chart, which may justify continued updating as the two standards continue to change.

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4 Responses

  1. Anon says:

    Lawrence, your paper shows an amazing lack of research into, and appreciation for, the accounting literature on this topic. Indeed, this topic has been at the core of accounting research for a long time now. The accounting papers that you do cite are old, and the debate has moved beyond your argument in the accounting literature (i.e. it does not add anything to the existing debate).

    It is exasperating that legal academics consistently believe that they are creating something that another discipline has been toiling away at for a long time – certainly legal academics can add a different perspective to the debate, but it is frustrating to see legal scholars claim to be creating the wheel when another discipline has been moving that wheel along for a very long time. While it is fantastic that this debate has now been moved into the legal arena, the argument is not new, and it has been done before – your point was made many years ago in the accounting literature.

  2. Lawrence Cunningham says:


    Please do mention the most obvious and directly on point citations to which you refer. Thanks!


  3. Anon says:

    Lawrence – while I am not prepared to either (a) do the relevant research for you or (b) open this into a “but I can distinguish my paper” debate (btw, you cannot), I suggest you read some of the work of Barth (with coauthors) and Leuz (with coauthors) for a start, and go from there. The real concern is that your first cite of accounting research, at fn30, was Basu’s famous conservatism paper, which is hardly prime research on accounting standards.

    My goal in pointing this out is not to be vindictive in any way, but to stress that there is a world of research out there that legal scholars so often ignore, and this paper is a prime example of that.

  4. Lawrence Cunningham says:

    For the record, the research to which Anon alludes, as well as my own research published in law reviews, intensively investigates differences between GAAP and IFRS and related policy matters. There is indeed a world of research on the subject.

    Even so, I am not aware of a comparative chart of the kind that we contribute in the piece to which this post links; certainly, the research Anon alludes to does not engage, as that piece does, with the pending SEC rule proposal (issued November 14, 2008). Notably, that proposal remains open for public comment, until April 20, 2009, because of an extension the SEC made in response to controversy on the subject. (See This suggests reason to doubt that the accounting literature has resolved the matter, put to rest the points we raise, or is the only place where those points can be developed.

    True, there often is some disconnect between scholarship in accounting and that in law and accounting, just as there is across many disciplinary boundaries, despite keen interest in interdisciplinary studies. But I don’t think the root of this problem is lack of lawyerly appreciation of accounting scholarship or interest in related research. After all, it also happens that some scholarship in accounting overlooks equivalent legal scholarship that addresses accounting subjects.

    Instead, the problem seems a symptom of more profound and vexing issues associated generally with intellectual specialization and professional parochialism. It would be wonderful if these hurdles could be overcome. But Anon’s lament is a longstanding one and history and experience suggest the hurdles are formidable.