GAAP for listing on U.S. exchanges were interested in working towards authoritative international standards that would phase out the use of U.S. GAAP. With this incentive, in early 2000, the IASC terminated its link with the IFAC as the first step in restructuring itself. In 2001, the IASC reorganized as the International Accounting Standards Board (IASB) and began developing International Financial Reporting Standards (IFRS) in addition to the existing IAS. (IASB 2007) The IASB defined itself a s “ an independent standard-setting board, appointed and overseen by a geographically and professionally diverse group of Trustees of the IASC Foundation who are accountable to the public interest .” To that end the IASB has fourteen board members from 9 different countries and different academic or professional backgrounds. Its main goal is to “ co-operate with national accounting standard-setters to achieve convergence in accounting standards around the world.” It is important to note, that its mission is purposefully stated to work toward convergence not absolute replacement of national standards. This means that the IASB wanted agreement between its standards and the national standards of a country. To that end the IASB began its convergence efforts within Europe. This made sense because the EU presents a strong capital market and EU ministers had expressed an interest in IFRS. Indeed by 2005, all European multinational companies were using IFRS for their financial reporting needs. This was a great achievement for the IASB and provided the necessary drive for U.S. GAAP convergence with IFRS. Due to pressure from EU officials and corporations in 2008 the SEC eliminated the rule requiring European companies to restate their financial statements to U.S. GAAP for listing on US exchanges. This provided IFRS a foothold in the US financial reporting. With these rapid changes, the SEC began to seriously look at IFRS and the benefits it provides. (SEC Release 2008) Benefits of International Standards Most of the various national financial regulatory and standards setting bodies agree that there are numerous concrete benefits to implementing international standards. The SEC explicitly stated this as far back as 1988, in a policy statement that reads “all securities regulators should work together diligently to create sound international regulatory frameworks that will enhance the vitality of capital markets”(p2). Capital markets are one area that can benefit greatly from uniform standards. Currently companies desiring to issue stock via capital markets in different countries must follow the different rules of each country. This creates significant barriers to entry because meeting the varied financial reporting requirements leads to considerable increased costs. For example, in 1993 Daimler-Benz spent $ 60 million to prepare financial statements adhering to U.S. GAAP, and expected to pay between $15 and $20 million
Journal of Finance and Accountancy The Changing Accounting Environment, Page 6 each subsequent year to meet U.S. GAAP (Doupnik 2007). Moreover divergent standards also create inefficiencies in cross-border capital flows.
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