ture of the SEC’s approach to enforcement since 1938 that it will object to financial
statements prepared in accordance with accounting policies for which there is no sub-
stantive authoritativesupport and that such statements would be presumed to be mis-
leading and inaccurate. Indeed, the concept of GAAP is predicated on there being agree-
ment among accountants on the existence of a body of GAAP, and that accountants are
knowledgeable about these principles and in the determination of their general accept-
ance. This concept is also integral to the legal liability of the issuer and of accountants
with respect to financial reporting. The issues of substantive authoritative support and
general acceptance are difficult to resolve in relation to a body of international account-
ing standards that by definition have no frame of reference to any particular country.
The IASB’s Statement of Principles, “Presentation of Financial Statements,” ef-
fective 1998, would require the enterprise’s accounting policies to be selected and ap-
plied so that the financial statements meet the objective of financial statements and
the qualitative characteristics of the IASB’s Framework. The framework emphasizes
relevance and reliability, but there is no requirement for the enterprise to establish
substantive authoritative support or any guidance on the critical issues of selecting
and justifying accounting policies when a range of alternatives may be available. By
definition, international standards should be capable of consistent international inter-
pretation, and it is contradictory that enterprises purporting to comply with global
generally accepted accounting standards and principles will basically be working
with different information sets as regards what is acceptable.
Under the current framework of SEC rules and procedures, the significance of
these problems is mitigated by the fact that the enterprise will need to quantify this
difference from U.S. GAAP in the required reconciliations of net income and stock-
holders’ equity. Thus, users of the financial statements could not be misled or con-
fused by either accounting treatment. If, however, the reconciliation requirement
were to be removed, the issue about the general acceptance of the accounting treat-
ment would increase in importance. The SEC staff would need to consider how such
a policy could be supported under generally accepted international principles. While
the SEC staff arguably do not have jurisdiction over the interpretation of the enter-
prise’s home country GAAP, the determination of accepted global principles will be
a different matter. If the SEC staff disagrees with an enterprise’s IAS interpretation,
then the enterprise would need to restate the financial statements. This will give rise
to awkward situations when the enterprise has previously issued financial statements
in its home country over many years under a different concept of what it considered
to be generally accepted international accounting principles.
Historically, there has been strong criticism of the lack of implementation guid-
ance under IAS, especially from the standpoint of U.S. regulators. However, recently,
there has been increased dissatisfaction with the proliferation of rules in the U.S. en-
vironment indicating that such rules may not always result in a “true and fair” view
as evidenced by Enron, Worldcom, and other recent events. The IASB has received
strong backing globally from many different constituents who prefer its primarily
principle-based standards. The SEC’s former chairman, Harvey Pitt, has called for a
“move toward principle-based set of accounting records” in his speech before the
Federal Bar Council in 2002, while the President of the United States spoke of the
need for tighter disclosures and more transparency in corporate financial reporting.
The global financial reporting environment has changed dramatically in recent years,
even in recent months, and there is a clear move toward a principle-based set of in-
ternationally accepted accounting standards.
12.9 INTERNATIONALLY ACCEPTED ACCOUNTING PRINCIPLES 12 • 31