Throughout this time, the IASC (now known as the International Accounting Stan-
dards Board, or IASB, since a reorganization in 2001) and the FASB have been work-
ing closely together to produce similar standards on an ongoing basis. In early 1996
the two bodies produced exposure drafts on earnings per share that were substantially
identical. In addition, since the adoption of IASC’s core standards, the FASB has at-
tempted to educate the public about the core standards and has undertaken to com-
pare the standards to U.S. GAAP (the “IASC–U.S. Comparison Project: A Report on
the Similarities and Differences between IASC Standards and U.S. GAAP”). The
next big project for the IASB will be “global accounting convergence,” specifically
the alignment of U.S. and international standards. It remains to be seen whether the
Enron scandal might help hasten this process.
(iv) Concept Release on International Accounting Standards. In 2000, the SEC issued a
“concept release” on the subject of international accounting standards. The release
asked for feedback from U.S. and non-U.S. parties regarding the establishment of a
globally accepted, high-quality financial reporting framework. Most significantly, the
SEC asked whether it should modify its requirement that the financial statements of
non-U.S. issuers should be reconciled to U.S. GAAP, as discussed above, the single
biggest reason why more non-U.S. companies have not chosen to access the U.S. pub-
lic securities markets. The SEC asked whether it should accept the International Ac-
counting Standards (IASs) promulgated by the IASC for use in filings by non-U.S. is-
suers. The Commission asked whether these standards are of a sufficiently high quality,
whether they can be vigorously interpreted and applied, and the implications for the
U.S. markets of accepting an alternative set of standards. Despite what the cynics say,
this was a genuine initiative that may well evolve into rule making, although it may take
some considerable time. For many years, various constituencies have attempted to per-
suade the SEC to accept financial statements that have been prepared in accordance with
the accounting practices of non-U.S. jurisdictions. These attempts have all failed. The
reason for this is that the SEC has taken the view that non-U.S. accounting regimes do
not produce the same quality of financial statements as U.S. GAAP. A particular bug-
bear has been the ability of companies under some European regimes to “smooth out”
their earnings by creating hidden reserves that can be drawn on later to disguise de-
creases in revenues. International accounting standards were mooted as a possible al-
ternative to national standards, but for a long time international standards were insuffi-
ciently detailed and allowed too many alternative treatments for the SEC to accept them.
It had thus become an article of faith that the SEC will never accept non-U.S.
GAAP financial statements. This ignored the leading role the SEC has taken in recent
years in shaping international standards and the framework that will support and en-
force those standards.
There are differences between U.S. GAAP and IASs, some of them significant.
The financial results of a company may well look different when prepared under the
two systems. This of course does not necessarily mean that one is better than the
other (in fact, the SEC’s chief accountant has stated that some international standards
are better than their U.S. equivalents.) It does mean, however, that it is harder for a
user of financial statements to compare the financial statements of a company using
U.S. GAAP with the financials of a company using IASs and make an informed in-
vestment decision on the basis of that comparison.
The FASB produced a report on the similarities and differences between IASC
standards and U.S. GAAP. The report states that “conclusions about the acceptabil-
14 • 20 GLOBALIZATION OF WORLD FINANCIAL MARKETS