Summary
The title of the article is a misnomer - it is the FASB not GAAP that is being replaced. With little debate or scrutiny, and no cost/benefit analysis of which I'm aware, the SEC has decided to replace United States GAAP with that of an international body over which it has no control. Accounting is the basis of business decisions and to outsource that authority is frightening to say the least.
Analysis
The title of the article is a misnomer. The FASB is reading the writing on the wall and preparing for its eventually replacement by the IASB. This has happened before, remember the Accounting Principles Board, and may happen again. However in the past when this occurred firms simply continued using the same accounting methods until new ones were promulgated by the new standard setting authority. In this case it appears firms will have to modify their accounting to conform with pronouncements of the IASB, which differ substantially from those of the FASB and its predecessors. The costs of conforming, which include the cost of reeducating both the preparers and users of financial statements will be enormous. The benefits, while they will exist, are a bit harder to measure. It is unclear whether the SEC has estimated these costs and benefits, but this is a case for Congress to step in and demand some answers.
While there is much concern these days about the investments of sovereign wealth funds, there should be similar concern about the outsourcing of the rules and regulations that play a large role in the running of our capitalistic economy. Up to this point the SEC has played a large oversight role in the adoption of accounting standards, overruling the FASB from time to time and issuing its own guidance as well. However the SEC has made the point that it plans to implement IFRS as promulgated by the IASB - without the exceptions a number of other countries have taken. Thus the SEC is not only outsourcing the production of accounting standards, it is also preemptively giving up its right to modify those standards.
