Without Relief, The Accounting Profession Will find It Hard To Embrace Standard Harmonization

Implications: 1.    The US accounting profession is attempting to harmonize US GAAP with IFRS.

2.    The US accounting profession finds it hard to embrace some harmonization principles because of the US legal environment.

Analysis: FASB and the IASB are attempting to harmonize global accounting standards.  Investors would love to have consistent standards used in all major markets.

In principle, both US GAAP and IFRS are focused on value.  The primary goal of both sets of standards is to inform investors about value creation.  However US standards recognize the litigious nature of US society.  FASB adapts this value perspective by adjusting its loss function.  US GAAP has an inherent bias to under stating value rather than over stating value (e.g., lower-of-cost-or-market).  US accountants realize that investors sue more for over pricing than under pricing.  Thus FASB is having a harder time, versus IASB, embracing current value accounting.  US accountants conveniently call this conservatism.

Accountants do need legal relief, like doctors.  Without such relief, US accountants will cling to their historical cost standards.  US accountants will find it difficult to embrace current value standards.