Meanwhile, the anxieties of European countries go beyond the IASB exporting law into the EU. Their greatest fear seems to be the role of the United States in the creation of international standards. America's involvement, they fear, may impart more cumbersome, rules-based accounting on them. "We're even less popular than we were before," FASB chairman Bob Herz remarked at a panel last October. "There is a view in particular parts of Europe that having the IASB work with FASB will allow the importation into IFRS of bad American things."

Drifting Toward Code Law
The United States has its own concerns about IFRS, despite sharing a common-law sensibility. Observers and regulators have been fearful that accepting IFRS's looser principles could water down the benefits of U.S. GAAP. As with European countries, the United States also wants to have significant input into the development of IFRS to prevent outsiders from having undue influence on its accounting system, and therefore its markets.

All of this international gamesmanship reveals how blurry the distinction between code and common law can be. Some fear that the American system has been tainted already, and that it bears a growing resemblance to code law. "I see a move toward more politicization," says Ball. "The drift is clearly toward Washington becoming more concerned with financial reporting."

Although FASB has usually maintained relative independence, it has bowed over the years to pressure from Congress or the SEC. The most notable interventions have occurred because of failing markets, such as during the controversy over oil and gas drilling and accounting for inflation in the 1970s, or stock-option expensing and accounting for derivatives in the 1990s. Some also argue that the recent mortgage-bailout plan, approved by the SEC's chief accountant, strains accounting principles.

Accounting purists consider greater politicization problematic because it moves GAAP closer to a code-law system, which would potentially erode the quality of the accounting standards. Says Lawrence Cunningham: "If you let Congress set up the accounting code the same way they set up the tax code, you would have a mess."

Alan Rappeport is a reporter for CFO.

• « previous
• 1
• 2