October 19, 2007
Cheap Accounting Standards
Posted by Lawrence Cunningham

FASB, the US accounting standard setter, has long protected its brand name, including by asserting copyright over its US GAAP standards and selling them for profit. In contrast, IASB, its international counterpart, although also asserting copyright over its international financial reporting standards, gives its products away free to all persons within any country that recognizes IFRS as official. Why this strategy? One possibility is to promote adoption. If so, it has worked: some 100 countries already recognize IFRS.

But what effect does the give-away program have on the signaling value of adopting IFRS? For signaling to work, adoption must carry a cost higher than low-quality users would pay. But it is essentially costless for countries to adopt IFRS and let IASB bear all associated costs—the giveaway program makes it even more cost-effective. Other aspects of the debate on IFRS quality and enforceability aside, what effect will IASB’s marketing triumph have on the credibility of its ultimate product?

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