Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part II): Political Factors and Future Scenarios for U.S. Accounting Standards

SYNOPSIS: This is the second article of a two-part series analyzing the economic and policy factors related to the potential adoption of IFRS by the United States. In Part I (see Hail et al. 2010), we develop the conceptual framework for our analysis and discuss economic factors driving the costs and benefits associated with IFRS adoption. In this part, we provide an analysis of the political factors related to the possible U.S. adoption of IFRS, present several scenarios for the evolution of U.S. accounting standards, and outline opportunities for future research on global accounting standards and regulation. We start with a general discussion of the standard-setting process in accounting and how a U.S. switch to IFRS might affect worldwide competition among accounting standards and standard setters. We discuss potential political ramifications of such a decision on the standard-setting process in the United States, as well as on the governance structure of the International Accounting Standards Board. Drawing on our economic framework and the insights from our analysis, we conclude by outlining several possible ways of how U.S. accounting standards could evolve. These scenarios include maintaining U.S. GAAP, letting firms decide whether and when to adopt IFRS, mandating full compliance with IFRS within a prespecified schedule, or creating a competing U.S. GAAP-based set of accounting standards that could serve as a global alternative to IFRS.