The US is set to ratify a new world order in accounting. The change—the planned 2014 move from the one-nation US GAAP to the multinational IFRS—can be summarized as three transitions: from 25,000 to 2,000; from many to one; and from one to one of many.
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The first shift refers to pages. IFRS, or International Financial Reporting Standards, takes up 2,000 of them. That’s haiku in comparison to the US rules’ epic. The shortform, compared with GAAP, or the Generally Accepted Accounting Principles, reflects the reliance on general principles rather than detailed rules. If the US is to get into the global swing, accountants there will have to abandon bright lines and safe harbours—carefully delineated conditions for applying particular accounting treatments—and think about economic substance.
The move from many to one accounting standards around the world is a triumph of the best sort of globalization. IFRS was created by an international community through intense negotiations, not developed by an economic hegemon or imposed against the will of indigenous bean counters. US accountants played a prominent role.
The US used to be the one in number-crunching, just as in financial theory, technological standards and popular culture. But in IFRS, the US will be just one of many, and not on top. The European Union even has a bigger economy to audit and the hyper-detailed and litigation-oriented US standards are not widely respected.
The US may be losing out, but a global accounting standard is good for global capitalism, in much the same way that a single set of rules for flying is good for international aviation. Multinational enterprises find life easier, cross-border investments can be made with more confidence and an international group of standard-setters should be better placed to resist pressure from single industries.
Of course, IFRS is far from perfect. In particular, it puts too much trust in the wisdom of flighty financial markets. But after the collapse of world trade talks and amid the tensions created by a resurgent Russia, it is comforting to see one sort of international harmonization moving forward.