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Crisis and the Consolidation of International Accounting Standards: Enron, The IASB, and America

Published online by Cambridge University Press:  20 January 2017

Sarah B. Eaton
Sarah B. Eaton*
Affiliation:
University of Toronto
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Abstract

This paper examines the interplay between leading international and American accounting authorities over the span of a critical four-year period, 2001–2005. Historically, US regulators and private-sector accounting institutions have taken a cautious approach to International Financial Reporting Standards (IFRSs), citing the superior rigor and overall quality of their own Generally Accepted Accounting Principles (GAAP). During the past four years, however, the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) have each become markedly receptive to the International Accounting Standards Board's (IASB) efforts to harmonize accounting standards worldwide based on IFRSs. Why? This paper offers an explanation that highlights the role of the high-profile American corporate scandals (2001–2002) in precipitating a shift in US accounting authorities' views of the optimal form of accounting rules, an issue that has stood in the way of trans-Atlantic accounting standard convergence. Prior to the accounting scandals, the highly-detailed rules that are characteristic of US GAAP were widely seen to be the most effective form of accounting rule. Since 2002, a normative shift has taken place such that the SEC now endorses objectives-oriented rules that are conceptually aligned with the principles-based standards promulgated by the IASB. The analysis is framed by insights from contemporary International Relations theory which emphasize the influence of scope conditions on patterns of governance.

Keywords

IASBSECFASBIFRSUS GAAPEnronaccounting scandalsInternational Relations theory
Type
Research Article
Information
Business and Politics , Volume 7 , Issue 3: Special Issue: The Globalization of Accounting Standards , December 2005 , pp. 1 - 18
Copyright
Copyright © V.K. Aggarwal 2005 and published under exclusive license to Cambridge University Press 

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