Many possibilities exist, the authors note, but nothing will be done without leadership from government policymakers particularly the Securities and Exchange Commission. The SEC is charged with assuring that investors get timely and accurate information, but it has yet to recognize the importance of the GAAP Gap. Although the SEC should not establish hard and fast rules for company disclosure beyond the requirements of GAAP, the authors believe that the commission should use its convening power to get companies, accountants, and analysts to discuss which measures are practical and useful. Eventually, a consensus will emerge. Without such steps by the SEC, little if any voluntary action by companies can be expected.
Companies fear both litigation and competitive disadvantage.
The authors argue that both possibilities are remote for the kinds of disclosure that are necessary. But without some action in the near future, the GAAP Gap will continue to produce uncertainty in the securities markets, resulting in higher capital costs, less efficient allocation of capital, and greater volatility in share prices. This book s thesis, spelled out in chapter 1, is that the rise of the Knowledge Economy has generated the need for a new system of corporate disclosure. To explain why, chapter 2 traces the historical roots of the existing system of disclosure, including the development of modern accounting standards. Avoiding a bog of details on accounting theory and practice, the authors paint a broad picture of who now sets corporate disclosure standards accounting standards in particular and what legal structure governs the system.