What should GAAP look like?
Subtitle: a survey and economic analysis
By: S.P. Kothari, Karthik Ramanna, Douglas J. Skinner
Contributors: Ramanna, Karthik; Skinner, Douglas J.; Harvard Business School
Edition: Rev.
Series: Working paper / Harvard Business School -- 09-137; Working paper (Harvard Business School) -- 09-137.
Publisher: Harvard Business School
Published: 2009
Place of publication: [Boston]
Language: eng
Number of pages: 99
Description: Based on extant literature, we articulate a positive theory of GAAP under the assumption that GAAP's objective is to facilitate efficient capital allocation within an economy. The theory predicts that GAAP's principal focus, as shaped by the demand for and supply of financial information, is on the use of the income statement and balance sheet for performance measurement and control (stewardship). The theory allows us to compare and contrast extant GAAP, as observed in a regulated setting, with GAAP that might arise endogenously as a result of market forces. Building on previous research, we argue that verifiability and conservatism, while detracting from accounting's role in equity valuation, are critical features of GAAP under efficient contracting. We conclude that rather than converging U.S. GAAP with IFRS, competition between the FASB and the IASB would allow GAAP to better respond to market forces.
Notes: "First draft: May 30, 2009, this draft: July 12, 2009"--added t.p.

"June 2009, revised July 2009"--Publisher's website.

Includes bibliographical references.