The question of whether competition among standard setters leads to improved, high-quality reporting is an oft-debated topic and one that has come up on the FASRI research blog before (you can read the extensive commentary that topic induced here).  While academics might disagree, the SEC has already clearly voiced their concern about competition inducing a “race to the bottom” and continues to do so.

For example, SEC Chief Accountant Jim Kroeker recently told a group of CPAs that the SEC will turn back to the issue of international convergence and the roadmap later this fall.  And the question of political pressure and gaming will apparently be at the forefront of his mind.

As reported here:

Kroeker noted that some companies in Europe point to advantages that companies in the U.S. get when accounting for financial instruments, while some banks in the U.S. point to advantages that banks enjoy under international standards. “Many times that advantage is not any benefit to investors,” said Kroeker, speaking at a conference held by the New York State Society of CPAs’ Foundation for Accounting Education. “The advantage is that a financial institution may be able to portray themselves as being better off than they might actually be.”

He noted this could lead to a discussion of adopting some standards and not others. “That type of thinking, that is a race to the bottom,” said Kroeker. “It is an absolute concern that I have about what will be the result of a race to the bottom. My view is that if we engage in that type of behavior, if we engage in a race to the bottom, ultimately there will be no winner in that race. So it reinforces to me the importance of thinking about these issues from a global perspective.”

What I also found interesting in this article was the SEC muscle-flexing over whether they will continue to set GAAP by issuing staff accounting bulletins.  Kroeker said, “If it’s in the interest of the protection of investors, absolutely we’re going to share our views.”


Disclaimer: The views expressed here are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.