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Implications for GAAP from an Analysis of Positive Research in Accounting

  • S.P. Kothari

    ()

    (MIT Sloan School of Management)

  • Karthik Ramanna

    ()

    (Harvard Business School, Accounting and Management Unit)

  • Douglas J. Skinner

    ()

    (University of Chicago Booth School of Business)

Registered author(s):

    Based on extant literature, we review the positive theory of GAAP. The theory predicts that GAAP's principal focus is on control (performance measurement and stewardship) and that verifiability and conservatism are critical features of a GAAP shaped by market forces. We recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets, but caution against expanding fair values to financial reporting more generally. 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.

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    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-137.

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    Length: 126 pages
    Date of creation: May 2009
    Date of revision: Sep 2010
    Handle: RePEc:hbs:wpaper:09-137
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