Friday, September 5, 2008

Global Accounting Rules: Simpler, Yes. But Better?

Dumping GAAP could ease the burden on some companies, but adopting the streamlined British model has its pitfalls

In the latest example of the waning financial leadership of the U.S., the Securities & Exchange Commission wants to dump the country's complex accounting rules in favor of a simpler set of international principles. It's a major step toward a single worldwide standard—a necessity for creating seamless global markets. But adopting the model, which is relatively new and untested, has its own pitfalls.

Junking the U.S. rules, known as generally accepted accounting principles, or GAAP, would have seemed preposterous a decade ago. Back then investors and companies, both in the U.S. and worldwide, viewed GAAP as the gold standard, a transparent system for reporting earnings and other financials. As more European and Asian companies rolled out results in the American style as well as their own, it seemed GAAP would be the top choice among bean counters in an increasingly global marketplace.

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