In 2007, the SEC cancelled its requirement that foreign companies whose shares are traded in the United
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If so, companies would be able to choose between two sets of GAAP, resulting in a degree of competition between IASB and FASB standard- setting bodies.
Competition creates the possibility of a race to the bottom, discussed by Dye and Sunder (2001) and outlined in Section 13.7.6. However, competition between the two standard- setting bodies also raises an alternate possibility of a “race to the top.”
Required
a. What is meant by a “race to the top” in this context?
b. Assuming that standard- setting bodies wish to maximize the number of firms using their standards, why might a race to the top, rather than a race to the bottom, result?
c. Given the SEC’s dropping of its reconciliation requirement, what difficulties are created for investors who wish to use financial statements for investment decisions?
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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