In the United States, public companies must report financial results using GAAP. However, accounting standards vary around the world, and that makes comparing the financial results of firms located in different countries quite challenging. In recent years, many countries have adopted a system of accounting principles known as International Financial Reporting Standards (IFRS). Those principles are established by an independent standards-setting body known as the International Accounting Standards Board (IASB). The IASB designs these standards with the goal of making financial statements everywhere understandable, reliable, comparable, and accurate. More than 80 countries now require listed firms to comply with IFRS, and dozens more permit or require firms to follow IFRS to some degree. Why hasn’t the United States followed the global trend of IFRS adoption? Some argue that GAAP is still the “gold standard” and that a movement to IFRS would lower the overall quality of financial reporting made by U.S. firms. It is true that IFRS generally requires less detail than GAAP. Even so, the Securities and Exchange Commission has expressed its view that U.S. investors will benefit as GAAP and IFRS converge, although there is no requirement that firms in the United States will switch to IFRS in the near future.

What costs and benefits might be associated with a switch to IFRS in the United States?