18(a). International harmonization of standards
Leading view
Users favor the use of one set of accounting standards by all foreign companies wishing to raise capital in the United States, but only if it does not result in the loss of information currently disclosed under U.S. GAAP.
* A single set of accounting standards would enhance the comparability of information between domestic and foreign companies seeking capital in the U.S. markets [p. 1, 10]
* The current lack of comparability is an impediment to investment analysis and market efficiency [p. 7]; it is difficult and costly to analyze and reconcile information prepared on a foreign basis to an U.S. GAAP basis [p. 9, 15, 19]
* U.S. GAAP are more comprehensive than their foreign counterparts and are one reason why U.S. capital markets are efficient and attractive to foreign companies [p. 5-6, 11-12, 16, 19]
* Most users would not sacrifice the level and quality of reporting they get under U.S. GAAP for the sake of international comparability; they oppose a "lowering of standards" [p. 1, 4, 7, 10, 14, 18-19]
* Increasingly, foreign companies are voluntarily preparing their financial statements on a basis comparable to U.S. GAAP and this trend should continue [p. 12-13]
* Users are not opposed to changing U.S. GAAP to be more in line with an eventual international standard if it represents an improvement over existing GAAP [p. 4, 15-19].
Alternative view A
Users are willing to accept financial statements prepared under a foreign basis other than U.S. GAAP for purposes of raising capital in the United States by a foreign company, as long as a reconciliation to some U.S. GAAP measurements is provided.
* Most foreign companies listed in the U.S. provide a reconciliation to some U.S. GAAP measurements and users believe that this should remain a minimum requirement for raising capital in the U.S. [p. 3, 10-11, 14, 18- 19]
* Although most users would prefer that foreign companies prepare their financial statements using U.S. GAAP, they would settle for a reconciliation rather than denying those companies access to U.S. capital markets [p. 10, 18]
* Restricting access to U.S. capital markets for foreign companies would force U.S. investors to invest in foreign markets where they would get even less information disclosed by the foreign companies than what they would get under a reconciliation requirement [p. 12, 18].
Alternative view B
Users are willing to accept financial statements prepared under a foreign basis other than U.S. GAAP, without reconciliation, for purposes of raising capital only from U.S. institutional and other sophisticated investors.
* Some U.S. rules (for example, rule 144 A) already provide a precedent for foreign companies wishing to raise capital from limited U.S. sources [p. 11, 13]
* U.S. institutional and other sophisticated investors are better equiped to understand the risks involved with foreign investments and should be allowed to invest in foreign companies in the U.S. markets [p. 11, 13].
18(b). Impact of litigation
Leading view
A majority of users believe that a threat of litigation on managements and auditors is necessary and helpful.
* Users believe that a litigation threat has the following advantages:
* The threat of litigation increases the quantity and the quality of auditors' work [p. 3, 7, 10, 12- 14]
* It promotes accountability by management and auditors [p. 1, 7, 13, 15]
* It provides an incentive for auditors to maintain their independence [p. 2, 10]
* It encourages management to make more conservative disclosures in external reports, which particularly appeals to creditors [p. 11-12, 14].
A slight majority of users believe that the current threat of litigation has a net beneficial effect on the quality of external financial reporting and of audits.
* Although most users believe that the current litigation threat, particularly in terms of number and size of awards, is excessive [p. 3, 6, 10, 16], a slight majority of users also believe that the advantages of a litigation threat (listed above) still outweigh the disadavantages (listed below).
Alternative view
A strong minority of users believe that the current threat of litigation has a net detrimental effect on the quality of external financial reporting and of audits.
* In addition to their view that the current litigation threat is excessive [p. 3, 6, 10, 16], users believe that the following disadvantages of the litigation threat outweigh the advantages:
* The overall quality of external reporting is lessened by the inclusion of more boilerplate disclosures made strictly to avoid the threat of litigation [p. 1, 10, 13, 15], and by management being less willing to disclose more positive information [p. 6, 10, 13, 15]
* It significantly raises audit costs [p. 3, 6, 10, 12-13, 15]
* It has a negative effect on business decisions made by various parties (managers, lenders, auditors) who are too concerned about potential liability [p. 4-6, 11]
* Auditors are less willing to accept riskier types of audits [p. 10, 13, 15] and to extend their audit opinions to other parts of external reporting (such as the MD& A and more qualitative aspects of reporting) [p. 8-9].
18(c). Resistance to change
Leading view
Preparers of external reports will be the group most likely to resist any change in external financial reporting.
* Reasons for preparers to oppose change include:
* Costs to effect change [p. 3]
* A perception that more disclosure of information (which is normally the consequence of a change in external financial reporting) is against a company's competitive interest [p. 3, 5]
* Any additional external financial reporting requirement removes some of the flexibility preparers have in presenting and disclosing information in external financial reports [p. 4]
* Users will welcome change in external financial reporting if it represents an improvement in the quality of information disclosed [p. 4, 6-7]. Most users do not favor long transitional provisions for effecting change because they result in a loss of comparability of information for the same entity over time and among entities [p.5].
18(d). Investor and creditor involvement in setting accounting standards
Leading view
Users believe their historical lack of involvement in standards-setting activities mainly reflects limited resources, not lack of interest.
* Reasons given by users for their lack of participation in standards-setting activities include:
* Lack of technical knowledge in accounting matters [p. 3-6]
* Lack of time and resources compared to other constituents such as the preparer community [p. 3-5, 7]
* Lack of direct communication with standards setters and of understanding of the standards-setting process [p. 1, 4-9]
* Some users believe that their role is not to influence or determine the reporting rules, but rather to interpret the information they receive from external financial reports [p. 5-6]. They do not have as much of a "political" interest in the reporting rules as other constituents; their main concern is that everybody abides by the same rules [p. 4-5]
* Although acknowledging that their trade organizations are involved with standards-setting activities, users made a number of suggestions to incite additional user participation in standards-setting activities, including:
* User participation in field testing of new accounting proposals [p. 1-2]
* Nomination of a direct user as an FASB Board member [p. 3]
* Standards setters should initiate discussion and request written comments on accounting matters directly from specific users (identified in advance) [p. 6- 9].
18(e). FASB
Leading view
Users believe that the FASB structure is the appropriate structure to conduct standards-setting activities and that, overall, the FASB is doing a "good job."
* Although the FASB is doing a "good job" [p. 2-3, 8- 9, 17-78], users have some concerns about its structure and process, including:
* FASB due process is too cumbersome and slow, which results in a lack of promptness in providing timely accounting rules and guidance [p. 2-4, 7, 10, 45, 67, 71, 75-76]
* There should be more direct user input into the FASB structure and process
[p. 2, 12-15; refer also to section 18(d)]
* The FASB sometimes caters too much to the requests of the business community; this results in practical compromises such as delayed effective dates and long transition periods which are not desirable from an user perspective
[p. 5-6, 9].