A Single Sandbox for Standard-Setters (Part 4)

This blog post concludes a series that explains the rationale for the United States and other countries to collaborate in creating a single, global registry of financial reporting standards. In this post, I'll explain why the "single-sandbox" approach is more likely to produce benefits for the United States and other countries than present attempts to obtain universal agreement on a single set of standards emanating from a single standard-setter.

To summarize the previous posts of this series, the single sandbox would be an improvement in the world's standard-setting environment because it would increase the comparability of financial information, drive non-value-adding costs out of the financial reporting supply chain, and maximize the quality of financial reporting standards used by companies in the United States and throughout the world.

Those benefits could be attained to some degree if countries were to agree on one set of financial reporting standards and one standard-setter. But in the real world, such agreement is extremely unlikely for two main reasons. First, it would require countries to accept a one-size-fits-all solution despite major differences in their political, economic, legal, and tax environments. And second, it would require countries to abandon their sovereignty over standard-setting matters.

One example of the political barriers that countries have erected against global standards and a global standard-setter is the European Union's (EU's) endorsement process for International Financial Reporting Standards (IFRS). That process effectively insulates EU countries and companies from the standard-setting decisions of the International Accounting Standards Board (IASB). Specifically, the European Commission and Parliament assert and have exercised the right to modify IFRS prior to implementation by listed EU companies. At the same time, other countries throughout the world routinely make country-specific modifications of their own. As a result, countries today enjoy few of the potential benefits of globally-coordinated standard-setting even though many have nominally adopted IFRS.

The single-sandbox approach would side-step, not eliminate, the political barriers to obtaining the benefits that all countries seek. The approach doesn't impose anything on anyone, but rather creates both incentives and opportunities for collaboration undertaken by choice. It doesn't require countries to sacrifice their sovereignty over standard-setting matters. For both these reasons, the single-sandbox approach would be far more politically acceptable than the present drive to a single set of standards and a single standard-setter. And because it is more politically acceptable, it stands a greater chance of actually delivering its benefits.

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Bruce Pounder, MBA, CMA, CFM, DipIFR (ACCA) is an internationally recognized expert on corporate financial reporting and the global convergence of financial reporting standards. He has two decades of firsthand financial reporting experience as the CFO of a privately held corporation and has served as a financial reporting consultant to many public corporations. Currently Bruce is President of Leveraged Logic, a leading provider of educational products and services to accounting professionals. He is the author of the 2010 U.S. Master GAAP Guide (CCH), the Convergence Guidebook for Corporate Financial Reporting (Wiley), and the monthly "Financial Reporting" column of Strategic Finance magazine. Bruce also presents the live webcast series "This Week in Accounting."

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