GAAP Convergence or Convergence Gap: Unfolding Ten Years of Accounting Change

Abstract

This paper adds to the literature on accounting change in explaining a decade-long effort by the FASB and IASB to develop a set of global accounting standards accepted by markets worldwide. This research studies the effort as one of “convergence” in accounting standards and aims to bring theoretical and empirical clarity as to how we can conceptualize the notion of convergence. In doing so, it informs the global standard-setting community of the evolution of convergence and the factors which impact that evolution by revealing the influence of various institutions, actors and events over time. Through a longitudinal study of 23 key FASB-IASB projects undertaken between 2002 and 2011, this paper analyzes processes of accounting change using a blend of institutional theory and political economy. A process perspective provides a method to unfold variants of accounting change by identifying patterns that help us to understand the conditions for and characteristics of convergence. I highlight specific variants of accounting change observed during the convergence effort - direct emulation, difference reduction and progressive redesign - as analogous to institutional processes. Where direct emulation and difference reduction reflect institutional processes of imitation and editing or translation, respectively, I show how progressive redesign of accounting standards goes beyond these classical categorizations to encompass the notion of ‘institutional co-construction’ (Djelic, 2008). Further, I identify the impact of the competitive and cooperative conditions under which the FASB-IASB convergence effort operated and reveal how these conditions were influenced by the macro-level economic and political developments occurring over the period.