Financial statements are also a primary means by which firms communicate with capital markets' stakeholders, including investors, creditors, regulators, and the public. Congress created the Securities and Exchange Commission (SEC) in 1934 to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. However, Congress retains its oversight responsibilities over the SEC. Since the creation of the SEC, domestic companies in the United States have used U.S. Generally Accepted Accounting Principles (U.S. GAAP) to issue financial statements. Since 2002, the SEC has delayed the date of convergence and has changed direction on whether the United States will ultimately adopt or converge with IFRS or maintain and evolve U.S. GAAP independent of IASB. This report first provides a brief explanation of the different accounting standards and U.S. capital markets. The rules and guidelines in aggregate comprise U.S. GAAP or IFRS. As the name indicates, accounting standards in the United States are described as U.S. Generally Accepted Accounting Principles ; arguably, it can be asserted the rules-based accounting framework in the United States is guided by a set of accounting principles. In contrast to U.S. GAAP, IFRS is considered principles based. In many respects, U.S. GAAP is described as the "gold standard," because it has evolved since the 1930s within the U.S. institutional infrastructure through decades of due process that is uniquely sensitive to the needs of U.S. investors and capital markets. Since 2003, more than 100 countries at varying degrees have either adopted or converged with IFRS. Congressional Interest in SEC Actions on Convergence

One aspect of the powers Congress gave the SEC is the authority to establish accounting standards for the private sector in the United States. Although the SEC has the Office of the Chief Accountant, whose primary mission is to establish and enforce accounting and auditing policy to ensure that financial statements improve investment decisions, the SEC has relied on the private sector to establish accounting standards in the United States. Most recently, Congress expressed interest on the convergence of accounting standards at a March 2015 hearing on the SEC's FY2016 Budget Request held by the House Committee on Financial Services. In June 2014, the bipartisan joint Congressional Caucus on CPAs and Accountants wrote a letter to the SEC Chairman on the issue of convergence. Some Members of Congress have also expressed similar concerns publicly. To date, Congress has not enacted legislation on incorporating IFRS. Although the SEC has the statutory authority for establishing accounting standards in the United States, it has delegated the responsibility to FASB to continue to find common ground with IASB on specific standards. This section of the report examines the benefits and challenges of three of those policy options:
1. U.S. GAAP and Institutional Infrastructure

Switching to IFRS would have consequences beyond financial reporting. Need for Independent U.S. Standards Setter

An example of FASB's ability to maintain its independence and be responsive to the needs of U.S. capital markets is how it has addressed the concerns of U.S. firms over the implementation of the new revenue recognition standard. U.S. International GAAP

If the United States continues to maintain U.S. GAAP, an option to consider is to create and promote an international version of U.S. GAAP (I-GAAP), as proposed in a FASB-commissioned report in 2009. As previously discussed, competing standards (I-GAAP and IFRS) might lead to better standards that benefit capital markets. Adopt IFRS

A second policy option for Congress and the SEC to consider is the complete adoption of IFRS as the U.S. accounting standard. Another option would be to implement IFRS by specific industries over time. Convergence —Convergence might be described as a process by which a jurisdiction incorporates specific standards from International Financial Reporting Standard (IFRS) or modifies some or all of its Generally Accepted Accounting Principles (GAAP) to more closely resemble IFRS.
Capital markets function most efficiently when investors and creditors have a high degree of trust in the quality of information communicated by firms. Financial reports and disclosures are the primary means by which firms communicate about their performance with investors, creditors, regulators, and the public. Since the creation of the Securities and Exchange Commission (SEC) in 1930s, domestic companies in the United States have used U.S. Generally Accepted Accounting Principles (U.S. GAAP) to issue financial reports.
In 2002, the International Accounting Standards Board (IASB) was established by select countries, including the United States, to develop International Financial Reporting Standards (IFRS), a new global accounting standard. Since the creation of IFRS, more than 100 countries have either fully adopted IFRS or have converged their local accounting standards in varying degrees to more closely resemble IFRS. In addition, there has been an ongoing debate in the United States as to which accounting standard best suits the needs of U.S. capital markets. IFRS by design is a principles-based accounting standard that is subject to each jurisdiction's interpretation and institutional infrastructure. In contrast to IFRS, U.S. GAAP is generally understood to be a rules-based accounting standard that is less subject to interpretation. U.S. GAAP has evolved over 80 years within the U.S. institutional infrastructure to address the specific needs of the world's largest capital market—the United States.
Principles-based accounting standards provide broad flexible guidelines that can be applied to a range of situations, but they can lead to inconsistent interpretation and application. In contrast, rules-based accounting standards require specific guidelines to be followed, but they may not address unforeseen issues that arise in the normal course of business. At issue is whether the United States should adopt or converge with IFRS or remain on U.S. GAAP. Congress has asked the SEC to consult Congress as the SEC contemplates future actions on the issue of convergence.
The SEC was created under the Securities Exchange Act of 1934 (P.L. 73-291) to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. Congress also gave the SEC authority to establish accounting standards for the private sector in the United States; Congress retains its oversight responsibilities over the SEC. The SEC has historically delegated its responsibility for establishing accounting standards to a private entity, the Financial Accounting Standards Board (FASB). To date, the SEC has not given a clear indication as to whether the United States should remain on U.S. GAAP or adopt or converge with IFRS; neither has the SEC taken any concrete steps to adopt or converge with IFRS. In its desire to ensure that capital markets function efficiently, Congress has continued to maintain interest in the IFRS issue through legislation, hearings, and a letter issued to the SEC Chairman. At a March 2015 budget hearing for SEC's FY2016 budget, some Members of Congress voiced concerns over converging with IFRS. Similarly, in 2014, the Congressional Caucus on CPAs and Accountants also raised concerns over issues surrounding convergence with IFRS.
This report briefly explains the different accounting standards and U.S. capital markets. It examines several IFRS policy options Congress might consider and the benefits and challenges of each of those options. One option is to maintain the independence of U.S. GAAP but continue to seek common ground (limited convergence) with IASB. Within the scope of this option, the SEC and FASB could consider developing an international version of U.S. GAAP (I-GAAP). Another option is to adopt IFRS. The last option discussed in this report examines various hybrid methods of allowing U.S. GAAP and IFRS to coexist in the United States.