The effect of the FASB-IASB convergence project on the rules- and principles-based nature of US GAAP and IFRS

Steve Lin, Grace Pownall, Assma Sawani, Changjiang Wang

Review of Accounting Studies · 2025 · Volume 30 · Issue 2

Abstract

This paper investigates if the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) convergence project changed the underlying natures of both sets of accounting standards. Using the rules-based continuum score and a new principles-based continuum score, we find that before convergence, US Generally Accepted Accounting Principles (US GAAP) contained more rules-based standards, while International Financial Reporting Standards (IFRS) contained more principles-based standards. After the convergence project, US GAAP became relatively more principles-based, while IFRS became relatively more rules-based, consistent with both standard-setters compromising in their approaches to standard setting in order to facilitate convergence. Overall, our results suggest that the convergence project achieved its goal of improving alignment between US GAAP and IFRS. However, it appears to have had a possibly unintended consequence of making IFRS contain more rules-based characteristics.

Keywords

IFRS, US GAAP, Rules-based standards, Principles-based standards, Convergence

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