the SEC to submit financial statements prepared in accordance with IFRS,

without a reconciliation of IFRS to U.S. GAAP.

According to estimates provided in a December 2008 report issued by

the SEC, the market capitalization of exchange-listed companies in the European

Union, Australia, and Israel account for approximately 26 percent of

total global market capitalization. Once Canada and Brazil are added, that

figure will grow to 31 percent.

So, the long and short of it is that the world is gradually converting over

to one uniform set of accounting principles, improving anyone’s ability to

compare the financial statements of companies operating in different parts

of the world. But until this is completed, users will continue to be perplexed

by the many differences in accounting from one country to another.

U.S. GAAP versus IFRS

This book is designed to provide guidance on fair value accounting fraud

risks under both U.S. GAAP and IFRS. Accordingly, throughout the book

specific differences between U.S. GAAP and IFRS will be explained, as well

as how some of these differences can lead to an increased risk of fraud. But

for purposes of this introduction, there are three key differences between

U.S. GAAP and IFRS that readers should be aware of:

1. IFRS has generally provided for greater use of fair value accounting than

U.S. GAAP, which has relied more on historical cost. This difference has

gotten less extreme in recent years, with U.S. GAAP introducing greater

use of fair value accounting, but differences remain.

2. The IFRS approach to accounting standards tends to be much more

principles-based, providing broad concepts that should be followed, but

leaving the application of those concepts in the hands of management

and auditors. This is true not only with respect to fair value accounting

issues, but throughout IFRS. U.S. GAAP, by contrast, tends to be much

more detailed in its guidance. Many standards start out with a broad

concept, but the standard ultimately goes into great detail, including

numerous examples of how the concept should be applied to specific

types of transactions.

3. Even in areas in which U.S. GAAP and IFRS share the basic accounting

principle in relation to a particular topic, the application of each can be

very different. Subtle but important differences in definitions of terms,

or in criteria used to evaluate an issue, can lead to dramatic differences

in accounting treatment.

As U.S. GAAP and IFRS continue down the path toward convergence,

it will be interesting to see how these differences are resolved.