January 2010 Vol. 108 No. 4 THE REVIEW

The Implications of IFRS on the Functioning of the Securities Antifraud Regime in the United States

Lance J. Phillips

The United States is home to one of the most investor-friendly securities antifraud regimes in the world. Corporate misstatements that form the basis for a cause of action under one of the many antifraud provisions arise in a variety of contexts, an important one being as violations of U.S. generally accepted accounting principles ("GAAP"). For several years, the Securities and Exchange Commission has been considering changing the standardized accounting practice in the United States from GAAP to International Financial Reporting Standards ("IFRS") to promote comparability between global investment opportunities. IFRS is a principles-based system of accounting, while GAAP is rules based. Because of the flexibility of financial reporting inherent in the principles-based approach of IFRS, investors and the Securities and Exchange Commission will face greater difficulty in relying on accounting violations to establish the elements of the securities antifraud causes of action if IFRS is adopted.

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