GAAP(RULE OF LAW) VS IFRS(NAPOLEONIC LAW) (h/t Johannes Meixner )(From elsewhere

GAAP(RULE OF LAW) VS IFRS(NAPOLEONIC LAW)

(h/t Johannes Meixner )(From elsewhere)

This is the material difference in the origins and persistence of the different accounting systems. All anglo-american policy is traditionally implemented under rule of law that approaches formal logic as much as possible.

The general rule of american GAAP is pretty simple “represent the truth”. This varies from the Napoleonic countries where there is less suspicion of government involvement and less tolerance for discretion.

Some of this is terribly important given that in many countries that use Napoleonic law and it’s descendants, the bureaucracy tends to be staffed professionally. Whereas in the states the bureaucracy is staffed by ‘those unfit for real productive work’.

Hence the general believe that there must be no room for discretion in american law and accounting, and arguments must be decidable by a judge using logical means.

Just to provide context, this is also the difference between the economic schools of thought:

1) The conservative ‘Austrian’ branch seeks rules of natural law such that institutions can be improved in order to reduce frictions in the economy.

2) the classical liberal ‘american’ (or freshwater) branch seeks extensions of rule of law that allow intervention in the economy only under predefined rules as to eliminate political discretion and allow private sector planning without ‘losses’ incurred by government exercise of discretion.

3) the ‘Saltwater’ or ‘American Jewish’ branch seeks to understand the limits of discretionary action in order to give the government the freedom to interfere in the economy with maximum discretion.

The Debate over GAAP and IFRS is one of RULES vs JUSTIFICATIONS. the USA differs for this reason. Although you would very likely be hard pressed to find many people able to explain this deep difference between the american (equalitarian) experiment and the continental (authoritarian) experiment.

As such it is a non trivial difference that reflects the difference in cultures. The principle of ‘going concern’ is a mathematical relationship determined between the creditor and the company officers. It is not a matter for ‘interference’ by the state.

Hence higher risk organizations in america, and the bigger stock market in america, and the more developed tech and research sector in america, and the bond market in london, and the heavy industrial superiority of germany, and the military superiority of russia.

Risk increases as we move westward.

Curt Doolittle

The Propertarian Institute

Kiev, Ukraine