In a recent study, we examine how political ideology affected SEC commissioners’ stances on whether to adopt the International Financial Reporting Standards (IFRS). Our findings reveal a partisan divide that stalled decision-making and left the U.S. as an outlier in global financial reporting standards.

In 2007, the SEC took a significant step toward aligning U.S. financial reporting with global standards by considering the adoption of IFRS for U.S. issuers. The SEC – led by Republican Chair Christopher Cox – opened its deliberations on a proposal to provide U.S. issuers the option to use IFRS instead of U.S. GAAP. This proposal received emphatic support from the two Republican commissioners at the time, Paul Atkins and Kathleen Casey. The two Democratic commissioners, Roel Campos and Annette Nazareth provided only cautious support. This step toward IFRS  had the potential to enhance comparability and transparency for investors, yet despite years of discussion, the SEC never reached a definitive decision on the matter. In our article, we provide a possible explanation for this inaction.

The Political Divide over IFRS

Analyzing public records and conducting interviews, we demonstrate that the ideological leanings of SEC commissioners significantly influenced their views on IFRS. Republican commissioners, aligned with free-market principles, generally supported adopting IFRS as an option, arguing that it would give U.S. companies greater flexibility by allowing them to choose between IFRS and GAAP. This perspective is consistent with a deregulatory approach, emphasizing market-driven decision-making over government mandates. In contrast, Democratic commissioners expressed skepticism about moving away from GAAP. Their concerns centered on the perception that IFRS, which was developed by the International Accounting Standards Board (IASB), represented a form of deregulation. They also voiced unease about ceding control over U.S. accounting standards to an international body whose governance structure lacked direct accountability to U.S. regulators. These concerns, which were also shared by key congressional leaders, such as Democrats Chris Dodd and Jack Reed, two top members of the Senate Banking Committee at the time, ultimately contributed to the SEC’s inability to reach consensus on IFRS adoption, leaving U.S. issuers to continue using GAAP.

Influence of Congressional Political Maneuvers on SEC Actions 

Our study further illustrates how political tactics at the congressional level and the limited terms of SEC commissioners can constrain regulatory initiatives. The delayed confirmation of two commissioners due to a partisan deadlock in the Senate left the SEC short-staffed for many months in 2008, impeding its ability to advance significant regulatory reforms like IFRS adoption.

With only a few months left before the end of his term, Chair Cox pushed for the release of a rule proposal. While the Commission voted in late August on the release, the rule proposal was published only in November 2008, when it was already clear that a Democratic president (Barack Obama) would appoint the next SEC chair in early 2009.

Democratic-Led Commission Inherits IFRS Proposal

Due to the release of the rule proposal, the Commission under the succeeding chair, Mary Schapiro, had few options other than to collect and analyze the feedback on the rule proposal. Both the international and U.S. financial reporting community awaited Schapiro’s stance on IFRS.

While seemingly ineffective initially, releasing a rule proposal close to the end of the chair’s term allows the outgoing chair to exert “dead-hand control” over the next Commission’s agenda. It is telling that the Democratic-led commissions dragged the topic of IFRS along until 2017, without reaching an ultimate decision.[1]

Broader Implications for SEC Rulemaking

Overall, our study highlights how political ideology influences regulatory decision-making at the SEC, particularly in areas requiring bipartisan agreement. The IFRS debate is not an isolated case. Recent SEC initiatives, such as climate-related disclosure rules, have faced similar ideological divisions, with Republican commissioners resisting perceived overreach while Democrats push for stricter regulations. As the SEC navigates complex policy issues in an increasingly polarized environment, achieving consensus on major regulatory shifts remains a formidable challenge.

The Future of U.S. Financial Reporting Standards

The study’s findings raise important questions about the future of financial reporting regulation in the U.S. The global trend toward IFRS has continued, with several major economies adopting the standards.[2] Proponents argue that IFRS enhances financial-statement comparability, reduces compliance costs for multinational corporations, and facilitates cross-border investment. However, critics maintain that national accounting standards should reflect domestic economic realities and regulatory frameworks. The U.S. remains an outlier, and without political alignment within the SEC, the prospect of IFRS adoption for U.S. issuers remains unlikely. Despite his past support for allowing U.S. issuers to adopt IFRS, Paul Atkins, the nominee to chair the SEC, has not expressed any continued interest in the change.

For lawyers, academics, regulators, and policymakers engaged with the SEC, this research sheds light on how political dynamics shape financial regulation. For example, when a new president comes from a different party than his predecessor, the SEC chair and the heads of at least some of the SEC’s offices and divisions typically resign before the end of their terms. This turnover usually includes the chief accountant.[3] As a consequence, every four or eight years, at least some of the SEC’s accounting policies may be reversed.

Our research also underscores the broader challenges of policymaking in politically charged environments, where ideology can be just as influential as technical and economic considerations. As regulatory debates continue to unfold, from sustainability reporting to digital asset disclosures, stakeholders would do well to consider the lessons from the SEC’s deliberations on IFRS – where political fault lines, rather than purely technical concerns, may have dictated the outcome.

ENDNOTES

[1] From 2009 to 2017, the SEC was led by independent chairs selected by Democratic President Barack Obama. For more information about the role of the SEC chairs and the opinion of key constituents, including the FASB, see Becker, K., Daske, H., Pelger, C., & Zeff, S. A. (2023). IFRS adoption in the United States: An analysis of the role of the SEC’s Chairs. Journal of Accounting and Public Policy, 42(3), 1–19. https://doi.org/10.1016/j.jaccpubpol.2022.107016

[2] Adoption can involve requiring all or some preparers to use IFRS or allowing all or some preparers to use IFRS. In some countries, there has been on ongoing convergence of local standards with IFRS. An overview can be found here. In the United States, foreign issuers are currently permitted to use IFRS.

[3] The retirement of the SEC’s most recent chief accountant, Paul Munter, was announced on January 14, 2025.

This post comes to us from Kirstin Becker at the Copenhagen Business School, Holger Daske at the University of Mannheim, Christoph Pelger at the University of Passau, and Stephen A. Zeff at Rice University. It is based on their recent  article, “Political Ideology Shapes Reporting Regulation: SEC Commissioners’ Views on IFRS for US Issuers,” published in the Journal of International Financial Management & Accounting and available here.