WSJ on GAAP

The WSJ editorializes today on GAAP, that serpent's nest of incomprehensible rules that U.S. companies and auditors must comply with if they are to be considered as reporting "in accordance with generally accepted accounting standards." The WSJ argues that international rules ought to be adopted and U.S. rules scrapped. They could not be more right.

How today's U.S. rules came to be is a puzzle. A board was formed years ago to handled all this but it immediately got off on the wrong track, issuing such detailed rules that a Philadelphia lawyer could not interpret them with any decree of confidence. 

This led to even more detailed rules, to interpret the former rules, and these new rules were even more detailed and they needed even more interpretation. This path led to madness, which required new rules, which had to be interpreted too. And then loopholes had to be closed, and that required more new rules, and so on, ad infinitum. Today, the original goals of rules based accounting have been all but lost, and accounting theory, applied using judgment, has been forgotten.