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Abstract In 2007 the Securities and Exchange Commission (SEC) made an historic ruling allowing foreign registrants to file IFRS-based financial statements without reconciling to U.S. GAAP. With that decision, the SEC changed its longstanding practice of adhering to a single set of accounting standards in the U.S. The decision diminishes the standing of two previously powerful institutions: U.S. GAAP and the SEC itself. We examine this important change drawing generally on institutional theory. We draw on several models to obtain insights into the likely roles of both regulator and regulatees, into the reasons the particular type of incremental change mechanism was observed, and into the influence of powerful transnational organizations on both the fact of change and timing of change. The key contribution of the article is to explicate incremental institutional change by examining specific mechanisms of change given the multi-level dynamic of accounting regulation. First, the interplay between national and transnational players and their coalitions shape what becomes an acceptable change mechanism. Second, layering mechanism, where new rules are attached to existing ones, is typically expected to destabilize existing institutions but can also decrease the push for broader change by layering regulation only for a particular segment. Finally, strategies employed by transnational accounting firms to stifle or promote institutional change are of interest. We focus specifically on their role in solidifying a transnational coalition of challengers to U.S. GAAP and therefore of apparently effecting the timing of the change. Documentary empirical data were drawn from the comment letters provided to the SEC in response to the proposed change, as well as from the SEC's final ruling document and from related releases. We analyze formal comment letters issued in response to the proposed 2007 rule, compare those to expectations based on theory and in some cases to prior public positions taken. We interpret our findings against the backdrop of meta level shifts in regulatory loci toward privatization and transnationalization of standard setting.
