The principals of the federal government’s regulatory regime–the administration under President Obama, the Treasury under Geithner, the Federal Reserve under Bernanke, and the SEC under Schapiro–have locked arms and stepped out in unison chanting the mantra that the United States should move swiftly and irreversably to a single set of global accounting standards. But not everyone agrees.
Professors Paul B. W. Miller (University of Colorado at Colorado Springs) and Paul R. Bahnson (Boise State University) write a periodic editorial for WebCPA called The Spirit of Convergence. In a recent editorial, The AICPA and G-20 on convergence: Lots of supply, not much demand, they pan the rapid push for IFRS adoption because they note the absence of investor desire for the switch. Surely, they argue, investor desire for such a switch is a necessary precondition for the SEC moving the country in that direction. In the absence of any discernible investor demand, Miller and Bahnson recommend letting the FASB and IASB move toward convergence at their own pace, if that is possible.
Miller and Bahnson raise a very good question, “Where are the investors?” The answer is that they absolutely don’t prefer the IFRS over GAAP for the reporting of financial results by American companies seeking capital in the U.S. Why? Because IFRS will permit grotesquely inflated earnings by U.S. companies.
Although proponents of a switch continue to state that the primary purpose of world-wide adoption of IFRS is the greater comparability of financial statements from different companies, almost anyone in the world with half a brain snickers at this claim. Comparability cannot exist when companies can report for similar business events with different accounting treatments as is possible using IFRS’s professional judgment. Harvey Pitt, former chair of the SEC and IFRS advocate at Compliance Week, states that “… investors will simply have to learn to deal with it.” It, of course, meaning the varied accounting treatments. Of course, it also means less informative and more vague financial statements.
But wait a minute! Isn’t the SEC supposed to look out for the little guy? The investor? It says so in the proposed Strategic Plan of the SEC, released on October 15, 2009 (http://www.sec.gov/about/secstratplan1015.pdf), ”The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” It plans to accomplish this by raising international regulatory standards and cooperation, including working toward improvement of accounting standards in the wake of the credit crisis and the development of a single set of high-quality global accounting standards (key objectives for reform of the financial regulatory system published by the U.S. Department of the Treasury in Financial Regulatory Reform: A New Foundation; June 2009).
Schapiro, Geithner, Obama and Bernanke announcing support for a single set of global accounting standards on June 17, 2009
Does that mean that the federal government and the SEC plan to protect investors by adopting accounting rules that produce less informative and more vague financial statements? Yes! Yes! Yes!
Only in Washingtonian political double-speak is it possible for more to actually mean less, and for yes to actually mean no. Isn’t this a great country?
Debits and credits, in abundance – - David Albrecht
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