I wonder why the push for a single set of global accounting standards is so powerful when accounting theorists are all so dead set against it. Why? Oh, why?
Today I’m on a fishing expedition. Sometimes I throw things out to see if others think the same way. I certainly think the following essay is plausible. Do you agree or disagree?
It is frustrating to be an accounting professor and to live in the United States of America. A mind set that triumphs the interests of corporations and auditors over those of investors is entrenched in the regulatory shadow. Consequently, any policies that might favor populist policies have little chance of success.
The federal government’s financial and economic regulatory apparatus is comprised of the Treasury Department (Treasury), the Federal Reserve (Fed), and the Securities and Exchange Commission (SEC). The top positions are political appointees, but the bulk of the work is performed by career and long-term personnel. It is a lot like the situation at the State Department (State), Department of Defense (DoD), and the National Security Agency (NSA).
In the same way that the politics and the communal mind-set of the career and long-term personnel shape national policies over at State-DoD-NSA, the politics of the career and long-term personnel shape national policies over at Treasury-Fed-SEC.
It is frequently said that national defense policies of State-DoD-NSA are closely aligned with the communal mind-set of the monolithic defense industrial complex. One reason in support is the movement of personnel back and forth between government and industry. Incoming presidential administrations look to industry leaders to staff appointed government positions, and staffers move into highly paid industry positions when finished with their government careers.
Likewise, the national economic and market regulatory policies of Treasury-Fed-SEC are closely aligned with the communal mind-set of the monolithic financial complex. One reason in support of this statement is the movement of personnel back and forth between government and the financial industry. Incoming presidential administrations look to financial leaders to populate appointed government positions, and staffers move into highly paid financial positions when finished with their government careers.
In the same way that new presidential administrations must learn to live with the professionals at State-DoD-NSA, they must learn to live with the professionals at Treasury-Fed-SEC.
Career and long-term Treasury-Fed-SEC staffers are shadows. When they ascend, they carry with them a commitment to the shadowy mindset. This is evident in the remarks and actions of Mary Schapiro. Schapiro was a career regulatory staffer (FINRA) that ascended to the political position of SEC chair. In her confirmation hearing, Schapiro voiced hope for eventual attainment of a single set of global accounting standards (echoed by Senator Dodd). Support for a single set of global accounting standards has risen to the status of mantra.
Of concern and considerable frustration is the fixation of career and long-term professionals at Treasury-Fed-SEC with the notion that there should be a single set of global accounting standards. These professionals believe in the economic nirvana of international capital markets and the free flow of capital. Making certain assumptions and applying a form of reasoning (sophist as it is), they have deduced various implementational policies such as the attainment of a single, global set of high quality accounting standards by which all companies in the world would follow whey they seek external capital.
This policy was first considered by the professional shadows as early as 1989, according to former SEC Chair David Ruder. This policy spread, back and forth between finance professionals in industry and government until the early 2000s, when it became apparent to outside observers that this policy had developed sufficient momentum to be considered both a mindset and a done deal.
When policies are embraced by the communal mindset of the financial regulatory shadow, it is difficult if not impossible for presidential administrations to sway them. Republican SEC Chair Christopher Cox and Democratic SEC Chair Mary Schapiro both publicly supported the mantra of a single set of global accounting standards. Indeed, the use of vocabulary is chillingly similar.
One would think that if such governmental policies could be influenced by outside views, then they should have been influenced when highly respected, famous accounting professors started speaking out against the policy. I am, of course, referring to the published comments by Ray Ball (University of Chicago), Shyam Sunder (Yale University) and Bob Jensen (Trinity University). Even a key government regulator, independent Charles Niemeier, spoke out against the commonly held myths of the shadow.
Never-the-less, outside expert views predictably had no impact on the entrenched mindset. This is because shadow regulators had the support of the deep pocket audit industry. The audit industry supports a single set of global accounting standards because its personnel costs and litigation costs will decrease, thereby driving expected profits to the stratosphere. The linkage between the shadowy mindset and the audit industry mindset was never more apparent than with Schapiro’s appointment of James Kroeker (long-time audit industry insider) to chief accountant. Kroeker speaks for both the shadow and the audit industry.
I am particularly troubled because the shadow regulators are not accountable to anyone except themselves. Lacking a solid underpinning in finance and accounting, they have embraced a policy that at its core is pro business and anti investor. This is a crying shame.
It is my hope that directing light on this shadowy mindset will somehow dislodge its fixation with a single set of global accounting standards.
Debit and credit – - David Albrecht