The push for IFRS continues on, unrelenting, like the steady flow of the Mississippi River. We have all noticed it. Switching the United States from U.S. GAAP to IFRS is desired in the U.S. only by large audit firms, CEOs of large multinationals, and SEC regulators and their staffs. Investors, rank and file accountants and accounting professors oppose the move. Audit firm principals and corporate executives stand to profit, one way or another, by billions and billions and billions and billions of U.S. dollars. It is self-debasing greed. It is avarice of the corrupted soul.
It reminds me of things mentioned in a speech by Arthur R. Wyatt on August 3, 2003 to attendees of the American Accounting Association national convention: Accounting Professionalism–They Just Don’t Get it. Wyatt had an impressive resume: accounting professor, Arthur Andersen partner, FASB member, IASC member. He spoke to the annual conference as to why things got so bad that one of the Big 5 went kaput, and it was just happenstance that it did not happen to any of the four survivors.
I think Wyatt considered Arthur Andersen’s fate to be deserved, as he described an historical evolution that resulted in Andersen abandoning its responsibility. I’m quoting a long passage from his speech that contains his conclusion:
Just as greed appears to have been the driving force at many of the companies that have failed or had significant restructurings, greed became a force to contend with in the accounting firms. In essence, the cultures of the firms had gradually changed from a central emphasis on delivering professional services in a professional manner to an emphasis on growing revenues and profitability. …
This increased focus on revenue growth and profitability was not, of course, limited to leaders of accounting firms. Corporate managers became overreaching and greedy beyond one’s comprehension (emphasis added). Investment bankers wanted in on the large fees and regularly pressured accounting firms to accept accounting practices that, in retrospect, were clearly outside the intent, if not the actual provisions, of the existing standards. Security analysts … Probably none of these groups thought at the time that it was being greedy. But, the fundamental responsibility of the accounting firms should have been clear. Their role was to protect investors and creditors from being misled by financial statements that embraced unacceptable accounting and inadequate disclosures. Thus, while many participated in the shoddy financial reporting of the era, accounting firm leaders led their firms to the top of the list of entities that failed to meet investors’ justifiable expectations.
… keeping the client happy and doing what was necessary to retain the client achieved a prominence that did not exist prior to the advent of the successful consulting arms within the firms. The core values of the professional firm were undermined by primarily commercial interests.
Yes, Wyatt (the insider) admits the firms yielded to the temptation of greed. Wyatt provides a list of things that must be done to cure the large audit firms from disease. First and foremost, “The tone at the top of the firms needs to change.” Unfortunately, that is much easier said than done.
Has the tone at the top changed? Apparently not. I believe the tone at the top of the Big4 is as commercial and greedy as it ever has been. The firms’ personnel have not been changed. It is unlikely that their hearts and desires have changed. And according to anecdotes, it hasn’t.
The following chart, excerpted from The 2009 Big Four Firms Performance Analysis, shows that in the period following Wyatt’s speech, Big4 revenues have grown at a steady 10-15% per year, a rate far greater than the rate of growth for the economy as a whole. Through 2005, the abnormally high rate of revenue growth can be tied to SOX. But by 2006, SOX audits and implementations had become more efficient and less costly. What was holding up the abnormally high rate of growth? Even in 2008 (after six years of SOX), firm revenue growth was much greater than the growth in the national economy. These abnormally high rates of growth have resulted from a renewed emphasis on consulting fees. Folks, the culture of greed is alive and thriving at the large accounting firms.
There is only one thing that will bring abnormally high rates of growth in future years: IFRS adoption. Implementation and instructional revenues will go through the roof!
The complete list of advantages to U.S. adoption of IFRS is:
- Large audit firm revenues will explode, improving their survivability,
- Large audit firm expenses will decrease, as litigation losses decrease,
- Corporations will more easily manage their earnings (earnings will inflate by at least 30%), thereby increasing their ability to raise capital relative to other companies,
- In the face of accounting information of much lower quality, investors will move significant amounts of capital to Europe.
Investors will bear the brunt of the costs in lower equity valuations. In the face of accounting reports with much decreased information value, it will be more difficult for them to choose the best investments, and their rates of return will go down.
The push by the large audit firms for IFRS in the U.S. is unconscionable, because it is not in investor interests. If the large audit firms treasured investor interests, then they would not be pushing IFRS. It proves that they still don’t get it at large audit firms.
Debit and credit – - David Albrecht