Lost sight of in the SEC push to adopt IFRS is the primary reason for adopting it. In “IFRS Is for Criminals,” Ed Ketz and Anthony Catanach of Grumpy Old Accountants remind us.
In their essay, the grumpies let it all hang out:
But worst of all, IFRS is an elixir for unscrupulous managers. These imps will be able to skim assets from their firms and cover their tracks with such ease that critics could compare it to the artistry of Humphrey Bogart and Bette Davis. The world of accounting and finance would give way to theater.
It is not enough for principles to be better than rules. Principles-based accounting produces value only when managers and their advisers are principled men and women. Unfortunately, the past decade contradicts such a presumption.
Impressed by their words, I must agree. I checked with Sam Antar, a former master corporate criminal and a convicted felon. Sam now spends his time in the fight against corporate fraud.
Actually, every forensic accountant I know thinks exactly the same way.
I added the following reply to Ed and Anthony’s post:
Hi Ed and Anthony,
I like this post, it’s a return to the good old days of slapping those who advocate IFRS.
I don’t think people remember the bad old days of opinion shopping (APB days and early FASB). Corps wanted to report favorable numbers resulting from manipulation, and they would fire difficult auditors and hire more compliant auditors if there was much static at all.
Corps had easy accounting rules and easy auditors. Lusting after audit fees, auditors got very easy, even slutty, in the 1990s and early 2000s. I can’t believe the PCAOB is trying to force corps to shop for more favorable auditors every five years. What’s not to like if you’re a corp c(r)ook?
Yes, IFRS is for crooks. And the SEC is crook friendly. It must be, or else there wouldn’t be a call to hire former SEC accountants after they have put in their years and want to cash out.
David Albrecht
Debit and credit – – David Albrecht
I agree that executives have proven over and over again that they can’t be trusted just based on principle (where did value for honor go?). But I also agree with Les Bates’ comment that these unscrupulous executives will take advantage no matter what. However, it seems like our current system, although it has its loopholes, doesn’t give as much room for “interpretation” of the rules, so executives who won’t go so far as to purposefully BREAK a hard-and-fast rule may be perfectly happy to just interpret IFRS in their favor.
I think both systems will allow crooks to cook the books and I question that IFRS will make it any easier; however, IFRS may make it difficult to prosecute.
The reason I question that IFRS will make it easier is that Section 2.8 of the International Financial Reporting Standard for Small & Medium Sized Entities (IFRS for SMES) states “transactions and other events and conditions should be accounted for and presented in accordance with their substance and not merely their legal form.” Were that concept followed Enron would not have been able to cook their books. Currently, in my opinion, the US financials are legalistic and designed to take advantage of all the nuances in the rules that can be exploited. If Section 2.8 of IFRS for SMES is followed, the financials would reflect reality as opposed to crafting agreements around existing rules to show a desired result.
Les Bates, CPA, CFF
When applying IFRS, substance depends on the eye of the beholder. In this case it is a corporate executive. When depending on principles, it is helpful to have principled executives, but they are in a small minority.