IFRS. IFRS. I do not like thee, IFRS.
The debate over U.S. adoption of IFRS (International Financial Reporting Standards) has died down in recent months. This is due to three reasons, I think. First, the FASB and the IASB have declared that further progress toward convergence is no longer possible. The respective board members simply see the world differently and have come to different conclusions about the composition of specific accounting rules. In other words, no compromise is possible.
Second, many (including ProfAlbrecht) believe that upon the reelection of President Obama in November, 2012, the Securities and Exchange Commission will be directed to announce the abandonment of U.S. GAAP and the adoption of IFRS.
Third, Europe and America are side-tracked by the issue of possibly mandating auditor rotation.
But that hasn’t stopped my good friend Tom Selling of the Accounting Onion from continuing the good fight. On April 2, 2012, Selling posted an insightful and well researched piece, “Ten Claims in Support of IFRS Adoption by the SEC – and Why They are False.” So impressed with this essay, I am tempted to copy it, strike out Selling’s name and replace it with mine, and submit it to two or three leading journals.
Selling is eminently qualified to write this essay. One of the seven experts on IFRS summarized in The Summa, there is no financial accounting author more widely respected today.
You should read Selling’s masterpiece. But if you don’t want to take the time (it a pretty long essay), here is my summarization of the major points in “Ten Claims in Support of IFRS Adoption by the SEC — and Why They are False.”
- A super majority of large corporations adamantly oppose the switch to IFRS.
- A move to IFRS would not restore the public trust in accounting standards, because (1) the IASB sometimes works in secret instead of following a public exposure process, and (2) the secret process results in investor interests being cast aside.
- IFRS are not superior to GAAP. Empirical evidence suggests that analysts actually preferred working with GAAP financial statements instead of IFRS. Moreover, recent IFRS standards have been stinkers.
- IFRS are not the world’s standards, but Europe’s. Europe continues to wield strong influence over the IASB and its IFRS, and will resist any American attempts to influence IFRS.
- Lax enforcement of IFRS compliance in other parts of the world will result in U.S. companies adopting varied and non-transparent implementation of IFRS when they publish financial statements.
- The transition to IFRS will be very costly, and the benefits to small and medium sized companies are non-existent. Recall that large companies adamantly oppose the change.
- The U.S. will experience loss of sovereignty over the establishment of accounting policies so crucial to managing its economy.
- The rest of the world will not suffer if the U.S. does not adopt IFRS. It has not suffered during the past 39 years (since the formation of the International Accounting Committee).
- The U.S. will not suffer if it does not adopt IFRS.
- World-wide adoption of IFRS will result in losers, because all countries (and their capital markets) can benefit from customized-to-that-country accounting standards.
You should read Tom Selling’s post. In addition, you should continue to talk about the absurdity of the U.S. switching to IFRS. The political fight is on-going, and political will has a way of changing for unforseen reasons.
Debit and credit – - David Albrecht