I’m sorry to have slowed down my blogging rate. Last week was spring break and I traveled a bit. I Amtraked back, and am exhausted. This post addresses the need for me to get something up. Excuse the brevity, for I am worn out.
Right now, I’m in reading mode. Maybe it will result in a few book reviews, maybe it will just result my becoming a bit better informed. Here’s my reading list:
- Commission Statement in Support of Convergence Standards, Release Numbers 33-9109; 34-61578, by the Securities and Exchange Commission.
- No One Would Listen, by Harry Markopolos and published yesterday by Wiley. You all think I am dissatisfied with U.S. government of accounting and capital markets? I can’t even hold a candle to the antipathetical thoughts of Harry.
- Predictably Irrational, by Dan Ariely and published by Harper. This has created quite a stir amongst a few more reasonably inclined accounting professors.
- IFRS Accounting Trends and Techniques, by Patricia Walters and published by the AICPA. The GAAP version is absolutely indispensible to an accounting professor. I have high hopes for this new IFRS version as a reference However, it is based only on 100 companies, and the companies are non-U.S.
There are some obvious connections.
In the Commission Statement in Support of Convergence Standards, the SEC describes its 22 year support for a single set of global accounting standards, going back to 1988 and the term of SEC Chair David Ruder. U.S. government support for a single set of global standards has been heavily influenced by the views of economist Paul Volcker. Volcker believes in efficient markets and their ability to see through any disclosures and to react rationally to their meaningful content.
I’m just getting started on No One Would Listen, but early on Harry Markopolos is extremely critical of the competency of the SEC to regulate financial matters. He says that commissioners are most always securities lawyers without a finance or accounting background. This observation resonates well with my thinking. Securities lawyers is a professional group for whom EMH (efficient markets hypothesis) is firmly entrenched (for further support of this, see venture capitalist Fred Wilson’s blog in which he freqnently states his support for EMH).
But markets are not efficient with respect to publicly available information, according the results of many research papers. Combine this with Ariely’s research findings that irrationality is far more commonplace that many would admit, and many things start to make sense.
The SEC still supports a single set of global accounting standards after 22 years. There are many world-class accounting researchers that in the past six eyars have come out in opposition to IFRS adoption, arguing the many reasons why IFRS would result in less (not more) information available to investors to make their decisions. Why didn’t the accounting theorist/researchers publish their work earlier? Perhaps IFRS adoption was viewed to be too unlikely, so there would be little pay-off to conducitng such research.
Despite the publication of research that contradicts the assumptions upon which the SEC push is based, the SEC continues to spout reasons (in support of IFRS) that we now know to be non-sensical. The SEC position is grounded in devotion to EMH and the ability of market participants to see through any accounting disclosure. In effect, this requires market particpants to be rational to the n-th degree. In an ironical twist, the SEC faith in rationality is itself irrational. It is irrational because we now know that markets don’t really work the way the SEC purports. The SEC support of a single set of global accounting standards might have been acceptable back in 1988 (when we didn’t understand such market irrationality), but in 2010 SEC support of global accounting standards is simply inexcusible. We know more now. Long-standing reasons to move to IFRS now read like a bad piece of fiction writing. It is so inexcusible, it makes me woncer if DEA is aware of what the SEC folks must be smoking.
Debit and credit – – David Albrecht