Posts Tagged ‘Accounting regulation’

Influential accounting news and commentary blog, Going Concern, is airing a series of interviews with key figures in the IFRS debate.  The second installment of the series, published April 1, 2010, features me.  Click on, “Professor David Albrecht: IFRS Will Make Financial Statement Comparison an Impossibility,” to read the interview.

Many thanks to the team at Going Concern (Caleb Newquist, managing editor) for thinking of me, and to ace reporter Adrienne Gonzalez (aka Junior Deputy Accountant) for the fine write-up.

Debit and credit – – David Albrecht

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A panel discussion titled, ” Concerns Over U.S. Adoption of IFRS” will take place on Monday, Monday August 2, 2010 – 10:15 am-11:45 am at the annual meeting in San Francisco for the American Accounting Association (AAA).  The AAA is the primary professional organization for American accounting professors.

The panel discussion will feature internationally renowned accounting experts who have expressed concerns over some aspects of U.S. adoption of IFRS.  Tentatively scheduled participants are Ray Ball (University of Chicago), Shyam Sunder (Yale University), Charles Niemeier (PCAOB), Robert Jensen (Trinity University, retired), David Albrecht (Concordia College).  The session is moderated by David Albrecht (Concordia College).

The American Accounting Association’s 2010 Annual Meeting will be held in the Hilton San Francisco Union Square and the Parc 55 San Francisco in San Francisco, California, July 31 – August 4, 2010.  Registration for the annual meeting is required to attend this panel discussion.

Debit and credit – – David Albrecht

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J. Edward Ketz is my round tuit.  ???  A round tuit is anything that unlocks your sense of inertia, allowing you to start working on some task that has been delayed far too long.

An example helps.  Have you, like me, ever been nailed for procrastinating?  All the time.  It probably followed this thought, “I’ll get a round tuit when there’s a free moment.”  But everything else doesn’t get done and there’s no free time, so you never get a round to it.

Ed is my round tuit.

On February 25, 2010, the Securities and Exchange Commission (SEC) released a formal Commission Statement in Support of Convergence and Global Accounting Standards.

I never got around to reacting.  Yesterday (March 29, 2010), Ed Ketz published his reaction, “The Iffiness of IFRS“.  It’s better than anything I can  write (anything Ed writes is always better than anything I can ever write, just take it for truth).  Better late than ever, here are my personal reactions.


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On February 25, 2010, the Securities and Exchange Commission (SEC) released a formal Commission Statement in Support of Convergence and Global Accounting Standards.

I never got around to reacting.  Today (March 29, 2010), Ed Ketz publishes his reaction, “The Iffiness of IFRS” at SmartPros.   It’s better than anything I can write (anything Ed writes is always going to be better than anything I can ever write, just take it for truth).  For those of you new to The Summa, Professor Ketz is a charter member of the group of IFRS critics.

For years, Ketz has railed (Merriam-Webster: to revile or scold in harsh, insolent, or abusive language) at the corporate practice of financial reporting.  He has repeatedly said that the number one problem is that corporations simply don’t follow the rules.  If ever they were all to be in a general state of compliance, then we could talk about about the structure of accounting standards.  But first, we need compliance.  Generally speaking, he favors specific accounting rules that permit no wiggle room.  Such rules make it easier to crack down on wrong-doers.

Professor Ketz’s latest editorial is “The Iffiness of IFRS.”  He responds to the SEC and suggests several issues that still need to be worked out before IFRS adoption.  Although the context for his remarks is opposing IFRS adoption, he believes the biggest problem with the proposed transition is:

… whether IFRS statements can be audited and what will happen in the courtroom after a firm experiences severe declines in its stock price.

Ketz concludes with:

… I again marvel at the rush to IFRS. The benefits do not appear to match or exceed the costs of the adoption.


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A single set of global accounting standards, rules to be followed by any public company as it reports annual operating results, has become the  Holy Grail of Accounting.  In today’s world, these rules are embodied in International Financial Reporting Standards. Unfortunately for many good but unwitting people, advocating the U.S. adoption of IFRS is a fool’s errand.   To more fully understand the ramifications of this statement let’s turn to the dictionary for a basic frame of reference.


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The U.S. government bears the societal responsibility for establishing accounting standards.  In its structure of economic regulation, the task for creating accounting standards is fixed on the Securities and Exchange Commission.  For seventy years the SEC has passed on its responsibilities, instead relying upon private U.S. organizations.   This has been called the Ostrich Syndrome (aka Head-in-Sand).  Now, the SEC proposes to rely upon a private international organization (IASB).  I call this the Some Sort of Ostrich Syndrome (aka Head-Where-It-Doesn’t-Need-to-Be).


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In yesterday’s Accountancy Age appeared an interesting piece by IFRS reporter-advocate Mario Christodoulou, “The long and winding roadmap”.  He does an adequate job, I think, even if he didn’t quote any of the many things I’ve said about U.S. adoption of or conversion with IFRS.

His quotation of fellow blogger Tom Selling statement of the differences between the GAAP and IFRS positions is priceless,

“Not only were Kroeker’s and Niemeier’s positions as different as black and white… Niemeier’s inspiration clearly sprang from a foundation of cited broad-based analyses produced by published rigorous, peer-reviewed, independent research.  The source of Kroeker’s remarks apparently came from nothing more than his own wishful thinking,” prominent blogger Tom Selling said in September last year.

I recall thinking at the time his statement was something that I very well might have written, had Tom not said it first.  There is every sound reason for the U.S. to retain its GAAP.  Reasons for switching to IFRS are specious, sophist all the way.

Christodoulou goes on to say that the push for IFRS has too much momentum for the U.S. to continue to buck the trend.  He might very well be right, but I’ll continue fighting it never-the-less.

Regardless, isn’t it time that someone came up with some good reasons for the U.S. to switch to IFRS?  No one has ever stated one.  Not that one is absolutely needed, because when governments decide to do something no good reason is needed.  I mean, didn’t Ben Bernanke say this week that the multi-billion USD bailout didn’t actually cost a single cent?  So, in government speak, Kroeker’s reason for moving to IFRS–for enhanced comparability–isn’t that bad.  Of course, it is a false reason and no on in the world truly believes it.  It is nonsensical.

And, governments frequently make bad decisions when it come time to regulate some aspect of society.  In deed, governments in North America are more likely to get something wrong than right.

But as I say, isn’t it about time that we had some real reasons for moving the U.S. to IFRS (convergence accomplishes pretty much the same thing as a switch-over)?  I have studied this topic for a few years.  Researching government regulation of accounting and auditing is what I do.  So far, I know of two reasons for the U.S. to switch to IFRS:

  1. Large audit firms hope to realize in excess of $100 billion in fees from services related to the switch over.  This represents a wealth transfer from stockholders.
  2. Europe hopes that when investors can compare U.S. and European companies using IFRS-generated statements, they will decide to move upwards of a couple trillion USD from the U.S. to Europe.

I am aware of no other benefits to any other identifiable party for the U.S. switching from GAAP to IFRS.  Shouldn’t there be some high-minded benefits from putting out so many millions of Americans and taxing the U.S. economy by a couple trillion dollars?  I just don’t think that putting money in audit-partner pockets so they can buy luxury goods, or whatever, is a good enough reason.

So come on, all of you pro-IFRS folks.  Kroeker has never come up with a reason for why the U.S. can make a change.  Please leave a comment and help us all out.  A good reason, or two, would make us all feel better.

Debit and credit –  – David Albrecht

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There’s quite a discussion going on over at AECM now, centered around whether or not corporate disclosures via XBRL tagged data will be audited, and therefore receive some sort of assurance blessing.

One professor whom I respect a great deal is arguing that it is in the best interest of companies to make the best and most honest disclosures as they seek to raise capital, and it is in the best interest of auditors to associate themselves with only those companies that make the best and most honest disclosures via XBRL (and presumably via financial statements, also).

To which I say:  hogwash!

I’ve seen enough corporate reporting shenanigans, and auditor “nod-and-wink” assurance, that I have concluded that there are indeed sufficient incentives in place for corporate agents to try to game the system by mis-reporting financial results. I don’t see why, if there is substantial non-compliance with GAAP, that XBRL tagging would be a refuge of purity.   Moreover, there are incentives in place for auditors to fail to object to minor transgressions.   Some of the times, the incentives are sufficiently large so that auditors fail to object to major transgressions.  I guess I don’t see why assurance on XBRL reporting will be any different.

I certainly don’t trust corporate executives or auditors, as classes, to properly exercise “professional” judgment. Oh, proper judgment may be exercised more than half the time of the time, but given the risk averse nature of many investors, it is enough for a few bad apples to give the rest a bad name.   It is the many examples of bad reporting and bad auditing (while admittedly in the minority) that are enough to destroy trust.


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Last week, two individuals with corporate backgrounds were named to the IASB. According to a news release, the new members are Dr. Elke König, a former member of the executive board and CFO of the reinsurance company Hannover Re Group in Germany, and Darrel Scott, CFO of the FirstRand Banking Group of South Africa.

Historically, investors have infrequently secured representation on the IASB and its predecessor organizations. Typically, IASB members have a large audit firm background, but a large minority of members have corporate accounting backgrounds. Of the current 15 member group, only two or three members can be said to have primarily an investment background.  It is most definitely true that the numbers are stacked against investors!

This is a significant event, with serious ramifications. Although accounting standard setters claim that they are after “the best” accounting rules, in practice no such thing is possible. The reason being that accounting rules have economic consequences. The major competing interests–corporations against investors–have decidedly different information needs. Corporations prefer flexible accounting rules so that similar transactions can be accounted for differently by companies or even by a single company. Investors prefer more rigid accounting rules so that transactions are accounted for in a uniform manner.

Corporations and auditors claim that flexible accounting will provide more informative disclosures. Investors are skeptical, referring to the many incentives in place to cause corporate executives to provide falsified financial reports, and incentives in place to prevent audit firms from forcing proper accounting.

Investors in the United States should be made aware of the difference in focus between accounting rules under FASB and IASB. In the United States, the purpose of financial accounting is widely viewed as providing information to investors so they can make the best investment decisions. In contrast, the purpose of financial accounting under the IASB is to help companies raise capital. In practice, accounting rules can differ markedly under the two emphases.

Despite the regulated state of the American capital markets system, accounting scandals are fairly common in the United States.  It is widely thought that investors stand little chance of receiving unbiased information under IFRS.

Debit and credit – – David Albrecht

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[I have removed the name of the Tweeter to whom I responded in this blog post.  He has indicated his displeasure for being named.  Mr. XX, sorry to have mentioned your name in the first place, despite the fact that you are a public persona.]

A fellow with a Twitter account directed some derogatory-GAAP toward me (@profalbrecht).   He did not accept my return comments, so I’m going to blog a response here.  If he had made public his e-mail, I would have responded privately.

Now the issue is, should the U.S. adopt IFRS (or even converge to something close to IFRS).  We are not considering whether Europe should adopt IFRS (it shouldn’t), or whether Nigeria should adopt IFRS (it should), or whether China should adopt IFRS (hart to justify either way).  It is whether the U.S. should adopt IFRS.   Accounting theoreticians (including some of the world’s smartest accounting professors) and American accountants, and American investors say no.

Mr. XX says “Most in world believe principles-based IFRS superior to shut-your-eyes-and-obey-the-rules of US GAAP.”  What I love about IFRS guys is that they pop off with these broad platitudes with absolutely no logic to back them up.  At one time, I said that “No knowledgeable person believes that IFRS is superior for the U.S. than is U.S. GAAP.”  Perhaps I should say that no one has yet justified publicly (or to me) their belief in IFRS superiority for the U.S.  Remember the question is not whether IFRS is superior in general (it isn’t) or if IFRS is superior for Europe (it isn’t), or if it is superior for Nigeria (it is).  [And IFRS is no more principles-based than U.S. GAAP.  To say otherwise is to spout ignorance.]

OK, one more time.  In the U.S. there is a culture of corporate executives taking liberties when it comes to putting out financial statements.  How much liberty?  Well, three times as many business students cheat during college as students of any other discipline, and when they grow up they become corporate executives, large audit firm auditors, and business professors.   And they aren’t any more honest or ethical when grown up (it’s a slippery slope, and people usually go down, not up).  American business executives determine how much is the potential penalty for not following accounting rules (and reporting whatever else they want), and if benefits from not following accounting rules exceed costs (the penalty for not obeying rules–usually civil but in rare occasions criminal), they they go ahead and non-comply (i.e., manipulate earnings).


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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.  …


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Just like anyone else in our fast paced world of American on the Internet, I have many things tugging for my attention and too little time to do them all.

Professors potentially have many task masters, and being a blogging professor means asking for a never-ending work load.

The purpose of today’s blog piece is to show you just how busy and pressured is the life of a blogging accounting professor.


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