Posts Tagged ‘Anti-IFRS’

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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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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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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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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Edith Orenstein, in her exceedingly well done FEI Blog, quotes SEC Chief Accountant James Kroeker as saying:

Kroeker outlined six general areas that the SEC would have to “carefully consider … fully understand and address” regarding the potential use of IFRS by U.S. companies.  He added that this list is not all-inclusive. The six areas are:

  1. U.S. Investor understanding of and perspectives on IFRS;
  2. The development and application of IFRS for use as the single set of globally accepted accounting standards for U.S. issuers;
  3. The impact on the U.S. regulatory environment;
  4. Preparer considerations, including, among other matters: changes to accounting systems, changes to contractual agreements, corporate governance considerations, and litigation contingencies;
  5. Human capital readiness; and
  6. The role of the FASB in achieving the goal of a single global standard.

Kroeker noted, “I expect that you will hear more from us on this topic in the near term.”

James Kroeker

It is so depressing to hear James Kroeker speak of #2 and #6, as it reveals the SEC’s continued fixation on a single global set of accounting standards.

A global accounting standard is both unwise and misguided.  I’ve explained why many times.  However, just in case today is the day Mr. Kroeker checks out my blog, I’ll explain it again.


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I don’t know how much credibility to attach to the following reports from the UK’s GAAPweb.

The first, dated Monday, June 8, claims that sources close to EU politicians are suggesting that the EU have its own standard setting body.  The second, has a brief recap of a meeting between Tweedie and Council of the EU, in which McGreevy claims that some EU politicians question if the IASB is out of touch.

In my opinion, in these reports, reporters are just message carriers.  They reflect real political concern in Europe about the IASB.  Since I’m not over there talking with politicians myself, I can’t judge how much juice these rumors have.  There is enough smoke, however, to make me conclude that the EU dropping IFRS is a reasonable possibility.  It is way too early to tell if it is probable.

The major factor working against the IASB is its independence.  The EU wants the IASB to be independent of everyone but Europe.  The EU wants the  IASB to be subservient to Europe’s wishes. European politicians just have to be getting tired of lobbying in the financial press for certain provisions in IFRS.  It would be much easier if Europe had a standard setting body that answered directly to Charlie McGreevy, Finance Minister.  The result would be more acceptable standards and less debate in the public spotlight.

There have been other interesting things that have come out.  Tom Selling has a very interesting blog post today, in To Catch a Chief Accountant, in which he confirms my suspicion that the tide has turned against IFRS in the US.  If so, Charley Niemeier and Jack Ciesielski are more likely candidates than previously thought.  I wonder, though, if Jane Adams is still the favorite. She doesn’t have the Big-4 ties, although she does have AICPA work.  Her view on IFRS is completely unknown, as she has not spoken publicly about it.

The controversy over IFRS has both sides pushing with everything they have.  The final decision will be political.  I think it likely that the flexibility of IFRS principles/guidelines will largely be lost as a result of all the politics.  Accounting standards will inevitably become more like hard and fast rules, the result of hard fought political compromises. Both sides (national GAAP vs. IFRS) will argue for clearly defined rules, to limit gains from the other side.

Debit and crecit – – David Albrecht

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During her confirmation hearing, Mary Schapiro said, “I think we all can agree that a single set of accounting standards used around the world would be a very beneficial thing, would [enable] investors to compare companies around the world.”

I can understand why she would say this–she’s never had any graduate level eduction in financial accounting theory.  Had she any such study, she would recognize the absurdity of her statement.

I’ll give one reason today, then follow up later with more advanced treatments.

There should be no single world-wide accounting language (or sets of accounting standards) for the same reasons there should be no one world language.  Can you imagine the bruhaha that would follow President Obama saying during his inaugural speech that it would be beneficial for there to be one world language?  He could argue that  it would make it easier to communicate around the world.  Consequently, he had decided to move the United States to the world’s most spoken language:  Chinese.  Everyone in the U.S. would benefit from ease of international communications and there would be no downside.

Hah!  There would be so much disagreement with this proposal.  People would argue that the Chinese language evolved for a separate culture from what we have in the United States.  They would say that English works just fine to convey the thoughts, emotions and feelings that exist in our present American culture.  If we were to switch to Chinese, then communications here in the U.S. simply would not be as rich, we’d lose a lot of meaning.  There would be too much pain for negligible gain.

A language evolves to fit its culture.  Language is not static.  Moreover, there is no one best way for a language to be.  In the ancient Greek language, there are five words for the single English word of Love.  The words are:  Eros (ἔρως érōs), Philia (φιλία philía), Agapē (ἀγάπη agápē), Storge (στοργή storgē), and Thelema (θέλημα thélēma).  We don’t appreciate the need for so many words here and now.  But then, ancient Greeks would not appreciate being handcuffed with a single English word.

If President Obama were to order us to switch to Chinese, many would ask who is to gain the benefit from switching, everyone?  The answer would be–language teachers would benefit the most, and current United States residents who are native speakers of Chinese.  They could then always speak in their native language instead of using English.  Everyone else, which is most of the country, would suffer.

Really, there is no reason for the United States to switch from English to Chinese.  If Americans wish to speak to a person from Peking, they can get their communication translated.  The translation comes at a cost.  The benefit from avoiding this cost by switching would be much less than the huge opportunity costs of educating everyone in the U.S. to speak another language.  If we continued using English, then translation to Chinese would (and is) a trivial expense, and a minor inconvenience.

Similarly, there is no good reason for anyone to have the U.S. discontinue using its accounting language (GAAP) and switch over to IFRS.  Having multiple accounting languages in the world is a minor inconvenience and translation expenses are, in the grand scheme of things, trivial.  Moreover, GAAP seems to fit our culture, economy and system of financial markets.  For example, in the U.S. we generally hold that all investors should have equal access to the same information.  consequently we have standard accounting rules that don’t permit companies any flexibility in the preparation of their financial statements.  We then attempt to punish company executives if they attempt to circumvent the rules.  We would have major disruptions to our culture, economy and system of financial markets if we suddenly switched to IFRS because IFRS does not fit our mode of business.  Who would benefit if the U.S. switched to IFRS?  Certainly not investors, for the same rason that they would not benefit if the country moved immediately to Chinese.  The beneficiaries would be the accounting firms that would teach us the new IFRS, and company executives.

There should be no world-wide accounting language for the same reasons there should be no world-wide spoken/written language.  Anyone who touts the benefits of a single world-wide accounting language is simply ignorant.

Debit and credit – – David Albrecht

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One of the courses I teach is Intermediate Accounting 2. This semester’s paper assignment is to take a position on whether the U.S. should adopt IFRS or retain its GAAP. To improve the quality of papers I receive, I instituted a system of peer review, requiring each paper to go though two rounds of double non-blind review. The end result was 51 pretty good papers (39 for GAAP, 11 for IFRS, 1 for both). I’ll be posting the four best. This paper is by by R. J. Segovia, a senior in business with a concentration in accounting.

Missing The Target:

Convergence Replaces Improvement

by R. J. Segovia

“The appraisers are still in the old world,” (Aflalo, 2008) remarked Rozanski, Chief Executive Officer (CEO) of Delek Real Estate. Apparently the “old world” is anything except for the International Financial Reporting Standards (IFRS); which includes United States (US) Generally Accepted Accounting Principles (GAAP).  So it seems now that the “Old World” is in the “new world” and the “New World,” or at least the US financial sector of the “New World,” is in the “old world.”  While many would state that the US should not retain GAAP but instead switch to IFRS in efforts to join this new world, I completely disagree with this stance.  The US should retain GAAP and not switch to IFRS because the lack of acknowledgment that IFRS and GAAP are more different than similar will negatively affect companies immediately.   It is well known that US GAAP has extensive guidance and this is exactly what US companies need.  The recent focus and push for convergence rather than the improvement of accounting standards departs from moral and ethical logic (which has faded away and been forgotten) while inferior financial reporting standards are creeping their way into the US financial system.  The analysis of such statements must be thorough so that CEOs in the US are not found repeating the words of Mr. Rozanski who said, “we do not know what the company’s [net] profits are” (Aflalo, 2008).


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One of the courses I teach is Intermediate Accounting 2.  This semester’s paper assignment is to take a position on whether the U.S. should adopt IFRS or retain its GAAP.   To improve the quality of papers I receive, I instituted a system of peer review, requiring each paper to go though two rounds of double non-blind review.  The end result was 51 pretty good papers (39 for GAAP, 11 for IFRS, 1 for both).  I’ll be posting the four best.  This paper is by Amber Soldenwagner, a senior in business with a concentration in accounting.

IFRS:  Not Right for the U.S.

by Amber Soldenwagner


The replacement of Generally Accepted Accounting Principles (GAAP) with that of International Financial Reporting Standards (IFRS) has recently been a significant topic of discussion.  There are two sides to this discussion:  those that support the switch to IFRS and those that instead support the retention of GAAP in the U.S.  Those who support switching from GAAP to IFRS argue that IFRS will provide a common reporting language, making financial reporting more meaningful across borders and provide consistent financial reporting for companies with global operations.  Supporters also believe that one common reporting system will reduce costs for companies and make it easier for investors to compare the financial statements of companies from different countries (Diamond and Herrmann, August 2008).


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One of the courses I teach is Intermediate Accounting 2.  This semester’s paper assignment is to take a position on whether the U.S. should adopt IFRS or retain its GAAP.   To improve the quality of papers I receive, I instituted a system of peer review, requiring each paper to go though two rounds of double non-blind review.  The end result was 51 pretty good papers (39 for GAAP, 11 for IFRS, 1 for both).  I’ll be posting the four best.  This paper is by Brandon Mills, a senior in business with a concentration in accounting.

IFRS: Not the Change We Need

by Brandon Mills

With the economy and the world getting “smaller” because of advancements in technology and companies being geographically and operationally located in several countries and jurisdictions, it is only a matter of time until the “one world” mentality spreads completely into accounting rules and regulations. Also with investors and businesses increasing their examination of foreign investment options, it would be in their best interest to be comparing apples to apples and not apples to oranges. Over the past few years, there has been a strong emphasis on the convergence between Accounting Principles Generally Accepted in the United States (U.S. GAAP) and International Financial Accounting Standards (IFRS), which are currently the two most commonly used accounting standards in the world. With that mind set the International Accounting Standards Board (IASB) has been working closely with the Financial Accounting Standards Board (FASB) in the United States to level the playing field and eliminate the ambiguity between these two standards (Johnson). This movement is generally perceived to be a step in the right direction to be able to properly compare companies that operate within other countries and report to regulatory agencies other than the Securities and Exchange Commission (SEC) (Rappeport).


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Note:  this is the final version of this essay.

This is part seven of an eight-part series in which I review the seven International Financial Reporting Standards (IFRS) critics (Sunder, Niemeier, Ball, Ketz, Selling, Jensen & Albrecht) of whom I am aware.  The series continues on regular posting dates, MWF.

In today’s essay, I review the anti-IFRS views of myself, David Albrecht, Ph.D.  An accounting professor at Bowling Green State University in Ohio, I have been a vocal opponent of the proposed switchover in accounting standards for quite a while.  Until starting this blog two months ago, my primary forum was via posts to AECM, the e-mail listserv for accounting professors.

I am opposed to IFRS for the U.S. because (1) the politics of the decision are unwarranted, (2)  I believe it will be bad for the country, and (3) it will not aid the world in creating an integrated financial system. (more…)

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