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Posts Tagged ‘GAAP’

IFRS.  IFRS.  I do not like thee, IFRS.

U.S. GAAP or 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.

Tom Selling.

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.”

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When IFRS?

In December, 2011, Leslie Seidman (FASB), and Hans Hoogervorst (IASB) declared convergence between U.S. GAAP and IFRS to be at an impasse.  Chief Accountant James Kroeker said the SEC would need further study on the issue.  Since then, much has been written about the prospects for the U.S. adopting IFRS at this time.

Here is my thinking on the issue, but I really don’t know why I’m bothering.  I’ve played this prediction game before, and have failed miserably.  I don’t have inside contacts at the SEC, so there is no flow of inside information.

I doubt the SEC will make any decisions on IFRS until after the first Tuesday in November (election day) and the results have been certified.

The rationale is fairly simple.  IFRS is unpopular with many American rank and file accountants, small and medium business executives, and smaller investors.  Because observers expect a close presidential election between Democratic incumbent Barak Obama and the Republican challenger, President Obama will not risk alienating voters by adopting IFRS.  There will be time for that afterward if Obama wins the election.  If he doesn’t, then IFRS will wait for the next president.

Debit and credit – – David Albrecht


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James Kroeker, the SEC’s chief accountant, spoke to the AICPA on Monday.  He said,

We remain committed to completion of a final comprehensive report on [IFRS] … the staff will need … a few additional months time to produce a final report. At the same time, the staff is in the process of developing an approach for Commission consideration.

I’m shocked.  What is the SEC waiting for?  President Obama has already promised the G-20 to move the U.S. to complete IFRS adoption.  The SEC is on record as committed to moving the U.S. to global accounting standards.  And Kroeker probably dreams of getting an IFRS tattoo.

Message consistently delivered by current and former IASB chairs.

I know Tom Selling at Accounting Onion keeps writing that there is still hope for derailing the IFRS Express, but I doubt it.  The reason for doubt is SUMMArized in the image to the right —->

Kroeker also said the SEC should, “Provide for and facilitate a strong U.S. voice in the process of establishing global accounting standards.”

Yeah, right.  I know what Hans, Ian, and the IASB have to say about that.  Can’t print it here, though.

Did you notice that the FASB and the FAF escaped mention?  They are already an afterthought.  In the new world of accounting standard setting, it will be the SEC calling the American shots.

I sense a power struggle going on between the SEC and the IASB, and I suspect it is the only reason why the SEC is asking us for “just a little more time.”

Meanwhile, I remain committed to defeating the movement to adopt IFRS in the USA.  IFRS has the worst set of rules imaginable for the US.  I hope we never have to use them.

Debit and credit – – David Albrecht

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Thanks to Rick Telberg at CPATrendlines, I am now aware of Mary Schapiro’s latest comments on accounting (to the CFA Institute 2010 Annual Conference in Boston, Mass.).  We now have proof that the spirit of Professor Philip Barbay is alive and well inside the beltway.  You don’t remember Professor Philip Barbay?  He was the fool to Thornton Melon (played by Rodney Dangerfield) in the 1986 classic, Back to School.  Here’s the scene I best remember:

  • Dr. Phillip Barbay: …now, not withstanding Mr. Mellon’s input. The next question for us is where to build our factory?
  • Thornton Melon: how ’bout fantasyland?

The Rodney Dangerfield (I don’t get no respect) character got no respect from Professor Barbay, and we in the accounting world get no respect from SEC Chair Mary Schapiro.

Let’s take a close look at Schapiro’s remarks.

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In a lawsuit against the Financial Accounting Standards Board (FASB) and the Financial Accounting Foundation (FAF) filed Wednesday, May 5, 2010, Silicon Economics, Inc., charges that that the FASB has illegally appropriated its intellectual property:  a proposed set of alternative accounting standards.  At stake are the accounting rules that could be used by over one million business and non-profit organizations that are not designated as SEC reporting companies (about 9,500).

SEI’s complaint seems reasonable, and I hope it prevails.

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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 some form of global accounting standards) or retain its unique GAAP. To improve the quality of papers I receive, I instituted a system of peer review, requiring each paper to go though one round of double non-blind review. The end result was 28 pretty good papers (21 for GAAP, 7 for IFRS or global accounting standards). I’ll be posting the three best. This paper is by Jon Taves, a junior in accounting.

Just Say No:

Why the US Shouldn’t Switch to IFRS

by Jon Taves

My mother frequently told me that just because everyone else is doing it doesn’t mean that I should. For example, if everyone else was going to jump off a bridge, should I? That was never fun to hear and I always wished she would have just let me do whatever I wanted to do with my friends. Nevertheless, the image of me standing on a bridge with all of my friends and watching them jump off has stuck with me through the years. It might be one of life’s most simple analogies, but it makes a lot of sense. It certainly would have been more convenient to just go along with what my friends had done, more efficient for my social image, and therefore, better to have jumped sooner rather than later, since I would undergo less scrutiny for being a “wuss” and not jumping right away. However, the result would have been the same, regardless of when I had jumped: death. While switching to International Financial Reporting Standards (IFRS) might not literally kill anyone, there are lots of parallels that can be drawn from the example above. Just because everyone else is doing it, approximately 100 countries worldwide, doesn’t mean it’s the right move for the US (Albrecht 2010, Lecture). While the move might be convenient, more efficient, and better to switch sooner rather than later, like jumping off a bridge, convenience, efficiency, and timeliness aren’t always advantageous. After talking with classmates, listening to Dr. Albrecht’s lectures, and doing extensive research, I’ve concluded that the US shouldn’t switch to IFRS because the benefits don’t outweigh the costs.

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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 some form of global accounting standards) or retain its unique GAAP.   To improve the quality of papers I receive, I instituted a system of peer review, requiring each paper to go though one round of double non-blind review.  The end result was 28 pretty good papers (21 for GAAP, 7 for IFRS or global accounting standards).  I’ll be posting the three best.  This paper is by Peter Zender, a junior in accounting.

GAAP VS IFRS: Protecting Investors

by Peter Zender

It is seventy-one degrees in Scottsdale, Arizona. Perfect weather for a round of eighteen holes (golf cart used of course), an early dinner (early bird special!), and then finish off the day with a relaxing evening sitting on the patio, cold beer in hand, feet up (we’ll skip the shuffle board to avoid stereotypes). Or, I could wake up in my kid’s basement, head for an eight hour shift at the local Wal-Mart, come home to an evening of the hectic rushing most American families face, all while enjoying the freezing cold temperatures of Minnesota. Which one do I want for my retirement? Let me think…I’m going to go with Option A. Currently standing between myself and the desired dream retirement is roughly fifty years of work to make some hard earned money and then using my hard earned cash to fund thoughtful, solid investment growth. And the key to making the right investments is correct and truthful business information, including financial statements. The Generally Accepted Accounting Principles (GAAP) currently provides investors with a reasonably acceptable amount of faith to make their investments and my belief is that a switch to International Financial Reporting Standards would only hamper that faith.

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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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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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